Question: My husband purchased vacant land in California in 1999 to build a home, but had to take a job here in Texas, so he never developed the California property. We got married this year, purchased a home, and he needs to sell the land in California as it has been sitting there all this time and still has a mortgage on it. What kind of tax burden or rates will we be subject to on the sell of this property if we choose not to re-invest in land?

Answer: Whatever tax you pay will be based on a long-term profit. That means you will get cash from the sale instead of paying a monthly mortgage for land that is not generating income or depreciating.

Question: My husband and I are looking into purchasing a small beach cottage that's on leased land. I know that we cannot add onto, winterize, or rent out this cottage. What I do not know is what the drawbacks or advantages to this may be.

Answer: Well, to start, you can't add onto it, winterize it or rent it. When the ground lease expires, the property and any "improvements" to the house may revert back to the property owner -- just like an apartment. You may have to pay an annual ground rent and the rent could go up.

Why bother with this? Is the price extremely low? Why not look for real estate which has the possibility of appreciating and the full rights of fee simple ownership?

Follow-Up

Last week we had a question which dealt with a 95-year-old Florida property owner who wanted to add his daughter's name to the title rather than name her in a will. For tax and estate reasons, it was suggested that the gentleman would likely do better by leaving the property to the daughter as part of his estate. Both were advised to see a local attorney for details.

Joel B. Greenberg , a long-time appraiser in Broward County, makes an additional point: If the daughter is simply added to the title but resides elsewhere, the property tax could rise substantially with the loss of half the write-off under Florida's "Save Our Homes" homestead program.

"The SOH value on half the property will be increased to full market 'just' value," says Greenberg.

The result is that the annual property tax could increase by thousands of dollars.

As well, Greenberg points out, if the deed is not properly written the entire "Save our Homes" valuation could be reset to the full current value.

In effect, title changes can impact more than income and estate taxes, they may also set off unintended consequences relating to local tax relief programs.

We thank Joel for his comments.

Question: How would a person go about typing up a letter for their siblings to sign so they can give over their part of the homeplace? And, if two siblings have passed on do their children have to sign as well?

Answer: If you want your siblings to give up part of an inheritance, what compensation are they getting? What is the form of ownership at this time? What are the tax implications of a title transfer? Is the property mortgaged? If yes, changing the title may allow the lender to call the loan. Go no further until you have spoken with a local real estate attorney.

Question: I have contacted more than 20 lenders about loans where there is "no payments for 6 months." Every single one has said that the underwriters will not permit this. How can this be structured to work and still have lenders approve the loan?

Answer: By any chance, do you want a loan with little or nothing down? How would you describe your credit? The only lender who would make such a loan is a private party who knows and trusts you -- perhaps a rich uncle or wealthy aunt.

Question: We're planning to sell our house and have been told that we have to pay title insurance when we sell. When we purchased this house we had to pay for the title insurance, so when we sell why do we have to pay for it again?

Answer: You don't. This is a negotiable matter even though local custom may suggest that one party or the other "usually" pays. Speak with your real estate broker for specifics.

Question: I'm 65 years old and soon will retire. I have a primary property in San Diego, and an investment property in Fort Myers, FL. My plan is to do a 1031 exchange of the property in Florida for an investment property in Colorado. Then I want to sell my primary residence in California and move to my new property in Colorado. My investment property in Colorado becomes my primary residence. Is this plan feasible?

Answer: Not as you've outlined it.

If you've lived in the California property for two of the past five years you will be able to protect profits of $250,000 (if single) and $500,000 (if married) from capital gains taxes.

You can have a 1031 exchange for the investment property in Florida if you acquire another investment property in Colorado. By doing this you will defer taxes on profits from the Florida home.

However, you cannot instantly move from the California property to the property in Colorado and still have a 1031 exchange. The reason: The house in Colorado is not being used as an investment property, a basic requirement to have a 1031 exchange.

Most likely you will need to first rent the Colorado home for one to two years and then own it for at least five years before selling to be within the 1031 guidelines. Speak with a CPA, tax attorney or enrolled agent for specifics.

