DEAR BOB: Must a deed be recorded to be considered valid? Is a deed not a contract regardless? –Irvin S.
DEAR IRVIN: Without recording in the public records where the real property is located, a deed properly signed and notarized or witnessed is valid only between the grantor and the grantee. Because it is not recorded, it does not give “constructive notice” to the world.
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A deed is not a contract; it is just evidence of a conveyance of real property.
Some states have statutes requiring deeds to be recorded within a time period, such as one year, or they are presumed to be not valid. For details, please consult a real estate attorney in the state where the property is located to determine if the deed is valid between the parties even though it is not recorded.
DEATH IS THE ONLY WAY TO AVOID DREADED DEPRECIATION RECAPTURE TAX
DEAR BOB: Almost a year ago, I bought a rental condominium to complete an Internal Revenue Code 1031 Starker tax-deferred exchange. Due to my job loss, I sold my primary residence and moved into the condo because it has no mortgage payments. Is this OK? Also, somewhere I read (maybe in your articles) that if I own my primary residence acquired in an IRC 1031 exchange for five years and live in it at least two of those years I can qualify for the $250,000 primary residence sale exclusion. Does this also apply to the deferred gain as well as any gain on the condo’s market value? –Mark L.
DEAR MARK: Yes. Your information is basically correct. However, when you sell your personal residence, which was acquired in an IRC 1031 tax-deferred exchange, your Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly) does not apply to the 25 percent depreciation recapture tax.
The only way to avoid that dreaded depreciation recapture tax is to die while still owning the property. Death is the ultimate tax shelter of all. For details, please consult your tax adviser.
BUYING VACATION CONDO IS SPECULATING, NOT INVESTING
DEAR BOB: I am interested in buying a vacation condo on the island of Kauai, Hawaii, where I see one-quarter- and one-sixth-share purchases being advertised. How do these work in terms of getting mortgages, and who controls the property decisions such as when to paint and replace appliances or furnishings? I am interested in buying a vacation condo and selling off timeshares –Linda M.
DEAR LINDA: That is not real estate investing. That’s speculating. What you describe is very risky. The condo management company usually makes the decisions. Investigate very carefully.
Never spend money on high-risk vacation properties, especially such as the situation you describe, where you will ever need to see your money again.
The new Robert Bruss special report, “How to Sell Your Home for Top Dollar in a Buyer’s Market,” 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.
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