Genre: Instruction

Real Estate Information Archive Blog Question : Allison , I heard that Congress recently changed some of the capital gains laws . What have you heard ? Answer : Hardly anybody noticed it , but Congress tucked away a valuable bit of holiday cheer for real estate when it passed its final tax bill of the year . It was the first substantive change in years to the generous capital gains rules governing sales of principal homes . According to Kenneth Harney , most homeowners and real estate professionals can recite these rules in their sleep : Married , joint-filing sellers of houses can exclude up to $ 500 , 000 of gain , and single-filing sellers can take up to $ 250 , 000 ... provided they 've used the property as a principal residence for a cumulative two of the previous five years . But what happens when a married home owner dies ? Does the surviving spouse still qualify for the full $ 500 , 000 -- or does she or he only get to exclude $ 250 , 000 ? The answer from the IRS has been this : you only get the full $ 500 , 000 if you sell during the tax year in which you were married and filing a joint return . Otherwise , the tax code sees you as single , and then you 're limited to $ 250 , 000 . In other words , if your wife or husband died in June of 2007 , you can only claim the full $ 500 , 000 benefit if you sell before December 31 , 2007 . After that , as long as you remain unmarried , you 're capped at the $ 250 , 000 limit for single taxpayers . As a practical matter , most surviving spouses inherit their husband's or wife's share of the property at what 's known as a " stepped up " tax basis , with no capital gains tax liability at the current market value . Well , now they 've got it . Legislation signed into law before the holiday recess gives surviving spouses two full years to qualify for the $ 500 , 000 exclusion -- even though technically they 're single . And who says Congress does n't have a heart ? Since your tax professional may not be familiar with this yet , here 's the official citation : The bill is H.R. 3648 . The capital gains change is in Section 7 . Question : Our goal for this next year is to buy a home in Summit County . We want to get some information on financing and are considering using an Internet lender . What would be the benefits of working with someone locally versus working with an Internet lender ? Answer : There are numerous advantages when using a local mortgage lender as compared to a mortgage lender obtained over the Internet . Customer service is the number one advantage . A local mortgage lender is familiar with the properties in their area , whereas an Internet lender may have limited knowledge of the requirements associated with a resort area . With a local lender the borrowers will have an individual who is personally working on their loan application , as every borrower's needs and financial situations are unique . The borrower also has a contact person to check the status of their application and to answer any questions they may have . Plus they will be able to speak directly with a local lender without having to play phone tag or leaving messages in voice mail that can be associated with the larger mortgage corporations . This can be frustrating to the borrowers . The lender is responsible for ordering the appraisal on the property , which should be from a local appraiser . This is very important . A local appraiser is familiar with the area and the values of the properties and any changes in the area that can affect those values . When purchasing a condominium unit , local lenders will be familiar with the condominium projects in the area and will know if the project meets the lender's requirements . There is also the working relationship with the local title companies , surveyors and insurance companies to meet the state's requirements to provide each borrower with clear title to the property . There are several steps that must be completed to take a borrower from application to approval to the closing date . Working with the local mortgage lenders , title companies , appraisers and surveyors makes all these steps come together . You have the advantage of the individuals familiar not only with the area but also the requirements of each purchase contract . Purchasing a home whether it 's your first home , vacation home or a rental property can be stressful , working with your local professionals can make this process a lot easier . Question : Our Realtor has suggested that we hire an interior decorator to " stage " our home . Is there any benefit in this ? Answer : Originally popularized in California , staging helps homes sell quickly and for more money . Staging concentrates not on changing the interior in terms of painting or adding carpeting , says Carole Talbott of home decorating company Visual Coordinations . These are things the buyers would most likely prefer to choose themselves . Rather staging depends on " selling the space . " When a home is staged , it 's reorganized--first with the furniture , then artwork , and finally by accessories . The furnishings remain the same , except for well-worn pieces or those that break up the design . Many times accessories are used to add color to a room . Stagers charge approximately $ 500 to $ 750 for a three-bedroom , two-bath home ; Talbott advises owners to stage only the main living areas to avoid high costs . Some staging advice for homeowners who want to go it alone : furniture should be kept away from walls by grouping at angles in the middle of the room ; colors should be chosen from artwork and fabrics , and accessories should be chosen to accentuate them ; collections should be kept together ; and mirrors should be placed in locations where favorable scenery will reflect . To attract attention to the exterior , the front door should be the first thing painted or decorated . Question : I am thinking of buying a condominium in Summit County and want to find a property with low homeowner's association dues . How important is it for the association to have a capital reserve fund ? Answer : Condominium buyers should be wary of associations that lack adequate reserves--money set aside to pay for emergency or major repairs--because they could be forced to pay special assessments to cover costs when the association can not . Additionally , a future sale or refinancing could be denied based on the association's reserves ; and it