Down payment may present problem for retiree

Robert J. Bruss
Inman News

DEAR BOB: I would like to buy a second home in Phoenix, but all my money is tied up in retirement accounts. I am thinking a reverse mortgage will give me the money I need (about $250,000). Can I continue to live in my current residence? Are there annual fees for the reverse mortgage? –Roger D.

DEAR ROGER: I presume you are 62 or older. Fannie Mae offers reverse mortgages for home purchase. However, the residence acquired must become your principal residence and you must make a substantial down payment. The big advantage, however, is no monthly payments as long as you live in the acquired home.

Purchase Bob Bruss reports online.

If you want to keep your current principal residence where you plan to spend most of your time, you can obtain a “lump sum” reverse mortgage. The exact amount available depends on your age (the older the better) and your home’s current market value.

The reverse mortgage lender doesn’t care how you spend the money. To find a reputable local reverse mortgage originator, I suggest you go on the Internet to www.reversemortgage.org to learn how much you can obtain secured by your current residence. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.bobbruss.com.

PARTIAL TAX EXEMPTION FOR HOME SELLER

DEAR BOB: In 2004 my wife accepted a job in Seattle. We bought a house for her to live in there, but we kept our former residence where I remained. She lived in the Seattle house for 10 months before accepting a new position that allowed her to return to living with me in our home. When we sell the Seattle house, can we exclude the capital gain from tax on 10/24 of the $250,000 we would have been eligible for if she lived in the house for 24 months? –Chuck V.

DEAR CHUCK: Yes. From your description, it seems your wife qualifies for 10/24 of the $250,000 principal residence sale exemption of Internal Revenue Code 121 for the profitable sale of the Seattle house. For full details, please consult your tax adviser.

PRICE, NOT UNITS, DETERMINES TAX-DEFERRED EXCHANGE

DEAR BOB: I read your real estate section every week. Thank you for the valuable information. If we were to sell our two-bedroom rental house and buy a multi-unit dwelling out of state, will that qualify for an Internal Revenue Code 1031 tax-deferred exchange if the house we sell is more expensive than the units we acquire? –Theresa W.

DEAR THERSA: It’s not “my” real estate section, but I enjoy contributing to it every week. To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must trade equal or up in both price and equity. The number of rental units is irrelevant.

The exchange you describe is a taxable “down trade” because you will be taking out taxable “boot,” such as cash or net mortgage relief. Also, you will be exposing yourself to the dreaded special 25 percent federal tax rate for “depreciation recapture.” Please consult your tax adviser for details.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 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).

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Copyright 2006 Inman News