Smart Money: Tax bill doesn't change property ownership

Dear Bruce: My mother is 81 years old and the sole survivor of a trust. Several rental properties and the house she lives in are listed in the trust’s name – or were. We recently received our annual tax bills and noted to our horror that they listed her name, not the trust. We don’t know how that happened or when, except that everything was listed in the trust as of last year. We are contacting the city government to get this corrected. If something happens to her before we fix it, does this mean all of the property not listed in the trust according to the tax bills would be probated, even if we have a trust that specifically states otherwise? —K.B., via e-mail

Dear K.B.: The properties are owned by the trust. A tax bill issued in your mother’s name doesn’t change the actual ownership. How did it happen? Who knows? Maybe a clerk was inattentive. By all means, talk to the assessor’s office and fix this. It will be a little more difficult if your mom passes away during the correction period, but it is certainly something that can be overcome. I hear the horror in your tone about probate, and I understand that the trust was set up to avoid probate. I’m sure that can be accomplished. Unless your mother has transferred the properties out of the trust, this can be easily corrected. Relax.

Heed CPA’s advice on home’s capital gains

Dear Bruce: How long must I hold investment real estate to receive long-term capital-gains treatment? My certified public accountant says one year, but a real-estate fixer-upper book I was reading said two years. Who’s right? —N.R., via e-mail

Dear N.R.: One year for capital gains. You must own the property for at least 12 full months. Go with your CPA.

Navigating a condo conundrum

Dear Bruce: I own a condo, where I reside, and the mortgage is $88,000. I have invested in another condo, for which I paid $99,900, and I am renting for $750 a month. I want to buy a third unit in the same association for $129,000 and may possibly break even if I charge $1,200 for rent. I have good reason to believe they all will increase in price and rent over the next four years, when I plan to retire. I am trying to gain passive income for when I retire. Do you think this is a smart idea? I have other investments in 401(k) and mutual funds, totaling $256,000. —A.S., via e-mail

Dear A.S.: You’ve heard the old saw about “where angels fear to tread.” At this intersection in our history, investing in condos is a treacherous proposition. You mentioned that you paid $100,000 for a condo and you’re only getting three-quarters of 1 percent a month, plus you have condo fees. I’m not sure you’re breaking even on that one. Now you want to pay an extra 30 percent for this other condo and once again, you’re renting it for less than 1 percent a month, which I feel is obligatory. You will also have condo fees. Furthermore, you may be right that they may increase in price in the next four years, but they also may still take a tumble, like condos have done all over the country. You haven’t told me where you live, but unless you’re in a market that is extremely atypical, I’d tread softly on this idea.

Relinquishing rental duties

Dear Bruce: I own five rental properties that I bought in 1993 and 1994, each for $60,000. They are now valued (conservatively) at $160,000. I am 70 years old. I am thinking of selling them and investing the proceeds. Is there any way to avoid the tax bite that the federal government will take? How can I invest the money so that taxes will not eat up that income? I live in Florida, which has no state income tax. —G.H., via e-mail

Dear G.H.: Congratulations, you have done well. I am assuming that the values are current, given the tumultuous real-estate market in Florida. You will be subject to capital gains on the profits earned. You may wish to talk to an accountant. The federal tax on your proceeds will clearly be subject to income tax, depending on how much is earned and how the investments were made.

Owning rental properties, as you know, is a part-time job, and you may very

well wish to rid yourself of that responsibility.

Court can enforce covenants

Dear Bruce: Our housing development has deed restrictions. Since our development does not have a homeowners association that usually enforces the covenants and restrictions, how are they enforced? —F.G. in Florida

Dear F.G.: Any homeowner who is covered by these restrictions can enforce them simply by going to court. I say simply because there are expenses involved. With the absence of a homeowners association, the reality is that the restrictions are rarely enforced.

Deed restrictions are simply a contract between people who have purchased in a given area. Without an enforcement agency – such as a deed-restriction committee of a homeowners association – nothing will happen unless an individual or a group of individuals takes the bull by the horns. I live in a deed-restricted community, and I share your concerns. People with a home in this type of development bought into the restrictions. If they don’t wish to abide by the rules, they should not be living there.

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