Smart Money: Profits from home are tax-free after two years

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Bruce Williams is a national radio talk show host and syndicated columnist.|ret||ret||tab|

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Dear Bruce: I purchased a home for $290,000 and spent $40,000 in renovations. I only put down 10 percent and got a mortgage for $260,000. The house is now worth about $450,000. |ret||ret||tab|

I'm in a quandary as to the tax consequence. Should I sell now and realize the profit of $120,000 or should I live in the home for at least two years and exercise my tax-free sale on the home? R.C., via e-mail|ret||ret||tab|

Dear R.C.: It seems to me that unless you have some tax situation where you will have huge offsets, I'd stay in the house for the two-year required period. That way, every dime the house brings in is yours without any tax consequence. If you want to buy another and repeat the process, you can do that as well. |ret||ret||tab|

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Dear Bruce: My husband and I are in our mid-60s. We have a 7-1/2 percent mortgage on $59,000. |ret||ret||tab|

We have a similar amount in a money market account, which draws less than 2 percent. Should we pay off the mortgage? W.M. Akron, Ohio|ret||ret||tab|

Dear W.M.: All things being equal, you would "increase your return" by 5 percent by paying off the mortgage. I understand why you might be more conservative at your age; in today's world this might be a wise move. |ret||ret||tab|

In the future, the 7-1/2 percent mortgage may look like a real bargain. Of course, you could refinance, assuming your income is appropriate, for something less than 6 percent. |ret||ret||tab|

On balance, if you leave the money in the money market account, I suggest you prepay the mortgage, assuming there are no penalties involved in the prepayment.|ret||ret||tab|

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Dear Bruce: In your column you have addressed the value, or lack thereof, of timeshares. I am trying to research the subject. Can you help me? D.G., via e-mail|ret||ret||tab|

Dear D.G.: Go to the Internet and I'm confident you will find volumes of material on timeshares, both pro and con. I'm sure the majority of what you find will be unfavorable. |ret||ret||tab|

Timeshares are not an investment, as we ordinarily understand the word. They seldom can be sold to recapture the amount of money "invested," and oftentimes only a tiny percentage of that money, if any at all, can be recovered from a secondary sale. Given that, for most people it is not a desirable alternative. |ret||ret||tab|

For those relatively few people who choose to go back to the same area at the same time over and over again, or are fortunate enough to be able to trade for other areas at times that are convenient to them, they may be viable.|ret||ret||tab|

But given all this, if you are still considering buying a timeshare, buy one on the secondary market where you can often purchase them for a dime on the dollar.|ret||ret||tab|

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Dear Bruce: I'm interested in buying real estate in the Spring Hill area of Florida. I would like to rent it out 10 or 11 months a year and stay there for the other months. My ex-wife lives there, and I have to bring all five of my children down to see her every year. |ret||ret||tab|

I own a home in New Jersey worth $135,000, and I owe $105,000. I earn about $45,000 per year and have an additional debt of $10,000. How would I start? Michael, New Jersey|ret||ret||tab|

Dear Michael: I think you should seriously reconsider this idea. Owning property in Florida and trying to rent it out on anything other than an annual basis is a perilous occupation. |ret||ret||tab|

The area you mentioned, while very pleasant from a residential point of view, is not a great tourist location. You will have to have someone in Florida manage the property, collect the rent and all of the things that go along with this. |ret||ret||tab|

Any possibility of a profit will disappear with these expenses. In my judgment, you would be far better off to rent a house for your visit. In the event that you wish to move and live in the house, that's a different matter.|ret||ret||tab|

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Dear Bruce: I know that you advocate using attorneys when purchasing a house. I concur. As we're selling our home, is it necessary for us to be represented as well? It looks to me that the process is pretty straightforward and the title company can handle it. Our real estate agent assures us that it is not necessary. Jeanette, via e-mail|ret||ret||tab|

Dear Jeanette: I don't agree with those who say an attorney isn't necessary in a real estate transaction. It is a complicated process. |ret||ret||tab|

An attorney will have prepared all of the contracts that you will be obliged to execute. I will wager that there are some that you will not understand. |ret||ret||tab|

Signing things that you don't understand can be very hazardous to your financial health. Neither the real estate agent nor the title company can represent you as an attorney does. |ret||ret||tab|

The relatively modest cost, in my opinion, is absolutely essential. When it comes to computing the final closing numbers, a minor error here alone could more then offset any savings, which might result in being unrepresented. |ret||ret||tab|

In transactions of this size, it is imperative in my view to have someone on your side, and your side alone.|ret||ret||tab|

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Dear Bruce: I expect to inherit two homes with a value around $200,000 for both. I would like to know what I will have to pay when that happens. Reader, Charleston, W.V.|ret||ret||tab|

Dear Reader: I can't tell you specifically what will happen, but, in most instances, any taxes that will be due are paid by the estate and the decedent, not by the person who inherits. |ret||ret||tab|

This assumes that the estate the property comes from has the money to pay the taxes. In the event that the monies are not there, the homes will have to be sold, even though they are left to you, to pay the taxes that would be due. |ret||ret||tab|

There are time limitations imposed by the government as to when the taxes have to be paid. |ret||ret||tab|

Consult an attorney in your area or a good certified public accountant. I think you are going to find that the properties will come to you without taxable consequence.|ret||ret||tab|

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