DEAR BOB: My wife and I owned three rental houses on the same street. We listed them for sale with a local Realtor who found us a buyer who wanted all three. But when we figured out our capital gain would be more than $300,000 and the tax would be huge, we got cold feet. Then the Realtor told us about Internal Revenue Code 1031 tax-deferred exchanges. That sounded good, especially because my sister wanted to sell her commercial building so we could trade for it. So we went ahead and sold the three rental houses. But after the closing, we learned from reading your article that we needed a third-party intermediary, such as a bank trust department, to hold our sales proceeds to use to buy the commercial building. The Realtor never told us about that. What should we do? – Russ W.
DEAR RUSS: Please consult your tax adviser. From your explanation, it appears you “blew” the tax-deferred exchange by receiving the cash proceeds from the sale of your three rental houses.
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To qualify for an IRC 1031(a)(3) Starker tax-deferred delayed exchange, the sales proceeds should have been held by a qualified third-party intermediary beyond your “constructive receipt.” Your situation shows why property sellers should consult their tax adviser before, not after, completion of a transaction.
DOES ILLNESS MAKE HOME SALE IMPOSSIBLE?
DEAR BOB: I listed my home for sale with an excellent Realtor. Within a few weeks, she obtained a purchase price offer that was within $2,000 of my target price, so I accepted it. However, before the sale closed, I was diagnosed with breast cancer. As a result, I don’t want to move until this serious problem is overcome. But the buyers aren’t very sympathetic. They insist the sale close within 60 days, as specified on the sales contract. Doesn’t my unexpected illness make the sale impossible? – Bernice G.
DEAR BERNICE: No. Unfortunately, your unexpected medical condition is not an adequate legal reason to cancel the sale of your home. I don’t mean to sound cruel, but even if you die, the sales contract is enforceable against your estate and heirs.
If you refuse to convey title to your home as agreed, the buyers might sue you and win in a specific performance lawsuit to force you to deliver the deed. For more details, please consult a local real estate attorney.
DOES CLEANING A VACANT LOT ENTITLE NEIGHBOR TO THE TITLE?
DEAR BOB: For the last 14 years, I have been keeping the vacant lot next to my house clean of debris. I periodically mow the grass to keep it looking nice. The owner promised to sell it to me, but he died last year. I have contacted his latest wife and she informed me she would sell to me. I need that lot to build an addition to my house. Somebody told me there is a “squatter’s rights” law, which would entitle me to receive that lot title without having to buy it. Is that true? – Denise S.
DEAR DENISE: Close, but not quite accurate. So-called squatter’s rights are legally known as adverse possession.
To qualify for obtaining title to real estate by adverse possession, you must possess that property openly, notoriously, and hostily (without the owner’s permission) for the required number of years (every state has a different time period). In addition, you must have paid the property taxes.
It appears you do not qualify for obtaining title by adverse possession because you occupied the property with the late owner’s permission and you didn’t pay the property taxes. For more details, please consult a local real estate attorney.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Virtually No Cash,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
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