Home represents more than financial investment

Dear Bruce: We are a two-career couple in our 40s with no kids. Our current neighborhood is not on the upswing, but the payment allows us the flexibility of living on one income, if necessary. We’re thinking that since the real estate market is down in our city, now may be our best chance to make the move to a better neighborhood, possibly keeping the house we own now as a rental. We both have stable careers, but we’re wondering if the move up is worth losing the financial wiggle room? It’s not about ego or even a bigger house. It’s just about making a wiser investment. We have no credit card bills and only one car payment. – H.C., Las Vegas

Dear H.C.: It seems you’re making an assumption that many folks make: that a home is purely a financial investment. I take exception to that. It is also a matter of lifestyle. You mentioned the neighborhood is not on the upswing. Is it going down in value? And is it one you are uncomfortable living in? In the event you’re comfortable there and you are not stressed by the payments, you should stay put. Seldom – and Las Vegas is ordinarily not the exception to the rule – is renting a private home a profitable venture. In the event you decide to move up, and there is certainly nothing wrong with that ambition, I would dispose of your primary property. Further, any profit is tax sheltered now. The tax shelter will go away if you turn this into rental property and want to sell it a dozen years from now.

Research should precede relocation

Dear Bruce: My husband and I are native Californians. We have been thinking about our retirement in several years and are very concerned about retiring in this very expensive state. We would like to look into purchasing a home or property in another state that is a more economical place for our retirement years, but we don’t know where to begin. Can you give us some guidance on this subject? – Reader, via e-mail

Dear Reader: Many people retire and move to areas where the cost of living is considerably less than some of the high-cost areas like New York and California. That said, there are many variables to be considered, and economics is but one of these. For example, if you are accustomed to a temperate climate, it’s unlikely that northern Alaska would be attractive to you no matter how economical the living might seem to be. As to research, you can look on the Internet and find all manner of information. Every state has a public relations department that will be very happy to provide you with details about the amenities available there, including taxes, cost of living, cost of housing and so on. If you also think about living outside the United States, you add a very important facet to this idea you’re polishing. You must consider relative safety, stability of the government, tax implications, as well as climate and other variables. You guys have plenty of time to do the research. You could make it a game. When you find an area that looks attractive, why not consider spending a portion of your vacation there? If nothing else, it could be a great hobby.

Primary residency status solves tax issues

Dear Bruce: My mother gave me her home more than four years ago. It was my understanding that from a tax point of view, I don’t need to do anything until I sell it. Is that correct, or are there forms I should be filing? Let’s say I’m ready to sell the house. This is where it gets tough for me to understand, as there are so many rules. I’d say the house may sell for around $100,000 on the high end. I don’t know what the house was worth when my mother gave it to me. I’m not sure what to base the tax on when I sell. Does this fall under the one-time million-dollar gift? – J.C., via e-mail

Dear J.C.: You’re mixing a lot of things together. With regard to the gift, what your mother should have done was claim against her lifetime exemption in order to pass it along without any tax consequence. Since that’s not done, it’s possible that your mother is the one who owes taxes. You might consult an accountant about the necessity and viability of having your mom file amended returns for the years in question. As to the base value, it should not be hard to determine what that house was worth. You should consult a real estate appraiser who was active in that area at that time and verify the approximate value through advertisements at that time. The same accountant chosen to review your mother’s situation should review yours as well. There is, of course, the possibility this whole transaction will fall through the cracks. In the event the home is your primary residence, then there will be no tax when it’s sold and the problem becomes academic.

Too early to purchase land?

Dear Bruce: I am in the military, stationed abroad. Is it smart to buy land now so that we can build a retirement home in about 14 years? I plan on retiring from the military at that time, but I will have a post-military career. What factors should I consider before making a decision? – B.T., via e-mail

Dear B.T.: I would not purchase land looking that far ahead. First of all, land is an alligator; it eats. You will have to pay taxes, you must have the land insured in case someone gets injured on your property and, further, since you are not around, you have no idea in which direction the community where you purchased this land is headed, whether it will develop the utilities needed and so forth. It is far better, in my view, to continue to invest your retirement money in the marketplace. When the time comes, you can purchase the land. Fourteen years in advance would be a very risky endeavor.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com. [[In-content Ad]]