Advice Pool - Real Estate

On October 22, 2004, President Bush signed tax legislation that contained a provision affecting

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

Internal Revenue Code section 1031 (the like-kind tax-free exchange rules).

Under this new prov

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

sion a taxpayer who exchanges under Internal Revenue Code section 1031 into a rental house as a r

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

placement property for a previous investor property and later converts it to his or her primary r

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

sidence, is not allowed to exclude gain under the principal residence exclusion rules of Internal

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

Revenue Code section 121, unless he/she sells the property at least five years from the date of i

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

s acquisition.

The results of this additional requirement to Internal Revenue Code section 121 i

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

that anyone exchanging into a rental property that they such subsequently convert to personal us

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

will have to wait at least five years from the date of acquisition before they can sell it as th

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

ir residence and exclude any gain under Internal Revenue Code section 121.

The change to the hom

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

seller rules of Internal Revenue Code section 121 became effective for principal residence sales

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

occurring on or after October 22, 2004. Any taxpayer who previously acquired their current resi

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ence through a tax-deferred exchange within the past three years will now have to wait at least a

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

other two years before selling their home and excluding any gain, provided they meet the two out

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

of the five-year occupancy test for living in the property.

New legislation created in 1997/1998

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

allows taxpayers to exclude capital gains tax on their profits from the sale of their principal r

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

sidence up to $250,000 for single taxpayers and up to $500,000 for married taxpayers provided the

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

have lived in their principal residence for two out of the past five years. Taxpayers can exclu

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

e this gain any number of times provided they have met the two out of the five-year occupancy t

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

st.

Good luck and until next time,

Phil Craig

P.S. Feel free to forward this on to any friends

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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