Ask Realty Times - March 5, 2004 - 3/1/2004 - Real Estate Home House Condo

Ask Realty Times - March 5, 2004
by Peter G. Miller

Question: How long must a couple be married to qualify for the $500,000 exclusion on the sale of a principal residence? Also, the rule concerning living in the property is two of five years -- must the two years be consecutive and does it mean the last two years prior to sale?

Answer: There is no time frame in the usual sense. Instead, there are some markers and standards which must be met. Anthony Burke, a spokesman for the IRS, provided this response:

According to IRS Publication 523, "Selling Your Home," "You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true:

 

1. You are married and file a joint return for the year.
2. Either you or your spouse meets the ownership test.
3. Both you and your spouse meet the use test.
4. During the two-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another house.

"If either spouse does not satisfy all these requirements," says Mr. Burke, "the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property."

As always with tax issues, sit down with a CPA, tax attorney or enrolled agent for specific advice.

Question: I've waited a long time (too long!) to make my first house purchase. Currently the San Francisco Bay Area housing market still seems very high, and even on Realty Times I see quotes like "From Los Angeles to San Diego home prices have a 5.8 percent to 7.7 percent chance of declining within the next two years. Up north, in the Silicon Valley-San Francisco Bay area, the price drop likelihood is as much as five times higher -- 20.4 percent to 39.5 percent (for the San Jose/Silicon Valley area, the highest in the nation), according to the latest PMI Risk Index, tabulated by PMI Mortgage Insurance Co."

I'm currently renting a one-bedroom, rather nice apartment in a rather nice neighborhood for a pretty cheap rent -- about half what I'd end up paying to buy a condo. I've been ready since around 2001 to buy a place, but have been anxious about getting into the market at the absolutely wrong time. However, I've been in this one-bedroom apartment for the last 7 years, have paid my landlord close to $90,000 dollars, and feel very ready to move on. What is your advice?

Answer: You raise a number of good questions, let's sort them out:

The quoted predictions say there is a possibility that values may fall, but this is not a guarantee. You could look at the same material and easily argue that based on the odds prices are also projected to soar.

Why the confusion? Because real estate is a commodity, prices rise and fall, and no one knows with certainty where values will be down the road.

You make the point that over seven years you spent $90,000 on rent. However, this money was not stolen: You got something for your dollars, the use of a "rather nice apartment in a rather nice neighborhood." If this was not a good buy, you could have gone elsewhere and spent less.

If it makes sense financially and you think ownership will bring more satisfaction, tax write-offs and the potential for appreciation then you should buy. If you like your current place and feel prices will remain steady or even drop, then rent now and buy when values fall.

Question: How do you put local MLS data on my website and keep the person searching from getting away?

Answer: If you are in real estate and a member of a local MLS, then you can like place material on your site with IDX (Internet Data Exchange). With IDX, limited MLS information is placed on the system but for full particulars consumers must contact the website owner. Under IDX there is no requirement for a member of the public to register or leave their name.

Some MLS system now offer a VOW, or Virtual Office Website. In this case, extensive MLS information is available on the member's site -- but visitors must register to gain access.

You need to ask: Would a consumer sign-in when so many sites present similar information without a registration requirement? We are, after all, living in a period when people are enormously concerned about privacy issues, a hurdle for many online registration plans.

Alternatively, why not have consumers openly sign-up by offering something they want? For instance, a free monthly newsletter sent by mail can be attractive to buyers and sellers in the marketplace. And credible real estate news on a brokerage site is an obvious draw because it's fresh, changing and useful.

Question: Can you give some information to those of us who would like to purchase rental real estate with our traditional IRA accounts?

Answer: IRA and Keogh accounts have traditionally been set up by stock brokers with wording that allows investment in stocks, bonds and mutual funds -- but not real estate, an investment which yields no commissions to stock brokers...

What you need is a retirement plan with more options -- a "self-directed" IRA. As a place to start, look at the information available at these randomly-selected sites: EnTrust Administration, Pensco, and Texas A&M University.

As with any significant financial investment, do not sign anything with anyone until all proposals have been reviewed by your tax professional and attorney.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.