DEAR BOB: My house has been for sale on the market more than18 months. Despite scores of open houses and showings by agents, I haven’treceived any offers. It is a gorgeous five-bedroom, 4-bathroom home with athree-car heated garage. The area is not economically depressed. We can’tfigure out any ideas to sell it (without a dramatic drop in price) –Bryan C.
DEAR BRYAN: The primary reason a home doesn’t sell is it isoverpriced. Or, maybe you have a “bad agent” who isn’t effectivelymarketing your home in the local MLS (multiple listing service), newspaper ads,Internet Web sites such as www.Realtor.com,and networking among local agents.
Purchase Bob Bruss reports online.
Frankly, if I were the listing agent and weren’t able to geta purchase offer within 18 months, I would be very embarrassed and ready tofind another line of work.
If you are a motivated seller in this buyer’s market, it’stime to bite the bullet and slash your asking price.
Ask your listing agent to prepare a new CMA (comparativemarketing analysis) showing recent sales prices of nearby comparable homes,asking prices of neighborhood homes (your competition), and recently expiredlisting prices of nearby residences (usually overpriced).
Then withdraw your MLS listing for a week or two and re-listat a reasonable asking price. Of course, never sign a listing for longer than90 days unless it has an unconditional cancellation clause after 90 days.
HOW TO ASSUME AN EXISTING MORTGAGE
DEAR BOB: How can I assume an existing home mortgage?–Stephen B.
DEAR STEPHEN: I presume you are buying a home with anexisting mortgage. There are two ways to take title and leave that mortgage inplace.
One is to buy “subject to” the existing loan andtake over its monthly payments. The seller remains legally obligated for thepayments, so don’t default. If you do, the seller’s credit will be harmed andyou will lose the property by foreclosure.
The second method is to “assume” the legalobligation for the payments. Unless the loan is in default, most institutionallenders will ask for an assumption fee, typically 1 percent of the loanbalance. However, such lenders usually refuse to release the seller fromsecondary liability if you default.
Presuming the existing mortgage has a “due on saleclause,” some nasty lenders refuse to allow a loan assumption. In thatsituation, you will have to refinance with another lender.
BIG DIFFERENCE BETWEEN SELLING HOME AND INHERITING IT
DEAR BOB: If my mom sells her home in New York, does she getthe $250,000 exclusion? Isn’t it better if I inherit the house rather than herselling it? –Lynne Z.
DEAR LYNNE: If your mom owned and lived in her principalresidence at least 24 of the last 60 months before its sale, she gets up to$250,000 tax-free capital gains, thanks to Internal Revenue Code 121.
But your second question is entirely different. The reasonfor inheriting property, instead of receiving it as a pre-death gift, is to geta new stepped-up basis to market value on the date of the decedent owner’sdeath. That would benefit you if you decide to sell the home shortly afterinheritance. Little or no capital gain tax will then be due. For details,please consult your tax adviser.
IS LACK OF CHILD SUPPORT A HOME SALE “UNFORESEENCIRCUMSTANCE?”
DEAR BOB: I had to sell my house after owning it for 18months because my child’s father stopped paying child support. We were notmarried. After expenses, I made about $30,000 on the sale. The house was in myname only. I couldn’t afford the monthly payments, plus child care, by myself.Do I owe tax on the profit? –Stina W.
DEAR STINA: Your situation might qualify for the”unforeseen circumstances” exception to Internal Revenue Code 121. Asyou probably know, IRC 121 allows up to $250,000 tax-free capital gains if youowned and occupied your principal residence at least 24 of the last 60 monthsbefore its sale.
Because you owned and occupied the home only 18 of the 24required months, you could qualify for up to 75 percent of the exemption underthe unforeseen circumstances exception. Check with your personal tax adviser.Even if the IRS refuses to approve the exception, the 15 percent capital gainstax on $30,000 profit is only $4,500, plus any state tax.
HOW TO HANDLE $80,000 EQUITY GIFT TO CHURCH
DEAR BOB: My friend owns a rental house worth $270,000 witha $190,000 mortgage. We both belong to the same church. She wants to pass herrental house to the church as a donation, including equity, mortgage andtenants. She doesn’t want to be a landlord any more. What is the best way to dothat? –Larissa K.
DEAR LARISSA: Your friend’s $80,000 net gift of her rentalhouse to the church is very generous. She should speak with the pastor toarrange the details.
The easiest way is to give a quitclaim deed to the church,which will then probably decide to sell the house to realize the $80,000equity. Or, the church might wish to keep the property for its use or forpossible future appreciation in market value.
Your friend should be certain she receives an $80,000donation thank you letter from the church for her tax records. For moredetails, she should consult her tax adviser.
HOW TO CONVERT VACATION HOME INTO PRINCIPAL RESIDENCE
DEAR BOB: I am selling my principal residence and intend toestablish primary residency in my vacation home. I am retired, travel theworld, and spend time with my grandchildren. Also, I will live part time at mynew wife’s residence. I have researched the IRS regulations titled “homesale worksheet.” This appears to clearly define the occupancy timerequirements. But there are ambiguities. Are you aware of any tax courtclarifications? –George T.
DEAR GEORGE: In addition to the required 24 of out last 60months occupancy time spent at a residence before its sale, if the IRSchallenges you, it is important to prove the property really is your principalresidence.
Time spent away on vacations and visiting the grandchildrencounts as residency time. However, in addition to the minimum occupancy time,you need to prove principal residence indications such as voting, driver’slicense registration, auto license, bank accounts, employment, and civicaffiliations.
The only court decision on this issue so far is Guinan v.U.S. (2003-1 USTC 50475). Although the Guinans met the24-out-of-last-60-months occupancy test, and kept a bank account and automobilein the state where their part-time residence was located, the U.S. DistrictCourt ruled it was not their primary home because they never filed income taxreturns from that address. The sad result was they owed $45,009 capital gaintax on the sale of their part-time residence.
LIVING TRUST DOESN’T CHANGE OWNERSHIP BENEFITS
DEAR BOB: My father is considering a revocable living trustand an irrevocable living trust. He plans to pass his house to me when he dies.He rents out part of the house to tenants and he wants to continue receivingthe rental income. Does he report the rental income or will I report it on mytax returns? Will I get a stepped-up basis on his house when he dies? –MonitaC.
DEAR MONITA: By definition, there is no such thing as anirrevocable living trust. All living trusts are revocable. The trustor (yourfather) can change the terms of his living trust or revoke it at any time.
After he transfers title to his house into his revocableliving trust, he continues to own it. He can even sell or give it away, if hewishes. The reason is he is the initial trustor, trustee, and beneficiary.
After he dies, or becomes incapacitated, the named successortrustee (presumably you) takes over management of the living-trust assets, suchas the house. Until he passes on, your father will continue to receive therental income. You have no legal interest in the living-trust property (exceptan “expectancy”).
Only after your father dies will you acquire any legalinterest in the living trust assets. More details are in my special report,”24 Key Questions Answered: Living Trust Secrets Reveal How to AvoidProbate Costs and Delays,” available for $5 from Robert Bruss, 251 ParkRoad, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instantdelivery at www.BobBruss.com. Questionsfor this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News