Bill Gatet rank as richest men in the world went down as global crisis; Lehman and WaMu were collapsed, Major Wordwide Industries housed their employers, cut their production and went to debt problems. Central Banks tried to help with lowering interest rate to recover the crisis and to refresh market. FED were third time to cut their interest rate, but so far so good. Government tried to recover with debt help, injection fund, restructurization and to buy back any bankrupts and bad financial reported.

Both Governments and Central Banks fight force to recover the crisis before too late or getting worst with their stimulations. Like a doctor and patient. If patient didn’t check their health, there was no cancer but once doctor analyzed the patient, the cancer will be worst. The same case happened on Economic. Time lag took long period with crucial problems on companies. Lower demand forced companies to reduce their production as over stocks. this crisis took very long time lag to recover. Estimated more than million people were housed and the number will increase in near if fundamental economic doesn’t resolve, To increase Purchasing Power Parity.

There is one tool we dont hear so far. Economists believe that Invisible Hand will born to solve this situation. Does the battle of Israel and Hamas play the insivible hand? or the lowering oil price is invisible hand? or both of them?

Keynes, the Invisible Hand Hater believed Government and Central Bank are two main points of the solution. Keynes also put investors as the third to make one economic goes bad or good. As the example, the battle of Hamas and Israel has been increase the gold price in stock market. Many companies stocks were depreciated and appreciated by their financial reports in crisis. Investors make it worst in crisis.

Oil crude price is lower than $48, House sales were dropped in November US data, reuters reported today. the reason is very simple, Low demand, indicated by PPP (puschasing power parity). Ghost Cycle are very hard to break.

To talk about where the invisible hand is, must ask to Government and Central Bank. Invisible hand come when any policies have been run. I talk about the positive invisible hand – increase demand and supply power. Once the policies didn’t run well, insivible hand still sleep somewhere.

Monetary policy tries to refresh rill sector to gate interest rate with investment and Fiscal to gate rill investment with government budget and goverment policy such as taxes, infrastruscture, good condition to invest and others support.

Invisible hand still waits goverment and central bank plans in order to find itself on positive point.

Retailers in the United States during this year are beginning complicated in big problems. Starting next month, they faced a problem in the closing outlets, bankruptcy, and corporate takeovers due the significantly decline on their sales during the holiday season is the worst figure in the last 40 years.

Based on data from the International Council of Shopping Centers (ICSC), estimated, the Retailers will close retail outlets around 73,000 in the first quarter 2009. Talbot’s Inc. and Sears Holdings Corp. are a few companies will close some stores in several locations with lowest sales rate. In addition, more than dozen retailers, including the Circuit City Stores Inc., Linens N Things Inc., Sharper Image Corp., and Steve & Barry’s LLC are in bankruptcy protection (bankruptcy protection) in this year as the restriction on credit from FED and the companies become more careful agaisnt profit loss as impact on their low sales.

According to Burt Flickinger, Manager Director of Strategic Resource Group, investors will see retailers whom seeking bankruptcy protection in February when financial reported is launched. “You will see many department stores, specialty stores, discount stores, wholesale stores, drug store, and others, both national and multinational companies, will be out of business. The amount will rise to new concerns,” said Flickinger. By using data from the Bureau of Labor Statistics, ICSC also predicts, 148,000 stores already closed in 2008. Largest since 2001 where 151,000 stores were closed. According to the ICSC Chief Economist Michael Niemira, percentage of store growth will decrease 3 percent this year. In addition,  total outlets spread in any locations have the same conditions. Niemira says, about 73,000 locations also will be closed in the first quarter 2009. However, difficulties conditions by the retailers to provide benefits to the consumers. “If you shop, you may find discounts on many products,” said Patrick McKeever, a senior equity Analyst MKM Partners LLC. This strategy- to discount any goods is to increase their sales but so far the result showed the bad results. Unfortunately, costumer surplus was offered some retailers such as Macys, Ann Taylor Inc. and other retailers failed to push up sales. In fact, in the last two months, the number of sales decreased 4 percent. Based on data from the U.S. Department of Commerce, Uncle Sam economic condition was estimated to be shrinking in the third quarter around 0.5 percent, while the economists Bloomberg surveyed agreed, the country with the largest economy in the world will get the great pressure to the first half of 2009.

