August Home-WorkBench

Real Estate Answers Now
By Columnist Edith Lank

Edith Lank Keeping Home Documents

Dear Ms. Lank: I have bought and sold a stack of houses and now I have a stack of papers. How long must I keep these papers? The sales have been recorded by the County Clerk which seems to me sufficient evidence that the sales have been completed. The loans have been paid off, but is there a certain number of years that the receipts should be kept? -- E. K. V.

My husband and I have also sold a stack of houses. We have a drawer containing a file on each one and we have no intention of throwing anything out, ever. I suppose the kids will some day. It’s true that once a deed, mortgage or satisfaction certificate has been entered in the public records, you could always get a copy there. But you also have closing statements, tax receipts and who knows what else.

The IRS has the right to audit your tax return for three years back. If it suspects underreported income of at least 25 percent, it can go back six years. If it suspects fraud, it can go back indefinitely. Some day you might need those papers to prove the accuracy of your returns. Buy a small file cabinet, use it for a bedside table in the guest room, and keep the whole stack of papers. The rule is: When in doubt, don’t throw it out!

Father Homesteaded The Land

Dear Edith: My father homesteaded in the 1920s, paid $1.25 per acre for 154 acres in Colorado. In 1955 I paid $10 for the property (I was a minor then.) I have paid taxes all these years and am now trying to sell the property. Is there any way of avoiding the capital gains tax? I am 48 and not working. I cannot take back a mortgage, I need the money.—L. L.

I don’t know of any way to avoid capital gains tax on that property. Your cost basis probably starts with the amount your father paid, which is at least a bit more than the nominal $10 when you received the land as a gift. You can also increase cost basis by anything your father or you did to improve the land—buildings, landscaping, fences, well, septic tank, things like that. But I’m afraid you will owe tax, at the new lower capital gains rates, either 10 or 20 percent, depending on your tax bracket. Just remember—they do let you keep some of it, most of it in fact.

Farm House As A Gift

Dear Ms. Lank, My parents are willing to give me some land and an old farm house they own as a gift, however the house is in need of major repair. I have had an estimate of $35,000. The property is mortgage free. What would be the best avenue for me to take as far as obtaining the money for repairs? Mortgage, home equity loan? I would be a first-time homeowner, single, head of household. I also will be using a portion of the house for my own home business. Any advice you can give me will be appreciated.—T. B. W.

A home equity loan IS a mortgage, usually a second one on top of a present first mortgage. It often carries a higher interest rate than a first. It’ll be up to local lending institutions as to how much they’re willing to lend on a house that needs extensive repairs. The only way to find out is to talk with them. It sounds as if you may be self-employed. If so, discuss also whether your situation will let you qualify for a mortgage loan.

Edith Lank will answer personally any letter with a stamped return envelope, or e-mail to "lank@sjfc.edu".

Written by Edith Lank, noted author on the real estate issues
Reprinted with permission HouseNet Inc.

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