January 21, 2010

Legislative Update
1031 Exchanges, Sprinkler Systems,
and Testing of Private Well Water

The following is a 2010 Legislative Update from your New Hampshire Association of REALTORS® Public Policy Committee, to keep you informed regarding its ongoing mission to protect the rights of our citizens and our members to use, enjoy and convey real estate in New Hampshire.

1031 Exchanges and the Business Profits Tax

Until the fall of 2008, New Hampshire’s Department of Revenue Administration (DRA) had followed IRS guidelines and allowed the deferral of taxation by property owners conducting 1031 exchanges. Starting in 2008, the DRA reinterpreted the state statute and began to send out letters to individuals who had conducted certain types of 1031 exchanges as far back as 2004, indicating that they now owe Business Profits Tax on the sale of their properties.

Mandatory Sprinkler Systems

In December of 2009, the Building Code Review Board voted to require sprinklers in all newly constructed single- and two-family homes and town houses starting in 2012. Both HB 1191 and HB 1486 seek to prevent either the fire code or the building code from mandating sprinkler systems in new or existing residences. NHAR testified in support of both bills.

Mandating sprinkler systems will have a particularly severe impact on affordable housing by adding thousands of dollars to the price of construction and therefore disqualifying many residents from a loan. Costs for installation of fire sprinkler systems vary greatly but the equity needed to install can be as high as 5 percent of the value of a home. NHAR strongly supports HB 1191 and HB 1486.

Mandatory Testing of Private Well Water

HB 1685 mandates that prior to the execution of a purchase and sale agreement for any developed property using a private well, the seller of the property shall, at the seller’s expense have the well water tested by an accredited laboratory and then provide those results to the buyer. Failure to do so could result in a fine of up to $10,000.

NHAR strongly opposes this legislation. Such point-of-sale mandates are unduly burdensome and such decisions should be left to the discretion of the seller and buyer. NHAR’s purchase and sale form already provides for the buyer to test the water quality.

If you have any questions or need additional information please contact Bob Quinn, NHAR Government Affairs Director at 225-5549 or bob@nhar.com.

The DRA has determined that numerous transactions involving Single-Member LLC’s and Tenancy-in-Common were not like-kind exchanges as defined by the IRS. The state is retroactively attempting to recoup taxation from as far back as 2004.

The DRA never offered notification of the change nor held a hearing before making the rule change. Therefore consumers had no ability to understand how this reinterpretation might impact their transaction.

The New Hampshire Association of REALTORS® has introduced legislation to ensure that all 1031 Exchanges are treated at the state level as they are at the federal level for tax purposes. Our bill will also prevent DRA from retroactively taxing individuals who completed 1031 transactions as far back as 2004.

We thank Senator D’Allesandro (D-Manchester) and Senator Gallus (R-Berlin) for taking a lead on this issue on behalf of NHAR.