Indonesian Reserve Bank did nothing in Money Market after rupiah declined 200 points or down to Rp.12.300/Rp.12.500 per USD from previous day set around Rp12.100/Rp12.300 per USD. Although Indonesian Reserve Banks attempt to save the rupiah, Domestic Demand for Rupiah is still higher-makes Bank Indonesia Experiment doesn’t result anything. High of Domestic Demand pains Bank Indonesia to provide (supply) USD stock for market to prevent the worst.

Bank Indonesia is expected to consolidation with foreign Reserve Banks to prevent enough Supply for Domestics Market in order to reduce any push against Rupiah. These days and future, Bank Indonesia takes some solutions to prevent the deeper declining. In domestic money market, investors still put on hold their USD, to analyze crucial factor, especially American Economic and the FED planning to launch Treasury bill (obligation). Holding Action on USD impacts the scaring of USD supply in market.
Bank Indonesia asked to USD Holder to sell their Dollar in order to prevent pushing on Rupiah, unfortunately the suggestion doesn’t work till today. Analysts predict that Demand on USD rises in the end of the year for many purposes.

Global Economic attack at least twelve months to go, Indonesian Minister Finance said
Sri Mulyani, Indonesian Minister of Finance said that Global crisis impact on Indonesia will go through and take at least 1 year to pass climax. “The impact of Global Crisis on Indonesian Economic will go on and take at least 12 months”. Sri Mulyani advised that people must do more care against their financial condition.

We predict that this situation will hold to 6-12 months and it means we are in trouble and this is very bad situation to pass, Mulyani said. As minister of finance, Sri Mulyani to asked government to caring state’s finance and government financial (APBN) and to control Indonesian Balance of Monetary, Monetary traffic together with Indonesian Reserve Bank. Sri Mulyani also attempt to suggest Businessmen and Banking to walk together to repair and to care each financial. Sri Mulyani, one of the Best Indonesian Economists also attempt to remind for necessary anticipation action and consolidation to reduce any risks and continue to get out from any negative impact on global crisis.
Indonesian Government has committed to Bank Indonesia to watch and control monetary traffic in market and banks, to control banking financial condition with above listed purpose. Sri Mulyani stated that Global Crisis attacks financial market, people psychology, interest rate and real money.
In order to prevent housing employers, Government and Indonesian Reserve Bank must do together-any fiscal and monetary plan must be consolidated. Businessmen and Banking also must have one perception, one understanding mind to prevent their credit progress-still in liquid credit. Necessary action must be taken if there are businessmen have crucial problems with their cash liquidity.

As government, we consolidate with central bank to watch some bank which problem with their exporting finance risk. Central bank is also to monitor banks in order to keep them health. Recently case that Century Bank taken over by LPS (Indonesia Bureau for saving account guarantor) because Century Bank didn’t show good indicators on Capital Structure, and Management performance. Based on the case, Indonesian Government and Central Bank will monitor deeper and deeper to keep National Institutional Bank still alive, from Capital Composition, Credit Ratio, interest rate and exchange rate.

After running high, Oil crude price now is lower than $80 per barrel. Amazing right! Why Oil crude price decline very significantly? Why? Congress had question to American Giant Oil Company about how much the real price for oil crude price, How much US to produce 1 barrel? And the answer was very surprising, lower than $50 required for one 1 barrel. So why the price is too high (upper $100 per barrel)? The answer is very simple, Broker, Investor and speculator make it. They have power to increase or decrease oil crude price based on economic indicator. (Middle East Politic Situation, America Financial Condition, Others Legal data from Biggest Countries-rich countries).

Americans are still down with their biggest problem; Credit Crunch-Mortgage Crisis and now after the very long time lag, they enjoy the bad impact. Many employers are fired, Lower Demand on Import, Credit Crisis, Many Home owners have lost and more.
Is this case has positive correlation with decrease on Oil Price? Yup! For every economic situation has impact to global economic. When Americans down with their crisis, Our Local TV said, Which countries then buy Chinese Product and which countries will buy our products (Indonesian Product)??
Crisis in America has multidimensional effect. European, Japanese, Chinese and development countries also get the impact, the big impact. Many Central Bank fight force to cut their interest rate to avoid the worst. Russian and Indonesia suspended their stock market to avoid naughty investor and broker to do illegal transaction or to make it worst.

