DEAR BOB: Please tell me my tax adviser is wrong. More than five years ago, I rented my condo to tenants who have been there ever since. Last month they moved out because they bought a house. Now I have decided to sell my condo, which has appreciated in market value by about $175,000, maybe more. Before I rented the condo, I lived in the condo for about four years. When I phoned my tax adviser, she said my condo sale will be subject to capital gains tax. Is there any way I can qualify for that $250,000 tax exemption you often discuss? – Robert R.
DEAR ROBERT: Yes. You can move back into the condo and make it your principal residence again before selling it after at least 24 months of occupancy.
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Then you will meet the Internal Revenue Code 121 requirement of principal residence ownership and occupancy for at least two of the five years before its sale.
Because you have rented your condo for the last five years to tenants, you clearly don’t meet the IRC 121 occupancy test. If you sell it now, your capital gain will be fully taxable. For more details, please consult your tax adviser.
WILL $40,000 INCOME-TAX LIEN PREVENT A REVERSE MORTGAGE?
DEAR BOB: I have lived in my free-and-clear home more than 30 years and plan to stay here until they carry me out feet first. My big problem is I need more income. Your articles about reverse mortgage benefits inspired me to investigate. But my difficulty is my late husband had a $40,000 income-tax lien recorded by the IRS against his business. Somehow, that lien attached to our house. The reverse mortgage representative says if I am to obtain a reverse mortgage I must use $40,000 of “lump sum” reverse mortgage proceeds to pay off that tax lien. Why should I have to pay off his $40,000 income-tax lien from the equity in my house? – Elaine R.
DEAR ELAINE: Reverse mortgages can only be recorded as first mortgages. If the IRS recorded a valid tax lien against your home, which I presume was jointly owned with your late husband, the reverse mortgage lender can’t approve the transaction without paying off the $40,000 income-tax lien. For more details, please consult a tax attorney.
SHOULD THERE BE A LAW AGAINST MORTGAGE CO-SIGNERS?
DEAR BOB: About six years ago, my formerly sweet 23-year-old nephew asked me to co-sign on a mortgage so he could buy a townhouse. I stupidly co-signed. Within the next two or three years, he turned into a motorcycle monster. He got mixed up with a very bad crowd. Now he has long hair, a beard, no job, and is not the nephew I knew and loved. To make matters much worse, he is months behind on his mortgage payments. Because he has no income, the mortgage company has contacted me, as co-signer, threatening to ruin my superb 760 FICO credit score if I don’t pay my nephew’s $8,700 of unpaid mortgage payments. Isn’t there some law against hounding mortgage co-signers? If there isn’t, there should be – Grace A.
DEAR GRACE: Unfortunately, as you discovered, if the primary obligor on a mortgage doesn’t pay, the lender can go after the co-signer. That’s you.
Unfortunately, like good wine, some people “go bad” for no explained reason. Although I have never co-signed for anybody, I have heard of so many bad experiences like yours, I would never co-sign even for my best friend. The risks are just too great.
Frankly, I am surprised your nephew’s mortgage default hasn’t already ruined your superb FICO 760 credit score. Have you checked it lately at www.myfico.com?
I presume you’ve tried to talk with your nephew but he doesn’t care. If you pay that $8,700 default without receiving a quit claim deed to the townhouse so you can sell it, I would let it go to foreclosure sale even if your credit is ruined. For more details, please consult a local real estate attorney.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Nothing Down,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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