DEAR BOB: My house has been for sale on the market more than 18 months. Despite scores of open houses and showings by agents, I haven’t received any offers. It is a gorgeous five-bedroom, 4-bathroom home with a three-car heated garage. The area is not economically depressed. We can’t figure out any ideas to sell it (without a dramatic drop in price) –Bryan C.
DEAR BRYAN: The primary reason a home doesn’t sell is it is overpriced. Or, maybe you have a “bad agent” who isn’t effectively marketing your home in the local MLS (multiple listing service), newspaper ads, Internet Web sites such as www.Realtor.com, and networking among local agents.
Purchase Bob Bruss reports online.
Frankly, if I were the listing agent and weren’t able to get a purchase offer within 18 months, I would be very embarrassed and ready to find another line of work.
If you are a motivated seller in this buyer’s market, it’s time to bite the bullet and slash your asking price.
Ask your listing agent to prepare a new CMA (comparative marketing analysis) showing recent sales prices of nearby comparable homes, asking prices of neighborhood homes (your competition), and recently expired listing prices of nearby residences (usually overpriced).
Then withdraw your MLS listing for a week or two and re-list at a reasonable asking price. Of course, never sign a listing for longer than 90 days unless it has an unconditional cancellation clause after 90 days.
HOW TO ASSUME AN EXISTING MORTGAGE
DEAR BOB: How can I assume an existing home mortgage? –Stephen B.
DEAR STEPHEN: I presume you are buying a home with an existing mortgage. There are two ways to take title and leave that mortgage in place.
One is to buy “subject to” the existing loan and take over its monthly payments. The seller remains legally obligated for the payments, so don’t default. If you do, the seller’s credit will be harmed and you will lose the property by foreclosure.
The second method is to “assume” the legal obligation for the payments. Unless the loan is in default, most institutional lenders will ask for an assumption fee, typically 1 percent of the loan balance. However, such lenders usually refuse to release the seller from secondary liability if you default.
Presuming the existing mortgage has a “due on sale clause,” some nasty lenders refuse to allow a loan assumption. In that situation, you will have to refinance with another lender.
BIG DIFFERENCE BETWEEN SELLING HOME AND INHERITING IT
DEAR BOB: If my mom sells her home in New York, does she get the $250,000 exclusion? Isn’t it better if I inherit the house rather than her selling it? –Lynne Z.
DEAR LYNNE: If your mom owned and lived in her principal residence at least 24 of the last 60 months before its sale, she gets up to $250,000 tax-free capital gains, thanks to Internal Revenue Code 121.
But your second question is entirely different. The reason for inheriting property, instead of receiving it as a pre-death gift, is to get a new stepped-up basis to market value on the date of the decedent owner’s death. That would benefit you if you decide to sell the home shortly after inheritance. Little or no capital gain tax will then be due. For details, please consult your tax adviser.
IS LACK OF CHILD SUPPORT A HOME SALE “UNFORESEEN CIRCUMSTANCE?”
DEAR BOB: I had to sell my house after owning it for 18 months because my child’s father stopped paying child support. We were not married. After expenses, I made about $30,000 on the sale. The house was in my name only. I couldn’t afford the monthly payments, plus child care, by myself. Do I owe tax on the profit? –Stina W.
DEAR STINA: Your situation might qualify for the “unforeseen circumstances” exception to Internal Revenue Code 121. As you probably know, IRC 121 allows up to $250,000 tax-free capital gains if you owned and occupied your principal residence at least 24 of the last 60 months before its sale.
Because you owned and occupied the home only 18 of the 24 required months, you could qualify for up to 75 percent of the exemption under the unforeseen circumstances exception. Check with your personal tax adviser. Even if the IRS refuses to approve the exception, the 15 percent capital gains tax on $30,000 profit is only $4,500, plus any state tax.
HOW TO HANDLE $80,000 EQUITY GIFT TO CHURCH
DEAR BOB: My friend owns a rental house worth $270,000 with a $190,000 mortgage. We both belong to the same church. She wants to pass her rental house to the church as a donation, including equity, mortgage and tenants. She doesn’t want to be a landlord any more. What is the best way to do that? –Larissa K.
DEAR LARISSA: Your friend’s $80,000 net gift of her rental house to the church is very generous. She should speak with the pastor to arrange the details.
The easiest way is to give a quitclaim deed to the church, which will then probably decide to sell the house to realize the $80,000 equity. Or, the church might wish to keep the property for its use or for possible future appreciation in market value.
Your friend should be certain she receives an $80,000 donation thank you letter from the church for her tax records. For more details, she should consult her tax adviser.
HOW TO CONVERT VACATION HOME INTO PRINCIPAL RESIDENCE
DEAR BOB: I am selling my principal residence and intend to establish primary residency in my vacation home. I am retired, travel the world, and spend time with my grandchildren. Also, I will live part time at my new wife’s residence. I have researched the IRS regulations titled “home sale worksheet.” This appears to clearly define the occupancy time requirements. But there are ambiguities. Are you aware of any tax court clarifications? –George T.
DEAR GEORGE: In addition to the required 24 of out last 60 months occupancy time spent at a residence before its sale, if the IRS challenges you, it is important to prove the property really is your principal residence.
Time spent away on vacations and visiting the grandchildren counts as residency time. However, in addition to the minimum occupancy time, you need to prove principal residence indications such as voting, driver’s license registration, auto license, bank accounts, employment, and civic affiliations.
The only court decision on this issue so far is Guinan v. U.S. (2003-1 USTC 50475). Although the Guinans met the 24-out-of-last-60-months occupancy test, and kept a bank account and automobile in the state where their part-time residence was located, the U.S. District Court ruled it was not their primary home because they never filed income tax returns from that address. The sad result was they owed $45,009 capital gain tax on the sale of their part-time residence.
LIVING TRUST DOESN’T CHANGE OWNERSHIP BENEFITS
DEAR BOB: My father is considering a revocable living trust and an irrevocable living trust. He plans to pass his house to me when he dies. He rents out part of the house to tenants and he wants to continue receiving the rental income. Does he report the rental income or will I report it on my tax returns? Will I get a stepped-up basis on his house when he dies? –Monita C.
DEAR MONITA: By definition, there is no such thing as an irrevocable living trust. All living trusts are revocable. The trustor (your father) can change the terms of his living trust or revoke it at any time.
After he transfers title to his house into his revocable living trust, he continues to own it. He can even sell or give it away, if he wishes. The reason is he is the initial trustor, trustee, and beneficiary.
After he dies, or becomes incapacitated, the named successor trustee (presumably you) takes over management of the living-trust assets, such as the house. Until he passes on, your father will continue to receive the rental income. You have no legal interest in the living-trust property (except an “expectancy”).
Only after your father dies will you acquire any legal interest in the living trust assets. 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 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).