Producers from exporting countries (mostly come from development countries) reduce their production because of many unsold goods. In other hand they must pay salary, pay $ debt and monthly and daily cost. So if production is lower, it means demand on oil for production is also less than normal condition (keep in mind than demand for oil price for production sector take bigger portion than household sectors).
If Chinese producers demand less on oil price, Indonesia, and ASIA, and all industry countries, Oil price will lower itself because economic theory said on Demand Law (if demand less, positive correlation will decrease the price–cateris paribus).
So in Stock Market or Oil market, Demand for Next month shipping decrease while the price also decrease.

How long the cheaper oil price will hold and goes? If Americans condition is normal, does the oil price will run higher again? OPEC doesn’t agree if oil price less than $70 per barrel. OPEC will does necessary action to increase the oil price to fair price but how much the price? I don’t know exactly. We will wait.

Now, When oil crude price runs cheaper, why premium oil, gasoline price is higher? an issue took the suggestion to government to decrease the oil price. But till today, most government said that they wait for best time and condition; after analysis economic indicators in short and long term.

Taxes

Taxes are a levy imposed upon people or legal entities by a governmental entity. There are many forms of taxes including income taxes, property taxes, capital gains taxes, consumption taxes, excise taxes, retirement taxes, sales taxes, tariffs, toll taxes and transfer taxes. This article focuses on reducing income taxes for real estate owners.

Income taxes often seemed unavoidable. However, real estate investors have multiple opportunities to defer and reduce federal income taxes. Real estate owners receive income tax breaks not available to investors for many other asset classes. These include depreciation, income tax rate reduction, and the like-kind exchange. This article discusses how real estate owners can reduce income taxes by increasing the level of depreciation, using tax-deferred changes, casualty losses, maximizing expenses and planning to minimize estate taxes.

Depreciation is a non-cash expense which can both defer and reduce the level of federal income taxes. In some cases, depreciation actually eliminates federal income taxes. When an owner claims depreciation, and does not sell the property before it passes into his estate, the income deferred by the depreciation is never taxed.

Most real estate owners know depreciation defers federal income taxes. Few know real estate depreciation also reduces federal income taxes. The common perception is that depreciation simply shifts payment of income taxes from when income is earned until property is sold. However, depreciation often changes the character of income from ordinary income to capital gains income.

Consider the following example: George purchased an apartment complex in 2005. After obtaining a cost segregation study, approximately 20% of the cost basis of the improvements was allocated to 15 year property, such as landscaping, paving, sidewalks, parking lot striping and exterior signs. If George sells the property in five years, one-third of the cost basis of the 15 year property will have depreciated. Isn’t it also reasonable the market value of this property will be one- third less than when the property was purchased?

More often than not, tax preparers believe the market value of short-life property is similar to the remaining basis when property is sold. This means there is no gain upon sale. Hence, additional depreciation was taken for short-life property (which could be used to reduce income taxable as ordinary income rates) while George owned the property. At time of sale, the portion of the gain equal to the short-life depreciation is taxed at the capital gains rate. This is how cost segregation reduces federal income taxes. Hence, federal income taxes are both deferred from the time income is earned until a sale occurs and the tax rate is reduced from the ordinary income tax rates to the capital gains rate.

Cost segregation can lead to meaningful deferral of federal income taxes. However, its most significant power is its ability to convert income taxed at the ordinary income rates to income taxed at the capital gains rate.

A like-kind exchange allows you to defer recognizing gain after selling of property if you purchase a “like-kind” property. Most exchanges of real estate for real estate qualify as a like-kind exchange. It is not possible to exchange real property for personal property and receive the benefits of a like-kind exchange. There may also be some limited interests in real estate, other than a fee simple interest, which do not qualify as real estate for purposes of a like-kind exchange. This might include exchanging the interest in leased land with five years remaining on the lease for fee simple title to another parcel.

The basics of executing a tax-free exchange are fairly simple. You must identify the replacement property within 45 days of the time you sell your property. You can identify up to three replacement properties or an unlimited number of replacement properties whose market value does not exceed twice the value of the property you sold. The replacement property must be purchased within 180 days of selling your property. A qualified intermediary must handle the exchange. To defer all of the gain, the market value, debt and equity of the replacement property must be equal to or greater than the market value, debt and equity of the property that was sold. Rules for like-kind exchanges are rigid, but there are experts who can guide you and allow you to legally defer substantial amounts of income.

