DEAR BOB: My wife and I own and live in one apartment in our fourplex building. If we decide to sell, can we claim that $500,000 tax exemption you often discuss? – Robert T.
DEAR ROBERT: If you occupy one apartment of the four-unit building you own, your capital gain on the sale of that apartment qualifies for the Internal Revenue Code 121 exemption up to $250,000 (up to $500,000 for a married couple filing jointly). To qualify, you must have owned and occupied your apartment at least 24 of the 60 months before the property sale.
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However, your capital gain on the sale of the three rental units will be subject to capital gains tax, currently taxed at a bargain 15 percent federal tax rate. Your IRC 121 principal residence tax exemption does not apply to your profit from the sale of the rental units. For full details, please consult your tax adviser.
ARE INTEREST-ONLY MORTGAGES GOOD FOR REALTY INVESTORS?
DEAR BOB: I am looking into refinancing my 10-unit apartment building. The mortgage broker recommends an “interest-only” mortgage for 10 years when there will be a balloon payment. Good or bad? – Derek R.
DEAR DEREK: Part good, part bad. The good part is “interest-only” makes 100 percent of your monthly mortgage payment fully tax-deductible as interest.
The bad part is that balloon payment will be due in 10 years. How will you pay it?
If you anticipate selling the property before 10 years, that’s fine. Or if there is a rollover provision to an amortized mortgage, that’s good.
But without an “exit strategy” in 10 years when the balloon payment comes due, that interest-only mortgage could quickly go from a very good deal to a very bad deal.
GOOD BOOKS ABOUT FLIPPING PROPERTIES
DEAR BOB: Several weeks ago, you mentioned a good book about “flipping” fix-up properties within 90 days. What is the name of that book, as I failed to clip the article? – Bubba J.
DEAR BUBBA: As you know, a “flipper” property refers to an investment property, usually a fixer-upper, which can be profitably resold within six months after purchase.
You might be referring to the excellent new book “Fix it and Flip it” by Katie and Gene Hamilton. Another superb new book is “Complete Guide to Flipping Properties” by Steve Berges. Still another outstanding flipping book is “Buy it, Fix it, Sell it, Profit!” by Kevin C. Myers. All these books about quick resale profits are available in stock or by special order at local bookstores, public libraries and www.amazon.com.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Nothing Down,” is 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. Questions for this column are welcome at either address.
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