DEAR BOB: About five years ago, I co-signed a home mortgage for my niece so she could buy a condominium. All went well until about four months ago. She lost her job and refuses to take another job that doesn’t pay as much. The result is she is now four months behind on her mortgage payments. Frankly, there is no way she can catch up, even if she does find her perfect “pie in the sky” job. However, I have a 723 FICO score, which I don’t want to lose because good credit is important to me. Other than paying the missing mortgage payments, which now are about $14,000, how can I protect my good credit? –Fred G.
DEAR FRED: You can’t. You probably now realize it was a major mistake to co-sign on your niece’s mortgage. I’m sure you wanted to help her and you trusted her to make the monthly payments. But when she defaulted, it not only hurt her credit rating but it also hurt yours as a co-signer.
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Your situation is a classic example why not to co-sign on a mortgage obligation.
Legally, you are liable for the missing mortgage payments. However, if there is sufficient equity in the condominium, the lender will probably foreclose and either be paid in full by a bidder at the foreclosure auction or receive title to resell the condo.
Chances of the lender suing you for a deficiency loss are not great, but it could happen. For more details, please consult a local real estate attorney.
DON’T WASTE YOUR INVESTMENT PROPERTY TAX LOSS
DEAR BOB: Is there any way to carryover Internal Revenue Service Schedule E losses to the next tax year? Why can’t I defer expenses to offset future taxable income? –Claude R.
DEAR CLAUDE: If your IRS Schedule E tax loss is from operating your rental property, probably due mostly to the non-cash depreciation deduction, you can carryover “suspended” tax losses to future tax years.
Or you can use suspended tax losses to offset your capital gains profit when you sell your rental property. It sounds like you should consult a new tax adviser to be certain you are maximizing your real estate investment property tax benefits.
IF YOU DIDN’T INHERIT PROPERTY, NO STEPPED-UP BASIS FOR YOU
DEAR BOB: My late mother battled cancer for five or six years. Three years ago, she deeded her house to me to avoid probate and a possible claim by her ex-husband. She died about four months ago. I have decided to sell the house, but my tax adviser says that because I received a lifetime gift, I took over my mother’s very low cost basis of $160,000. Today, the house is worth at least $550,000. Since I did not own and occupy the house as my primary residence, is there any way I can avoid capital gain tax on this profit of about $390,000? –Paula W.
DEAR PAULA: No. If you didn’t inherit the property, you don’t get a new “stepped-up basis” to market value on the date of the decedent’s death. Because you received a pre-death gift deed to the house, as the donee you took over your donor’s low adjusted-cost basis.
However, the current maximum federal capital gains tax rate is only 15 percent, plus any applicable state tax. Your tax adviser can provide full details.
The new Robert Bruss special report, “Pros and Cons of Fast and Slow House Flipping for Big Profits,” 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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