A: Thank you for sharing that valuable information. If I understand correctly, a homeowner with a $100,000 acquisition mortgage balance who makes $60,000 improvements to her home can then deduct interest on up to $160,000 of acquisition mortgage financing.
In addition, she can deduct interest on a home equity loan up to $100,000 or, in this example, total mortgage debt up to $260,000 secured by the owner's principal residence.
Q: I have terminal cancer and probably won't live more than a few months. My daughter and her two sons live with me in my house, which I have owned many years. They are to receive it in my will when I die because they have given me wonderful loving care during my illness.
But I am receiving conflicting advice as to whether I should deed the house to them before I die or if I should let them inherit it by my will.
There is no danger of a will contest because my two sons know they will receive other property by my will.
A close friend says I should deed the house to my daughter and her sons now to avoid probate. Is this a good idea?
A: No. You say you have owned the house many years.
I presume that means you paid much less than the home's current market value.
If you deed the house before you die, the donees will take over your low adjusted cost basis.
When they eventually sell the house, presumably for more than your low basis, they will owe capital gain tax on the difference between the adjusted (net) sales price and their low adjusted cost basis.
However, if they instead inherit the property after you die, their adjusted cost basis will be the home's market value on the day of death.
This gives them a much higher adjusted cost basis, and a much lower taxable profit when they eventually sell, since they don't have to take over your low adjusted cost basis.
But I must hasten to add if either or both your grandsons are not yet 18, you could be creating a major problem by leaving the home to them along with your daughter.
The reason is minors can receive property titles but they cannot convey titles. If the house needs to be sold before they become 18, a court-appointed guardian will be required to represent their interests.
A better alternative than leaving your assets by will is to consult an attorney about creating a living trust before you die.
You can specify in the living trust how you want your assets distributed when you pass on.
But a living trust avoids the costs and delays of probate. Please consult an attorney now to discuss a living trust.
Q: When we bought our home about two months ago, the purchase contract clearly specified all the kitchen appliances were included.
The refrigerator was a practically new model. The day before the closing, unknown to us, the seller replaced the new refrigerator with a smaller old one she had in the garage. She took the new one with her.
We shopped around and the best price quoted for the stolen refrigerator is about $800. An attorney friend advises suing the seller (who has moved out of the area) and the real-estate agent. Do you think it will be worth the time and effort?
A: Yes. In most states, such a lawsuit can be brought at minimal cost in small-claims court.
Although the seller has moved out of the area, you can probably still serve her with the summons and complaint. If the real-estate agent knew of the deception, he or she might also have liability to you. There is no excuse for a home seller pulling a dirty trick as she did.
Q: Our home is about 35 years old. We bought it in 1992. In October 1993, a new owner bought the adjoining house. He says he had a survey made and our driveway encroaches on his lot by about 2 feet. A fence borders our driveway, which is about 10 feet from his house.
His attorney sent us a demand letter ordering us to stop using our driveway. But there is no other way we can reach our garage at the back of our property. If our driveway really is 2 feet on our new neighbor's property, because of the long use isn't there some way we can continue using it?
A: Yes. If your new neighbor's survey is correct, you and the previous owners of your home may have acquired a prescriptive easement to continue using the driveway even if a 2-foot strip is on your neighbor's lot. Since the outcome of this matter can have a major effect on the value of your property, please hire the best local real-estate attorney you can find to represent you.
Q: We own a condo which we have been unable to sell. During the last year we have had it listed with two realty agents who tell us there are too many condos for sale in our vicinity. Another problem is the mortgage balance is only a few thousand dollars below the current market value. Our realty agent talked with the mortgage company about a "short sale," but the lender refuses to cooperate.
However, we wrote the lender, who has agreed to accept a deed in lieu of foreclosure. Are there any precautions we should take and do you think we need an attorney?
A: Many condominium owners are in similar situations. Because of the high number of condo foreclosures, many mortgage lenders are reluctant to make loans on condos. I don't blame them for being extra-cautious before making condo mortgage loans.
For readers unfamiliar with the term "short sale," that means the property will sell for less than the mortgage balance and the lender is being asked to reduce the mortgage balance to facilitate the sale.
To illustrate, suppose a buyer makes an offer to buy a condo for $100,000, the mortgage balance is $105,000, the sales expenses including the commission are $7,000, and the seller can't pay the $12,000 deficit.
If the lender will agree to a "short sale" and receive $93,000 instead of the full $105,000 owed, then a sale can take place. However, if the lender won't agree to a short sale and a foreclosure takes place, the lender will probably incur a loss greater than $12,000.
However, I am very surprised your mortgage lender agreed to a deed in lieu of foreclosure but not a short sale. Before you give a deed in lieu of foreclosure, be sure the lender agrees in writing not to (1) report anything negative on your credit report and (2) try to collect any loss deficiency from you. Obtaining a real-estate attorney's advice is wise, but don't let the attorney kill the deal for you.
