DEAR BOB: I will be getting married soon. My fiancé and I will be buying a home together and selling our current residences for capital gains exceeding the $250,000 exemptions for each. If we put ourselves on each other’s title, and file a joint tax return, can we take advantage of the $500,000 married exemption per property and avoid capital gains tax? If so, can we use the $500,000 exemption twice in the same tax year since both properties will be sold in 2006? –Wilamena P.

DEAR WILAMENA: Adding your name to the residence title owned by your fiancé, or vice versa, won’t change anything.

Purchase Bob Bruss reports online.

The reason is, to increase the principal residence sale tax exemption from $250,000 for a single owner to $500,000 for a married couple filing a joint tax return, both spouses must occupy the home at least 24 of the 60 months before its sale.

You can each sell your principal residences in the same tax year and claim up to $250,000 tax-free home-sale profit on each sale, thanks to Internal Revenue Code 121.

That’s presuming you each owned and occupied your home at least 24 of the 60 months before its sale. But you will owe capital gains tax, currently at the 15 percent maximum federal tax rate, plus state tax, on the capital gain exceeding $250,000. For full details, please consult your tax adviser.

UPSTAIRS CONDO OWNER’S NOISE IS A PRIVATE NUISANCE

DEAR BOB: I own a ground-floor condo, which I rent to a tenant. The resident owners of the unit above replaced their flooring with hardwood floors. My new tenant says the noise from the floors is intolerable and he wants to move out. With this noise problem, I am about to lose my tenant and I doubt I can even sell the condo if I disclose this noise problem to a buyer. I talked with the homeowner’s association. They advised that this is a problem between my neighbor and me. If I can’t work things out with my neighbor, do I have any recourse? This noisy floor is ruining my rental property. –Matthew D.

DEAR MATTHEW: The situation you describe is legally known as a “private nuisance” because it only affects one property owner. If it affected many owners, it would be a “public nuisance.”

If you can’t resolve the noise problem on a friendly basis with the inconsiderate upstairs neighbor, you may need to retain a real estate attorney to bring a private nuisance abatement lawsuit and sue for monetary damages.

NEIGHBOR LIABLE FOR DIVERTING WATER ONTO LOWER PROPERTY

DEAR BOB: About two years ago, my neighbor and I built a common cinderblock fence on our property line. She made additional improvements to her driveway on her side of the fence. Then she discovered her garage flooded with heavy rains. She rectified the problem by having the fence contractor punch a hole in the bottom of our fence to let the water drain into my yard. Now that part of my yard becomes a swamp when it rains. When I approached her about this problem she created, she said that is the natural way the water would run. She refuses to do anything. Is she right? Is her flooding my problem to fix? I am tempted to have the contractor come back to plug up that hole. –Katalin S.

DEAR KATALIN: The general rule is a lower property owner must accept the natural flow of water from an upper property owner. However, the upper owner cannot divert or channel water unto the lower property without liability.

Because you and your neighbor jointly built the cinderblock fence, it appears the rules of natural water flow no longer apply to your situation. Now your upper neighbor appears to be illegally directing or channeling the water onto your property.

Please consult a local real estate attorney to determine if “self-help” is appropriate by blocking that fence hole that directs water toward your property. Or perhaps you should file a lawsuit against your uncooperative neighbor to abate the private nuisance that she has created.

HOW LONG BEFORE OWNER-OCCUPANT CAN CLAIM $250,000 TAX BREAK?

DEAR BOB: After my rental property is converted to my principal residence, how long must I live in my house to qualify for the $250,000 tax-free from the sale? Some friends say two years, but others say five years. –Kimberly T.

DEAR KIMBERLY: If you acquired the rental residence in an Internal Revenue Code 1031 tax-deferred exchange, you must own the property at least 60 months before you can sell it and qualify for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return.

Whether you acquired the rental house in a tax-deferred exchange or as a purchase, you must own and occupy it at least 24 of the 60 months before its sale to qualify for the IRC 121 exemption. For full details, please consult your tax adviser.

IS “BED-AND-BREAKFAST INN” A GOOD REALTY INVESTMENT?

DEAR BOB: My wife and I are thinking about selling our home, taking that $500,000 principal-residence-sale exemption you often discuss, and buying a small “bed and breakfast inn” where we have stayed many times. It has five bedrooms, plus an owner’s cottage in the back. Is this type of property a good investment? –Dan W.

DEAR DAN: A bed-and-breakfast inn is both a business and a real estate investment. Do you realize you will also be buying yourselves seven-day-a-week jobs? Please consider yourself fortunate if you earn much profit and if you eventually profitably resell.

I have some friends who owned a nice bed-and-breakfast inn in a resort area. The wife talked her husband into buying it. Only after moving in did they realize it was a full-time job (although they were able to hire outside help to give them a day off each week).

Due to a family situation a few years later they decided to sell. After the sale closed, the husband told me that was the happiest day of his life.

WHAT IF CO-SIGNER DEFAULTS ON HOME MORTGAGE?

DEAR BOB: A few years ago, my husband’s brother talked him into co-signing on a mortgage so the brother could buy a condominium. My husband had good credit and his brother did not. Since then, his brother has been in and out of jail, doesn’t work steadily, and my husband often has to pay all or part of the mortgage payments to prevent it from going into default. My husband wants his brother to sell the condo (which can be sold at a net profit of at least $75,000) but he refuses to sell. What can my husband do to get out of this mess? –Vivian R.

DEAR VIVIAN: Presuming he is a title co-owner, your husband can bring a partition lawsuit to force the sale of the property with the sales proceeds divided between the co-owners. He will need a real estate attorney to handle the legal details.

But before filing a partition lawsuit, if I were your husband I would sit down with the brother, explain the facts, and suggest they voluntarily agree to sell the condo without the costs of a partition lawsuit.

IS A “YIELD SPREAD PREMIUM” LEGAL?

DEAR BOB: I recently refinanced my home mortgage. I had to pay the mortgage broker a two-point loan fee. But at the closing settlement, the statement I received said there was a “yield spread premium” to the mortgage broker of $1,785. When I asked what this was for, I was told the lender paid my mortgage broker $1,785 on top of my two-point loan fee. Is this legal? –Miriam A.

DEAR MIRIAM: Yes. A “yield spread premium” fee is a legal kickback from the mortgage lender to your mortgage broker for producing a home loan with an interest rate higher than the lender requires.

For example, suppose the lender requires a 6 percent mortgage interest rate but you agreed with the mortgage broker to pay 6.25 percent interest. In addition to saying “thank you” to the mortgage broker, the lender paid a “yield spread premium” kickback fee to the mortgage broker.

When this occurs, often due to a decline in the mortgage market, many mortgage brokers will decrease the loan fee paid by the borrower. If you ask, perhaps your mortgage broker will refund part of the loan fee you paid him.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” 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.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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