NO EASY WAY TO AVOID TAX ON SALE OF A TWO-UNIT PROPERTY
DEAR BOB: My wife and I own a property that contains two rental houses on one lot. To sell the property and avoid capital gains tax, can we occupy one of the houses and still rent out the other one? Or must we occupy and/or not rent both for two years? --Jon H.
DEAR JON: You and your wife could occupy one of the rental units as your principal residence at least 24 of the last 60 months before selling the property. Then you will avoid capital gains tax apportioned to that unit, up to $500,000 for a married couple filing a joint tax return. If you were single, Internal Revenue Code 121 provides a principal-residence-sale tax exemption up to $250,000.
However, your capital gains tax apportioned to the other rental house will remain taxable. Keeping the other unit vacant won't reduce your capital gains tax on its sale. For more details, please consult your tax adviser.
ALWAYS GET OWNER'S TITLE INSURANCE WHEN BUYING OUT CO-OWNER
DEAR BOB: I will soon be buying out my investor co-owner in an apartment building for about $260,000. We are not relatives. We obtained title insurance when we bought the property about six years ago. Do I need title insurance again? --Herb W.
DEAR HERB: Yes. Always get an owner's title insurance policy when acquiring any property or, especially, when buying out a co-owner. That's the only way you can be certain you are obtaining marketable title.
Although remote, there is a possibility your co-owner has unpaid judgment liens, income tax liens, child support liens, or other liens which may have attached to the property. Go back to the title company which originally insured your title and ask if they have a discounted or "bring down" rate for your situation.
SHOULD HOME SELLER REFUND DEPOSIT IF BUYER DIDN'T TRY HARD TO GET A MORTGAGE?
DEAR BOB: The buyer of our home made a quick Internet mortgage application and was declined. I offered to carry back the mortgage for the buyer on exactly the terms stated in the sales contract financing contingency clause. But the buyer refuses and wants to cancel the sale. Am I obligated to refund the buyer's good faith deposit? --Mary Ann P.
DEAR MARY ANN: The buyer is obligated to use good faith to remove the contingency clauses in the purchase contract. Applying with just one mortgage lender is clearly insufficient and does not show good faith.
Your offer to carry back the mortgage for the buyer shows financing is available.
However, if the buyer wants to get out of the sale, you might not want to do business with that person. Buyers like that are disgusting.
If I were in your situation, I would have my attorney write a letter to the buyer giving him the opportunity to clear his breach of contract by either accepting your finance offer or obtaining a mortgage elsewhere.
If he refuses to complete the purchase as agreed in the sales contract, I would keep his deposit (presuming it is several thousand dollars). Let him sue you for it if he thinks the judge might rule in his favor. The buyer will look silly suing for a deposit refund when the buyer is in breach of the contract. For details, please consult a local real estate attorney.
ARE NO-PET CONDOMINIUM RULES ENFORCEABLE?
DEAR BOB: I enjoy your educational and entertaining articles. Last weekend I was looking at condominiums for possible purchase. Several of the sales agents informed me when the condo complex has no-pet rules. Are such rules legal? It seems to me a condo owner should be allowed to keep an indoor cat if it doesn't go outdoors and never bothers anyone --Victoria G.
DEAR VICTORIA: Many upscale condominium complex CC&Rs (covenants, conditions, and restrictions) prohibit pets. Such restrictions have repeatedly been upheld by the courts so don't even think about having a pet in a no-pet complex. But perhaps you might get away with having a goldfish.
U.S. MORTGAGE LENDERS WON'T LOAN IN FOREIGN COUNTRIES
DEAR BOB: My wife is from Trinidad and Tobago, West Indies. We intend to buy a home in Tobago. I am hoping we can get a mortgage in the United States. Is that possible for foreign real estate? --Mark L.
DEAR MARK: Sorry, you cannot get a home mortgage in the United States for use in a foreign country. Perhaps your banker can refer you to an affiliate or correspondent bank in Tobago for assistance with financing there.
NO WAY TO BE CERTAIN HOUSE IS LEFT TO SPOUSE IN A WILL
DEAR BOB: My husband and I have been married 27 years. He is rather "old school" and set in his ways. When we purchased our house about six months after getting married, he insisted title be taken in his name alone. I went along with that. We have had a good marriage, raising three wonderful sons, but my husband's health is declining. I am concerned what will happen if he dies first. He refuses to show me his will. When I bring up the subject of what happens to the house when he dies, he says, "Don't worry. It will go to you." How can I be sure I am named in his will to receive the house? --Ida C.
DEAR IDA: There is no way to be certain you are named in your husband's will to receive the house. He might leave you, for example, only a life estate with the remainder to go to the three sons after you die.
Of course, because of the long period of your marriage, under the laws of most states you have probably established marital rights in the house. Other than that, you can't be 100 percent certain of receiving title to the house when your husband passes on.
The new Robert Bruss special report, "When It's Smart to Prepay or Refinance Your Mortgage," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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