DEAR BOB: My late mother and I were joint tenants with right of survivorship for her house. It was her house, but her lawyer advised holding title in joint tenancy to avoid probate costs when she died. After title was transferred into my name, I decided to sell the house. But it required considerable fix-up work. I spent about $8,500 getting it ready for sale. The house really sparkled when the Realtor listed it for sale. To my surprise and pleasant shock, it sold for almost $7,000 above the asking price. My question is can I deduct the approximate $8,500 I spent on fix-up costs? – Andie H.
DEAR ANDIE: No. But you can add those capital improvement costs to your adjusted cost basis for the home.
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Please consult your tax adviser to determine your “stepped-up basis” for the house you inherited. To that amount, you can add the $8,500 capital improvements you made.
Normally, if you had just spent a few hundred dollars on fix-up costs, there would be no tax consequence. But it sounds like you made major capital improvements to spend $8,500 on that house before selling it. The tax result is you should owe minimal capital gain tax on that inherited house sale.
CAN NEIGHBOR BLOCK SHARED DRIVEWAY ACCESS?
DEAR BOB: I own an older house that shares a concrete driveway with the adjoining house to reach our garages, which are in our backyards. For more than 20 years, I’ve lived in my home and enjoyed cordial relations with the neighbor until she sold her house about a year ago. The new neighbor then built a new garage on the other side of his house so he no longer needed to use the shared driveway between our houses. He then constructed a chain link fence down the middle of the concrete driveway, making it impossible for me to drive my car to my garage. When I came home one day to find this new fence, he said he was tired of my waking him up at 7:30 a.m. when I drove on the shared driveway to work. What can I do? – Jerry T.
DEAR JERRY: Run, don’t walk, to the office of the best real estate lawyer in town. You need legal help to obtain an injunction to force your neighbor to remove that fence, which blocks access to the shared concrete driveway.
Your attorney will check the title to your property and your neighbor’s property. Both lots are probably subject to a mutual easement. If not, you probably have rights to a prescriptive easement to use the half of the driveway that is on your neighbor’s lot.
ARE INTEREST-ONLY HOME LOANS GOOD OR BAD?
DEAR BOB: What do you think about the new “interest-only” home loans? Are they good or bad? Aaron T.
DEAR AARON: I’ve received several questions on this topic recently. Personally, I like and recommend interest-only mortgages for homeowners who plan to stay in their houses or condos less than 10 years.
The reason is the monthly payment is the minimum at the interest-only level. But the big drawback is an interest-only mortgage borrower never builds any equity in the property from paying down the mortgage balance.
That’s fine for short-time homeowners or real estate investors who look for their “profit” from market-value appreciation of the property. However, if you plan to stay in your home “forever,” then you probably would be better off with an amortized 30- or 15-year mortgage, which will be eventually paid off.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Virtually No Cash,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
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