Will sale of fourth-floor walk-up apartment be tax-free?

DEAR BOB: We have been in our 350-square-foot apartment for18 months. Recently we learned I am unexpectedly pregnant. Our apartment is upfour flights of stairs (about 50 steps). Can we qualify for an exclusion frompaying capital gains on the sale of our apartment? I have to walk up and downat least six times a day to walk my dogs and get to work –Gabrielle B.

DEAR GABRIELLE: I presume you own a fourth-floor walk-upcondominium or cooperative apartment. Perhaps you can get a letter from yourdoctor advising you to move immediately for health reasons.

Purchase Bob Bruss reports online.

Usually, pregnancy is not a valid reason for a partial use ofthe Internal Revenue Code 121, but your situation might be an exception.

If you and your husband owned and occupied the condo orco-op for 18 of the 24 months required, and if your move is due to valid”health reasons,” then you can qualify for up to 75 percent of the$250,000 principal residence sale exemption (up to $500,000 for a qualifiedmarried couple filing a joint tax return). For full details, please consultyour tax adviser.

IT’S NEVER TOO LATE TO START DEDUCTING DEPRECIATION

DEAR BOB: In a recent item, you said that when a rentalproperty is sold, there is a special 25 percent federal “recapturetax” on depreciation that has been deducted. It then occurred to me thatmy wife and I should have been deducting depreciation on the condo we have beenrenting to tenants for the last 20 years. Can we amend our tax returns to claimthe depreciation we “forgot” to deduct? I never knew before readingthat item that we were required by the IRS to deduct depreciation on a rentalproperty –Pio M.

DEAR PIO: It’s never too late to start deducting thedepreciation you should have been claiming on Schedule E of your federal incometax returns. You can amend your income tax returns for the last three years toclaim a refund.

Of course, if you and your wife never sell that rental condoand both die while still owning it, Uncle Sam can never claim the 25 percentfederal depreciation recapture tax from you.

I strongly suggest you consult a local tax adviser who isfamiliar with real estate taxes to discuss your unusual situation. There is nopenalty for not claiming the depreciation deduction so I see no harm instarting to claim it now.

The depreciable basis for your condominium is its purchaseprice, plus any capital improvements added during ownership, minus your shareof the common area land value (usually a very small percentage for mostcondominiums).

IS P.M.I. PREMIUM TAX DEDUCTIBLE?

DEAR BOB: We are considering buying a new house for zerodown payment. But we will have a monthly PMI (private mortgage insurance) paymentof $86 per month. The salesman wasn’t sure if the PMI premium is taxdeductible? –Jeanette S.

DEAR JEANETTE: There’s a good reason the salesman”forgot” the answer (if he knew it). Currently, PMI premiums are nottax deductible.

There are several proposals in Congress to make PMI taxdeductible like interest. But the chances of passage soon don’t look good.

A better alternative would be to obtain an 80 percent firstmortgage and a 20 percent second mortgage, often called a home equity loan.Then you won’t have any PMI premium and all the interest you pay will be taxdeductible. For more details, please consult your tax adviser.

The new Robert Bruss special report, “Pros and Cons ofToday’s Five Best Real Estate Profit Opportunities,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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