DEAR BOB: I enjoyed your recent article about the nation’s best real estate lender (the home seller). It makes sense from the home buyer’s view. However, what about the home seller? If the seller has a large profit, I know up to $500,000 is tax-free for a married couple, but what’s the use of that gain if they can’t take advantage of other investment opportunities? Do they receive any tax benefit for carrying back the mortgage for their home buyer? They still have to pay income tax on the interest income, don’t they? –Karen M.
DEAR KAREN: Yes, interest income is always taxed as ordinary income. But the big advantage for a home seller who carries back a mortgage for their buyer is the tax-free home sales proceeds (up to $500,000 for a qualified married couple; up to $250,000 for a single home seller) with a high yield. Also, easy financing usually results in a quick easy home sale for top dollar.
Purchase Bob Bruss reports online.
In today’s investment market, where can a home seller invest home sales proceeds to earn at least a 6 percent annual return with the safety of a mortgage or deed of trust on the home just sold?
If the home buyer defaults, the seller can foreclose and either (a) get paid in full by a bidder at the foreclosure sale or, better yet, (b) get the house back to sell again for a second profit. In summary, home seller financing benefits both home seller and home buyer.
NO WAY TO GET GIFT PROPERTY BACK EXCEPT BEG
DEAR BOB: About three years ago, when I thought I was dying of cancer, I deeded my home and acreage to my only son to save him from probate after I died. Well, I survived. The doctors say the chemotherapy worked and I am “in remission.” I feel like I have a new life. I’m still living in my home and my son farms the acreage (he, his wife and two children live nearby). But now I want to move to a better climate, perhaps Arizona or Florida. However, I don’t have any money because I gave away my property. I could easily sell the property, but I no longer own it. Naturally, my son doesn’t want to give it back to me or sell it and give me the sales proceeds. What can I do? –Natalie R.
DEAR BOB: Once you give away real estate, there is no way to get it back (unless there was fraud, mistake or duress involved). Your situation is a strong lesson to every reader not to give away real estate before death.
REAL ESTATE DEVELOPER PAYS THE HIGHEST TAX RATES
DEAR BOB: I buy land in my LLC (limited liability company), develop it into lots for residential neighborhoods, and sell the lots to builders. Is there any way I can minimize my tax liability to receive long-term capital gain tax rates? I am in the highest tax bracket and, after taxes, it almost isn’t worth the work –Chris W.
DEAR CHRIS: Sorry, you are taxed as a real estate “dealer,” not as a long-term investor. That means your profits are taxed as ordinary income rather than at the much lower maximum 15 percent federal income tax rate for long-term capital gains.
However, you can buy and designate some properties for long-term investment and others for short-term “flipper” dealer resale profits taxed as ordinary income. For full details, please consult your tax adviser.
The new Robert Bruss special report, “How to Earn Your First Profit When Buying Your Home or Investment Property Right,” 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 PDF 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).
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