Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 8, 1995 TAG: 9505080015
SECTION: BUSINESS PAGE: A8 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
A: A company can buy back preferred stock by calling it in, typically at par value or the contract price, said Tyler Pugh, senior vice president and branch manager of Wheat First Butcher Singer in Roanoke. The holder of preferred stock has no choice in the matter, any more than a bond holder would. A company might do this when dividends are higher than the interest rate at which it can borrow money to call in the preferred stock.
When companies buy their own common stock, they buy it in the open market and then retire the shares. The market sets the price, Pugh said, and the company buys from willing sellers in the open market. Companies might do this when the stock price is low and they think stock purchase is a good investment.
Preferred stock can be converted if it is convertible preferred stock, Pugh said, but not all preferred shares are convertible. If the conversion is made, he said, the original tax basis of the preferred is transferred to the common and carried over until the common stock is sold. In other words, conversion of preferred stock to common stock is a non-taxable event.
Ownership of home
Q: When I got married at 16, my husband and I bought a house. I was told that I was too young to be put on the deed to the house itself, but I'm on the loan. What are my rights as far as ownership of the house?
A: You are in a very bad position in connection with rights to ownership of the house.
Michael S. Ferguson of the Roanoke law firm of Osterhoudt, Ferguson, Natt, Aheron & Agee, said your husband owns the house outright if his is the only name on the deed. The law permits husbands and wives to own property independently of each other. In addition, state law was changed several years ago to abolish the rights of courtesy and dower, which are the rights husbands and wives each used to have in each other's property.
If you signed your name to the house loan, on the other hand, Ferguson said, you are obligated to pay the mortgage regardless of your lack of ownership in the house.
If it should ever come to divorce, Ferguson said, the judge probably would consider the circumstances and give you some rights to equity in the house.
Ferguson advised you to have your husband prepare a new deed listing both of you as owners by the entirety, which means both of you would own all of the house. If one died, all of the house would immediately be owned by the survivor. This is the way virtually all married couples own their own home. Unless your husband agrees to do this, however, there is little or nothing you can do short of what might come out of a divorce proceeding.
Deferring capital gains
Q: I have for sale several building lots that I have owned for approximately nine years. How can I defer capital gains on the sale? Can I reinvest in other real estate? I'm thinking about purchasing other building lots or a second home.
If I finance the sale and do not reinvest, how do I declare the capital gains?
A: Harry Schwarz of the certified public accounting firm of Schwarz & Co. in Roanoke said you might qualify for a tax-free, like-kind exchange of property if you buy similar building lots.
But he said there are many detailed and definite rules to qualify for this tax treatment. You cannot, for instance, buy new lots before selling the old ones. You must identify the property within 45 days and close within 180 days. You should, therefore, do your homework or consult a tax adviser in advance about these and other rules.
If you decide to buy a second home instead, Schwarz said, you cannot qualify for this special treatment and you must pay taxes on your capital gain.
Schwarz encourages clients to use an installment sale, as you suggest as an alternative, rather than to sell outright and reinvest.
by CNB