A casualty loss for real estate investment property could include fire, flood, hurricane, tornado, or mudslide. Real estate owners incur both financial and emotional distress following this type of casualty. There’s also a significant amount of work involved to coordinate with the insurance adjuster, tenants, contractors, vendors and lender. Even if the owner has complete insurance for building repairs and business interruption, a casualty loss deduction can legitimately be taken.

Casualty losses provide the opportunity to depreciate a large portion of the cost basis of real estate. The basis for calculating a casualty loss is the value of the property immediately before the casualty versus the value of the property immediately after the casualty plus insurance proceeds.

Consider the following example: a 200 unit apartment complex in Beaumont Texas was flooded with 3 feet of water on the first of two stories. The owner has casualty insurance expected to cover 100% of the cost to recover repair the property. He also has business interruption insurance to cover lost income while construction occurs and the property is leased. The initial reaction in reviewing this situation may be there is no casualty loss since the physical repairs and lost rents are covered. However, the market value of the property immediately after the casualty is substantially less than the market value of the property before the casualty. It is highly unlikely someone would purchase the property and agree to undertake the work required to negotiate with the insurance company, contractors, tenants, vendors and the lender without expecting a profit for their work. The magnitude of the casualty loss would have been much larger if the owner did not have business interruption insurance. In either case, a real estate investment group seeking to purchase the property immediately after the casualty would likely require an appropriate return for their capital and an entrepreneurial profit for the effort to renovate and lease the property.

Operating expenses are a tax deduction. Increasing operating expenses reduces taxable income and income taxes. Reviewing all cash expenditures annually can reveal operating expenses which have inadvertently been coded as a capital expenditure. Correcting this error prior to filing a tax return increases current year deductions. A fixed asset review can uncover errors which allow for substantial current year deductions. It is possible to claim current year depreciation or deductions after correcting a fixed asset listing. Corrections can be as a result of classifying operating expenses as capital expenditures. Another option for generating current year deductions is identifying assets which have been ascribed in excess of depreciation life. For example, if the cost to install substantial new landscaping was given a 39 year life, depreciation can be increased by correctly assigning a 15 year life and catching up previously under reported depreciation. Combining business and personal travel can increase deductions. Perhaps you need to schedule a business trip. If you add several days for leisure, the cost of the business trip can still be deductible. Scrutinizing personal expenses for lawful deductions can generate additional deductions. Any costs related to investment activity are deductible. This can include a computer at home for maintaining records for rental properties, mileage related to maintaining rental properties and memberships and publications related to investment activity.

Perhaps the most distasteful type of tax is the estate tax. For that tax, advance planning is necessary to substantially reduce estate taxes. While the current year exemption for 2006, 2007 and 2008 is $2 million, those with the states substantially in excess of $2 million need to consider detailed planning to minimize estate taxes. Options for reducing estate taxes include gifts during your life, partial interests, gifts upon death, bypass trusts, and a variety of other options.

Real estate investors are subject to income taxes, capital gains taxes, estate taxes, property taxes, and sales taxes. Real estate investors are fortunate that federal tax laws provide more opportunities to reduce income taxes than are available to most other business owners. In some cases simply consulting with a tax preparer may allow real estate investors to minimize taxes. However, in most cases utilizing a team of tax advisers with specialized knowledge enhances the investor’s ability to minimize taxes.
O’Connor & Associates is a national provider of investment property consulting services including due diligence, income tax,business valuation, tax deduction, tax reduction, property tax, real estate consulting, market research, Denton Central Appraisal District, Tips and Tricks for Appealing Your Property Taxes in Collin, Collin county appraisal and Federal tax reduction. Our appraisers are competent to appraise virtually all types of property including land, neighborhood shopping centers, warehouses, bowling alleys, motels, mobile home parks, self-storage units, retirement homes, multifamily housing, movie theatres, veterinary clinics, single-tenant retail centers, funeral homes, bars, amusement parks, hospitals, schools, night clubs, apartments and medical facilities.

Patrick C. O’Connor

http://www.poconnor.com/

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