DEAR BOB: We are in the process of selling our home. About five years ago, my son and I remodeled the two bathrooms. I have the receipts for tubs, toilets, etc. But how do I place a value on our personal labor? We spent eight straight weekends, Saturdays and Sundays, working together. Would $25 per hour be fair? –Curtis R.
DEAR CURTIS: I’m sure you and your son did excellent work on those two bathrooms. But Uncle Sam values your personal labor at zero. You can add the cost of materials purchased for those bathrooms as capital improvements to your home.
Purchase Bob Bruss reports online.
However, you cannot add anything for the value of your personal labor. For full details, please consult your tax adviser.
MUST A “BATTERED WOMEN’S SHELTER” BE DISCLOSED?
DEAR BOB: Last September my wife and I bought a house. A few months after moving in, we discovered our next-door neighbor is actually a “battered women’s shelter.” Our real estate agent did not disclose this to us. We feel she should have known and that we might have to disclose this fact when we eventually sell as it may affect our resale value. Can we successfully sue our buyer’s agent for not disclosing it to us? The house is brand-new construction so we don’t think we can sue the previous owner –Fernando and Myrna A.
DEAR FERNANDO AND MYRNA: Forget it. A “battered women’s shelter” is not a public or private nuisance, both of which have a material effect on property values. If it took you several months to discover it, there probably aren’t any obvious disadvantages.
Unless you can prove damages, you probably have no cause of action against your buyer’s agent. For more details, please consult a local real estate attorney.
HOW ARE CAPITAL GAINS CALCULATED WHEN HOUSE IS SOLD?
DEAR BOB: How are capital gains calculated? Is it the difference between the purchase price of a house and its selling price? What about improvements to the house? Does the mortgage matter if it has been paid off? –Chad S.
DEAR CHAD: Real estate capital gains tax is calculated on the difference between your adjusted cost basis and your adjusted (net) sales price.
The mortgage balance is immaterial, even if you refinanced.
The cost of capital improvements you made should be added to your original purchase-price cost basis. If it is a rental property, don’t forget to subtract the depreciation deducted during the rental period to arrive at the adjusted cost basis.
If the house was your principal residence at least 24 of the 60 months before its sale, then you (and your wife) might qualify for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a qualified married couple). For full details, please consult your tax adviser.
The new Robert Bruss special report, “Pros and Cons of Today’s Five Best Real Estate Profit Opportunities,” 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).