is difficult to find a buyer under such conditions . Insufficient reserve funds can lead to declining property values , as educated buyers refrain from purchasing condos in the community , according to the Community Associations Institute , a national nonprofit organization that educates and provides resources to homeowner groups . Annually , an association's board of directors is required to predict the next year's income and expenses--usually through a reserve analysis study . This report consists of a property evaluation--architectural and engineering--by qualified engineers . The engineers determine the useful life and repair costs of things like boilers , elevators , and roofs to determine how much money should be set aside each year to plan for future replacement . The reserve funds are generally collected from the condo owners on a monthly or quarterly basis and deposited into Treasury bills or other secure government-insured funds . If a repair is necessary and the association needs to raise the money immediately , there are three steps it can take : increase the monthly assessment amount ; impose special assessments , in which the owner immediately pays a fee based on the percentage interest he / she has in the association ( sometimes amounting to hundreds of dollars ) ; or get a loan . Answer : Although reverse mortgages are an ideal fit for many senior homeowners , they are not the best option for all of them . A reverse mortgage would not be in the best interest of someone who intends to make a move in the foreseeable future , the AARP and other sources note . Reverse loans usually come with stiff upfront fees and closing costs of up to 10 percent of the loan amount , which are distributed over the life of the loan . Owners who sell their homes quickly will also lose their equity quickly . Reverse mortgages may not be suitable for seniors who want to leave a free-and-clear property behind as a legacy to their heirs . At the same time , some experts say elderly homeowners should consider a reverse loan as a way to meet living expenses or settle medical bills while they are alive , without worrying about what will happen when they die . Their offspring still can keep the property by paying off the reverse mortgage with funds from the estate or with their own money , or by taking out a new mortgage . Experts warn that reverse loans may not be the solution for the youngest seniors , because longer life expectancy qualifies borrowers for less money , or for those in the midst of a temporary financial emergency , who might be better off taking out a home equity line instead . Finally , another alternative , such as selling the property and using the proceeds to downsize into a smaller house or to rent , might make sense for some seniors . Question : Allison , we 've heard a lot about 1031 tax-deferred exchanges and would like to know if our second home would qualify for a like-kind exchange with another piece of property that is closer to our home . We have never rented our current property , but consider it an investment due to it 's appreciation the past few years . Answer : Your question is a good one – and one that has been in the media and in the courts quite a bit in the past few months . To get an accurate assessment of your particular situation , I recommend you speak with a company that specializes in 1031 tax-deferred exchanges . According to Inman News , a similar case to yours was tried in court . Here are the details . In 1988 Barry and Deborah Moore purchased a second home on Clark Hill Lake . It included a home to which the Moores added a deck and other improvements . The property was a three-hour drive from their principal residence . The Moores and their children visited the property two weekends each month between April and September each year . But in 1995 the Moores changed their primary-residence location , making the drive to the Clark Hill Lake property a five - to six-hour trip . As a result , they used the property only a few times each summer . The Clark Hill Lake property was never offered for rent to short - or long-term tenants . On their income-tax returns , the Moores deducted their mortgage interest and property tax payments as personal itemized deductions . In 2000 , the Moores found a five-bedroom , four-bathroom house on 1.2 acres of land adjoining Lake Lanier , just a few hours from their home . It has five screened-in porches , a party deck and veranda . They decided to make an Internal Revenue Code 1031 tax-deferred trade of the Clark Hill Lake property for the larger and closer Lake Lanier property . They justified the exchange by stating both properties were held for " investment " rather than for personal use . Upon audit , the IRS denied the IRC 1031 tax-deferral on the sale of the Clark Hill Lake property . The IRS auditor noted the property had never been rented and was used only by the Moore family on weekends . But the Moores argued they held the property as an investment for future appreciation in market value . They took their dispute to the U.S. Tax Court . If you were the judge would you allow the Moores to defer the capital gains tax on the trade of the Clark Hill Lake property as an investment ? The judge said no ! To qualify for an IRC 1031 tax-deferred exchange , the judge began , both properties involved in the trade must be held for investment or for use in a trade or business . Although the Moores pointed to the appreciation potential of the Clark Hill Lake property , he continued , " It is a taxpayer's primary purpose in holding the properties that counts . " " Property held for investment is property held for the production of income , " the judge explained . " We accept as fact the Moores hoped that both the Clark Hill and Lake Lanier properties would appreciate , " he noted . " Mere hope or expectation that property may be sold at a gain can not establish an investment intent if the taxpayer uses the property as a residence , " the judge emphasized . There was no convincing proof either property was held for the production of income as a rental since the family used both properties primarily as vacation retreats , he added . Because the evidence strongly showed both vacation homes were held for personal use , rather than for production of income , neither property qualifies for an IRC 1031 tax-deferred exchange , and the Clark Hill Lake property sale is taxable , the judge ruled .