Weekly Real Estate Q & A
Robert J. Bruss, a California real estate lawyer and broker, answers readers’ housing-related questions a weekly syndicated column picked up by the Miami Herald. His most recent real estate mailbag involves reverse mortgages, juggling the balances of two home loans, and the ever-popular tax implications of owning homes in different states…
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Q: My husband and I (ages 73 and 83) have a lot of equity in our home of 40 years. Because we will probably need money in the near future for living expenses, I’ve been trying to persuade my husband to look into a reverse mortgage. He tells me your articles advise against obtaining one unless the homeowners plan to stay in their home at least five years.
He is reluctant to consider a reverse home loan under the reasoning that we don’t need the money right now. My idea is to take out a reverse mortgage now, the deposit 25 percent in a liquid account to draw on if needed and invest 75 percent in a high-interest account. A good plan?
A: No. If you don’t need the reverse mortgage money yet, there is no reason to obtain the mortgage now. All that will happen is that you will start accruing interest on money you really don’t need. However, this is a good time for baby boomers who may consider this option down the road to shop around and compare reverse mortgage lenders. See what local lenders have to offer compared to Fannie Mae, FHA and Financial Freedom Plans. You can choose to receive a lump sum, lifetime income, a credit line or any combination of payments.
If you want to arrange a reverse mortgage now, the credit line is the most popular choice because it makes funds available when you need them in the future, such as for a new roof or a trip around the world. However, getting the loan and not using the available money is an expensive option because your up-front loan fees start accruing interest whether you use the funds or not.
Q: My wife and I own two rental properties. Our goal has been to reduce the mortgage principal on our primary residence. Is there any way we can sell the two rental houses and use the cash received to pay down our Florida home loan without owing capital gains tax on our sale profits?
A: Unfortunately, there is no way to sell your rental houses and therefore avoid paying capital gains tax on your profit. However, it is still a wise move to use the cash to pay down your home mortgage balance.
Q: We own two homes and spend about six months in each over the course of the year. We want to sell our Florida home, but we file our income tax returns from our other home, vote there, etc. Must we change our legal domicile to Florida and file income tax returns from Florida that year before are are entitled to the $500,000 tax-free profits from a sale?
A: According to the IRS, you qualify for up to $250,000, and up to $500,000 for a married couple, when filing a joint tax return, in terms of tax-free principal residence sale profits if you own and occupy the home at least 24 of the 60 months before its sale. Both your homes meet the test if you spend six months a year there, but occupancy time doesn’t determine your principal residence by itself.
If you don’t vote, hold driver’s licenses, register your car, file income tax returns, and have bank accounts in Florida, and you are audited by the IRS, your Florida home will probably be determined not to be your principal residence. Simply filing your income tax returns from Florida in the year of the sale and the previous year might not be sufficient, either, in the event that you don’t record a Florida homestead property.
Q: We signed a listing contract to sell our home. While going through our papers, we found we were missing the listing agreement. We went to the broker’s office to get the missing papers and found it contains a $695 transaction fee plus the sales commission. We don’t believe we signed the agreement with that fee on it. Nothing about this fee was mentioned until we saw it on the listing agreement. Do we have any options?
A: Your agent didn’t call your attention to that extremely high $695 junk fee before you signed the listing, and didn’t giving you a copy of the listing agreement at the time you signed it. Most states require that the seller immediately be given a copy of the listing agreement, so you might want to report the matter to your state’s real estate regulators.
