DEAR BOB: My parents died in 1993 and left their home to me in excellent condition. In 2007, the state took the home by condemnation for a new road. Over the 14 years, the condition of the house has declined due to neglect, but property values in the vicinity have generally increased. Can I claim no increase in my basis because of the decline in condition and the need for repairs? –Harold B.
DEAR HAROLD: When you inherited the house in 1993, your stepped-up basis was its market value as of that date. Your taxable capital gain will be the difference between that 1993 market value and the amount you receive for the house from the state.
Purchase Bob Bruss reports online.
For example, suppose the house was worth $100,000 in 1993 when you inherited it and the state will now pay you $225,000 for it by condemnation. That means you have a $125,000 capital gain, subject to a maximum 15 percent federal tax plus any applicable state tax.
Your adjusted cost basis would not have increased since 1993 unless you added capital improvements, such as a new roof or a room addition, during your years of ownership. For full details, please consult your tax adviser.
GETTING RID OF A BAD CONDO ISN’T EASY
DEAR BOB: Every time I read your column and you advise a home buyer not to pay all cash, I shout “right on.” I foolishly paid 100 percent for a one-bedroom condo about 10 years ago. Since then, the condo complex has become badly run-down. It is mostly occupied by renters, and the maintenance has become very poor. I would love to sell, but I can’t. The only condo I know of that sold recently had a large mortgage and the loan company let the buyer take over payments. I wish I had a mortgage like that. Any ideas? –Maurice H.
DEAR MAURICE: If your condo complex has more than 20 to 25 percent renters, mortgage lenders might have stopped lending there or they probably charge higher-than-normal interest rates.
You should look into refinancing for not more than 80 percent of your condo’s market value. That would give you cash to buy a home elsewhere. Then, with the lender’s approval, you could advertise your condo for sale “take over mortgage payments,” thus enabling your condo to probably sell.
SHOULD REALTY AGENT GIVE UP HER SALES LICENSE?
DEAR BOB: I am a licensed real estate agent, but I really want to start buying on lease-options or short sales myself and re-leasing them to tenant buyers. I want to start by finding deals for other investors, as I badly need to earn some quick cash. Should I just call the real estate commissioner and terminate my license? Or should I put it on inactive status so I don’t get into trouble? –Ramona C.
DEAR RAMONA: When you are acting on behalf of others, such as a property owner or an investor, and expect to be paid a fee or commission, you need a real estate license.
If you have a realty broker’s license, then you can work independently. Of course, if you only have a salesperson’s license, then you must work under the supervision of a licensed broker.
Don’t be so quick to terminate your hard-earned real estate license. Putting it on inactive status, if you won’t be working for fees or commissions, makes more sense just in case you decide to go back to selling real estate for sales commissions.
The new Robert Bruss special report, “Pros and Cons of Living Trusts to Avoid Conservatorship, Probate Costs and Delays for Your Heirs,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
