DEAR BOB: In 2003 we bought a modular home and had it set up on a lot we owned. After all the expenses of having a foundation built, plumbing and wiring installed, etc., when we sold it in late 2006 we barely got our investment out. We learned modular homes can be lousy investments. Do we have to report this sale to the IRS? –Thomas R.
DEAR THOMAS: If your sales proceeds did not equal the amount you invested in the modular home and the cost of the lot, then you had no capital gain profit. But the sale must be reported on Schedule D of your income tax returns, although no tax will be due if you had no profit.
Purchase Bob Bruss reports online.
However, if the home was your principal residence for at least 24 of the last 60 months before its sale, then Internal Revenue Code 121 does not require you to report the sale unless your capital gain exceeded $250,000 (or more than $500,000 for a married couple filing a joint tax return). For full details, please consult your tax adviser.
NO EASY WAY TO FORCE A PROPERTY SALE BY FIVE OWNERS
DEAR BOB: My dad died in 2005. No will. Mom passed away in 1999. He left his house worth around $500,000. There are five adult children. His estate has been in probate almost two years, with no sign of any conclusion soon. Dad left debts of about $125,000. The estate executor has sold off dad’s car, furniture, etc., to pay the unsecured debts. But there was a $40,000 mortgage on the house. I think we should sell the house to pay off the mortgage and then split the proceeds. But two sisters refuse to agree to the house sale. What can we do? –Ralph S.
DEAR RALPH: Before the estate assets can be distributed to the heirs, which I presume are the five offspring, the estate debts must be paid. If there are not enough liquid assets to pay the debts, such as personal property, stocks, bonds, and bank accounts, then the house will have to be sold even though the two sisters don’t want to sell.
In most cases, it will be the probate court judge who makes the final decision if the estate administrator can’t reach a consensus with the heirs.
Your situation shows what can happen when a property owner dies without a will and there is disagreement among the heirs. I can see why the probate has taken two years and there is no end in sight. At this point, the best you can do is try to get all the heirs to agree on a course of action. Otherwise, it will be up to the probate judge, and he might not decide what the heirs prefer.
LONG-DISTANCE GROUP INVESTING CAN BECOME A MESS
DEAR BOB: Upon the recommendation of a trusted friend, my husband and I invested about $225,000 in a group investment in a shopping center. We had never seen the shopping center, but the Realtor said it was in a good area. That’s true. However, it is now about 40 percent vacant due to the Realtor’s bad management. Also, it needs at least $200,000 of repairs just to make it attractive to prospective retail tenants. It is mortgaged to the hilt so we can’t borrow more on a third mortgage. The other investors refuse to put any cash into the shopping center. The mortgage is two months in default. What can we do? –Helen R.
DEAR HELEN: Now you know why I do not recommend group real estate investing, especially when the property is located a long distance away and the owners are at the mercy of the property manager.
At this point, it appears selling the shopping center is the only viable alternative to losing it by foreclosure. I wish I could be more encouraging but without any equity on which you can borrow, getting the co-owners to agree to a sale might be best.
The new Robert Bruss special report, “2007 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Realty Investors,” 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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