Question: I'm selling my home for $369,000 to pay down some debt and purchase a condo. The condo I'm purchasing was too good to pass up.

Unfortunately, I decided to buy the condo before I sold my home and, with the slowing market, have been unable to sell fast enough. On paper, the appraisal is between $380,000 and $400,000. I decided to get an equity loan for $300,000 to pay off my initial mortgage and put the down payment on my condo. If my house does not sell I will be paying two mortgages. What suggestions would you give me to sell my house faster without lowering the price too much?

Answer: How much is "too much"?

The real issue is this: How long are you willing to pay two mortgages? Two sets of utility bills? Two property taxes? Will the market continue to soften while you keep your price steady?

Sell the house -- now. Why not offer to pay some or all of the buyer's closing costs and move on?

Question: It seems as if the prices of homes in my area are falling now. Will they decrease more? Should we make a move now and purchase a home or wait?

Answer: I have no idea. First, all markets are unique. Second, within markets there are sub-markets. Third, all homes are unique. Fourth, it may be that prices will fall -- and interest rates will rise, meaning your monthly costs will not drop.

Why not speak with several local brokers in your community for advice and information.

Question: I purchased a condo as a rental property. The purchase price was $400,000. My first tax assessment statement shows land value at $63,000 plus improvements of $18,000 (I assume that's for the clubhouse, pool etc.). How do I establish the depreciable base?

Answer: In the general case land cannot be depreciated. Also in the general case your depreciable basis stems from the acquisition cost of the property less land. Later improvements may also be depreciable. For specifics, see a tax professional.

Question: Can real estate companies have an outside mortgage lender that is the sole provider of such services for buyers from the real estate company?

Answer: No. As a buyer you can get financing from the best source you can find. You cannot be required to use a particular lender. Certainly a captive mortgage lender can make a bid for your business.

At this point someone will say they bought a new home and were required to use the builder's lender and closing company. Actually, that's not what happened. Most likely the builder offered a series of discounts and benefits in exchange for the required use of his lender and closer. You could go elsewhere -- but not receive the builder's discounts and benefits.

Question: I recently bought another home. I have been doing some renovation to my prior residence before selling it. I was told however that once you physically move out of your residence even if you intend to sell it that you can no longer claim the capital gain exclusion? Is this correct?

Answer: No. The general rule is that you must have lived in the property for two of the past five years. Plainly that means up to three years of ownership do not require your physical presence.

Also, there's a difference between a "capitol improvement" and simple repairs and maintenance, such as painting and pruning. IRS form 2119 provides for an accounting of capital improvements. As to repairs, the IRS says "these maintain your home in good condition but do not add to its value or prolong its life. You do not add their cost to the basis of your property."

For details, see IRS Publication 523 and speak with a tax professional.

Question: I'm buying property which went into probate after I signed the contract in May. Two weeks before the closing date I gave the seller 30 days (at the insistence of my agent) to get it straightened out and moved the closing date. Well, the seller filed for probate just before closing. I still don't have a closing date. I want to go to the courthouse and looked at the case but I was wondering; would I be doing more harm than good to contact the Seller's attorney directly and ask them what's going on with the probate case?

Answer: Probate is a terribly unpleasant experience and a lot of the usual rules and expectations need to be set aside.

That said, you have a contract to buy a property. You need to see if the contract applies to heirs and assigns. You also have your needs -- a need to settle before rates rise, a need to honor any obligation to sell your home, etc.

Yes, you can speak with the seller's attorney -- but that individual represents the best interests of the estate. You're really best served by having your own attorney.

Question: I bought property at auction. When my credit report was pulled, we discovered identity theft issues which ruined our score. I was able to resolve the matter but I wonder is there any law which would help me with identity theft issues?

Answer: Yes. Speak with your state attorney general or federal prosecutor for assistance under the Fair and Accurate Credit Transaction Act of 2003 (FACTA). Under FACTA you're entitled to place fraud alerts on credit reports and to block credit information that results from identity theft. There are other rights as well.

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