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2010: Year of the Turnaround?
By Dian Hymer
A spurt in home sales in 2009, aided by low interest rates and the first-time homebuyer tax credit, has led some economists to forecast a turnaround in the housing market this year. Other forecasters feel this is too optimistic a projection...
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No capital gains tax on home exchange?
By Benny Kass
DEAR BENNY: My husband and I built a townhouse in 1983 for $33,000. We lived there for a few years and then rented it out for 17 years, taking all the tax advantages such as depreciation, etc.
In 2003 we sold it for $90,000, and did a like-kind exchange with a house that my husband built. That house has been rented for the past six years and now has a market value of $190,000. We have no liens on the home and would like to sell it and put the money towards our dream home.
If we moved into the home and lived there for two years, would we have to pay capital gains taxes when we sell the home?
We've asked our certified public accountant (CPA) and she said we would have to pay capital gains because we took depreciation on the properties. We also asked a friend who worked for the Internal Revenue Service and he said as long as we lived in the home for at least two out of the last five years before we sold the home, we would not have to pay capital gains tax. Who is correct? --Jeanne
DEAR JEANNE: I believe your CPA is correct. Any depreciation that you took after May 6, 1997, will be taxed. And based on a new 2008 tax law, the gain must be allocated between the rental and the personal use starting after Dec. 31, 2008. The portion of the gain allocated to the rental period will be taxed.
I would always follow the advice of your paid accountant, rather than that of a friend, even if he or she works for the IRS.
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Short sales, where the lender agrees to take less than amount due to them, have tended to sell for less than similar homes in the area. One reason for this is that short-sale listings usually don't look as good as the competition. Another reason is that short sales require lender approval.
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FHA program funds fixers
By Dian Hymer
Investors have been taking advantage of low interest rates and discounted prices to buy run-down foreclosure properties, sometimes 10 or so at a time. They fix up the properties enough to be rented until the market turns, which could take years. When the time is right, the investor puts the finishing touches on the improvements and hopefully sells for a profit.
This can be a risky strategy for an inexperienced homebuyer. It's hard to compete with investors who make all-cash offers. Investors usually have a team of contractors who can do the fix-up work. If they're working on several properties at once within close proximity of one another, it's more economical than fixing up one property at a time.
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