DEAR BOB: I am downsizing and plan on paying cash for my next residence. Are there any hidden dangers in paying cash? –Mark N.

DEAR MARK: Please don’t do that unless you are: (1) very wealthy, (2) will be spending cash you never need to see again, and (3) you can afford to tie up a large amount of cash in one asset.

Purchase Bob Bruss reports online.

A better alternative is to pay a 20 percent or 25 percent cash down payment and obtain a fixed-rate 15- or 30-year home mortgage for the balance of the purchase price. Then, just in case you bought a “bad house” or a “bad condo,” you won’t have all your nest egg tied up. After a few years of owning and living in the home, if all turns out well, then you can pay off the mortgage (of course, be sure it doesn’t have a prepayment penalty).

I still recall a nightmare letter I received a few years ago from a retiree who bought her retirement condo for all cash. Only after moving in did she discover the complex was badly managed and occupied by about 50 percent renters who caused many problems.

When she tried to sell her condo, she discovered mortgage lenders either refused to loan to new buyers or they charged very high interest rates because of the high risk with so many renters. The only way she could get her cash out was to sell to another all-cash sucker. I don’t want you to become an all-cash sucker buyer like that.


DEAR BOB: I own a house that I lived in for four years until last month when I converted it to a rental. If I sell it within 24 months, will my cost basis be calculated on my original purchase price or on the property value when I converted it to a rental? –Leonard H.

DEAR LEONARD: Market value on the date of conversion to rental status is irrelevant. Your adjusted cost basis for the house is your original purchase price, plus capital improvements you added during ownership. This is your basis for calculating your rental depreciation deductions.

Presuming you meet the 24-out-of-last-60-months, primary-residence ownership and occupancy tests of Internal Revenue Code 121, you can rent the house up to 36 months after moving out before losing your $250,000 principal-residence-sale tax exemption. However, upon sale, the depreciation you deduct during the rental period will be taxed at the special 25 percent federal recapture tax rate. For details, please consult your tax adviser.


DEAR BOB: About three years ago I bought a condo as my primary residence. I recently got married and want to make my wife a co-owner to make conveyance easier if something happens to me. Refinancing isn’t an option because the interest rate would go up by about 2 percent. What do you recommend? –Jerry T.

DEAR JERRY: You can sign and record a quitclaim deed to your new wife for a 50 percent interest in the property. If you want her to receive full ownership if you die first, holding title as joint tenants with right of survivorship (or as tenants by the entireties in states allowing that method for married couples) avoids probate upon a co-owner’s death. If she dies first, then you become the sole owner again.

Better yet, a revocable living trust can specify that when you pass on she receives title to the condo. That way, just in case your marriage doesn’t work out, you haven’t given up control of the condo. But when you die she receives the title without probate.      Also, there are additional living-trust benefits if you become incapacitated such as with Alzheimer’s disease or a severe stroke. Your wife should probably be named successor trustee to your living trust. More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” 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


DEAR BOB: About 18 months ago, I purchased a tenancy in common (TIC) with a partner. There are two houses on one lot. We recently converted them into two separate condos. I have been living in my house since the purchase. I plan to sell my condo house next spring, two years after we originally purchased as a TIC. Does the $250,000 principal-residence-sale capital gains exemption of Internal Revenue Code 121 apply from the date the TIC was purchased or from the date it was converted into a condo? –John M.

DEAR JOHN: Nobody knows the answer to your question for sure. Presuming you meet the 24-out-of-last-60-months, primary-residence ownership and occupancy tests of IRC 121 by the time you sell, I would argue the 24 months began when you became a TIC and moved in.

Conversion to condominium ownership was to improve marketability and was a continuation of that ownership. Sorry, there are no rulings or other information available on your unique situation. Please consult your tax adviser for more details.


DEAR BOB: My boyfriend and I got the mortgage for my house together. I put a $30,000 cash down payment on the house. The title is in my name only. But the mortgage is in both our names. Is he entitled to half of the house? – Lupe B.

DEAR LUPE: I presume your boyfriend co-signed the mortgage because he has good income and great credit. Most mortgage lenders insist co-borrowers be on both the mortgage loan obligation and on the title. Your situation is quite unusual.

Based on your description, if your boyfriend’s name is not on the title, he didn’t make any down payment, and if he doesn’t pay part of the mortgage, property taxes or home repairs, he appears to have no ownership interest in the house. For details, please consult a local real estate attorney.


DEAR BOB: Can a single home seller claim more than the $250,000 primary-residence-sale tax exemption by using the entire capital gain to buy another home for a higher price than the residence sold? –Kevin C.

DEAR KEVIN: No. As a sole home seller, you are limited to the $250,000 principal-residence-sale tax exemption of Internal Revenue Code 121. That’s presuming you owned and occupied your primary home at least 24 of the last 60 months before its sale.

Purchasing another home for greater cost won’t increase your exemption. For details, please consult your tax adviser.


DEAR BOB: My rental property is worth about $590,000 and has a $376,601 mortgage. If I sell, to avoid tax do I have to invest all my profits into another property or can I use a small amount to invest in a second property? –Tracy McG.

DEAR TRACY: To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must trade equal or up in both property value(s) and equity. You can trade your one investment property for two or more rental or business properties if the totals equal or exceed what you receive for your current rental property.

The amount of the mortgage(s) on the acquired properties must equal or exceed the old mortgage balance. If you keep any cash or net mortgage relief from the trade, that is taxable “boot” to you. Please work with a qualified third-party intermediary accommodator to be certain your transaction qualifies as a tax-deferred exchange.


DEAR BOB: I sold my principal residence on March 15, 2005, and took my $250,000 tax-free capital gain. I had lived there two of the previous five years. On Jan. 1, 2002, I moved in with my fiance so we have now lived in his house together for three-and-a-half years. I was not on his deed, however, until we married a month ago. Can we now sell this property (his residence for the last 10 years) and take a $500,000 tax-free capital gain? Does the clock start when I moved in or when I was on the deed? –Linda F.

DEAR LINDA: You are in luck. If you meet the 24-out-of-last-60-months occupancy test (as you do) and you are married to the title holder at the time of the principal-residence sale, you and he can qualify for up to $500,000 tax-free principal-residence-sale profits if you file a joint tax return in the year of the home sale.

However, because you used your exemption on your March 15, 2005, home sale, and Internal Revenue Code 121 allows use of this tax break only once every 24 months, for you to qualify for the additional $250,000 exemption the sale must close after March 16, 2007. For details, please consult your tax adviser.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” is 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 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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