Editor’s note: Robert Bruss passed away on Sept. 26, 2007. This was one of the last real estate columns he wrote. Inman News is publishing Bob’s last work as a final salute to the nation’s most well-known real estate writer.

DEAR BOB: In 1995, I acquired a residential rental property through an Internal Revenue Code 1031 tax-deferred exchange. In 2000, I gave the property to my son and his wife for use as their principal residence. I filed a federal gift tax return for fair market value in 2000. My son and his wife have continually occupied the house for the past seven years. Do they qualify for the $500,000 principal-residence-sale exclusion and what is their cost basis for this property gift? –Melvin F.

DEAR MELVIN: Thanks to Internal Revenue Code 121, if your son and daughter-in-law owned and occupied the property as their principal residence at least 24 of the last 60 months before its sale, then they can claim up to $500,000 tax-free capital gains (up to $250,000 for a single home seller).

Purchase Bob Bruss reports online.

However, because the property was a gift, as the donees they took over your (presumably low) adjusted cost basis at the time of the gift. They did not acquire the property at its probably much higher market value on the gift date.

This is a major disadvantage of a realty gift, namely the donee takes over the donor’s adjusted cost basis. For more details, they should consult their tax adviser.

“AS IS” HOME SALE DIDN’T EXCUSE A PROFESSIONAL INSPECTION

DEAR BOB: Last October we bought a large house “as is.” Therefore, we did not obtain a professional inspection before the closing. Now we realize the seller didn’t disclose major defects, such as the sinking of one side of the house foundation, doors that won’t open or close, and many other problems. The seller moved out of state. We only know his law firm’s address and phone. I faxed him an inquiry letter, but he doesn’t reply. Do I have sufficient grounds to sue? –Lea W.

DEAR LEA: Although you bought the house “as is” (which means the seller won’t pay for any repairs), the seller still had a legal duty to disclose all known defects. As a reader of this column, you know you should have obtained a professional inspection, which would have revealed most or all of the problems you encountered.

Your biggest legal difficulty, if you decide to sue the seller, is to prove the seller knew of the defects and failed to disclose them. Also, his listing agent might be liable to you for damages if you can prove the agent knew of the undisclosed defects.

Your second-biggest problem will be serving the summons and complaint on the seller who is now out of state. There are several methods to do this, such as service by publication, but you usually need court approval for that.

Your third-biggest problem is finding an attorney to take your case on a contingency basis. If you hire an attorney on an hourly basis, you could run up thousands of dollars in legal bills with no assurance of winning the case.

Your fourth-biggest problem, if you win a judgment against the out-of-state seller, is collecting that judgment. Frankly, unless your damages are huge and the seller is very rich, I would not recommend a lawsuit because of your downside risk. For details, please consult a local real estate attorney.

COMBO MORTGAGE IN CONDO-COMMERCIAL BUILDING ISN’T EASY

DEAR BOB: I own a condominium apartment on the second floor above an art gallery on a commercial street. I want to refinance my mortgage but can’t find a lender. Any suggestions? –Steven K.

DEAR STEVEN: An experienced local mortgage broker who has contacts with dozens of mortgage lenders should be able to refinance your loan in a combination commercial-condominium building.

There are thousands of such “combo” properties and not all lenders refuse to make loans in such buildings. Look for a portfolio lender, perhaps your bank, who will keep your mortgage in its portfolio because most secondary mortgage market buyers won’t be interested in acquiring your mortgage.

The new Robert Bruss special report, “How to Profit from Lease-Options (Rent to Own) If 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
).

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
We're here to help. Free 90-day trial for new subscribers.Click Here×