DEAR BOB: A friend of mine was going to purchase a house. She signed a contract agreeing to move forward with the closing procedures. She had put $500 down and had a professional home inspection completed. Her mother was battling cancer and died. She then contacted the Realtor and backed out of buying the house. Now the seller and his Realtor are threatening to sue her for not buying the house. Is it true she can be sued? –Jenna B.

DEAR JENNA: Yes. When you sign a contract to buy real estate that agreement is binding on both the seller and buyer. If the seller had changed his mind about selling, your buyer friend could have sued for specific performance of the sales contract to force the seller to deliver the deed.

Purchase Bob Bruss reports online.

But the seller is unlikely to sue the buyer for specific performance to force the buyer to buy. Instead, the seller might sue the defaulting buyer for breach-of-contract damages, namely the monetary loss the seller takes if the house is sold to another buyer for less money.

The buyer’s personal problem with her mother’s illness and death is not a valid reason to cancel the purchase contract. She should consult a local real estate attorney.

CAN INVESTOR DEDUCT LOSS ON INCOME-TAX RETURNS?

DEAR BOB: I bought the house next door to rent to tenants. My mortgage costs $641 a month, plus an escrow account for the property taxes. I am getting $600 per month rent. Can I show this as a loss on my income-tax returns? My closing costs were about $7,000. Are they tax-deductible? The house was empty for about six months while I remodeled it, but I had to make the mortgage payments. Are they deductible? –Robert G.

DEAR ROBERT: Your rental income is reported on Schedule E of your income-tax returns. This is the same place you deduct mortgage interest (but not principal) payments and the property taxes paid to the tax collector. You can also deduct other applicable expenses, such as repairs, insurance and depreciation (a noncash expense for estimated wear, tear and obsolescence).

If your annual gross income (AGI) is less than $100,000, you can deduct up to $25,000 of passive losses from your rental property each year.

As for your closing costs when you bought the rental house, you may be able to deduct some expenses such as prorated property taxes and mortgage interest. But other closing costs, such as title insurance, recording fees, etc., are not deductible and must be capitalized as part of your purchase-price cost basis. For full details, please consult your tax adviser.

CAN SISTER ADD NAME TO HOUSE TITLE FOR $1?

DEAR BOB: Because my sister was a caregiver for two years, she was able to have our mother’s home put into her name when we had to put mother into a nursing home. There are three of us siblings. But we could not have our names put on the deed. Now that the home is in our sister’s name, is it true my sister and I can get our names on the deed for $1? –Cheryl S.

DEAR CHERYL: I am not aware of any method by which your names can be added to the title for $1.

Because the house is now owned by your sister, the only way to add your names to the title would be if she signs a quitclaim deed giving you partial interests in the house. I suspect she is unlikely to do that. For details, please consult a local real estate attorney.

The new Robert Bruss special report, “How to Profit from Lease-Options (Rent to Own) Whether You are a Property Buyer, Seller or Realty Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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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