House Calls by Edith Lank

Ms. Lank: In a couple of years, my wife and I will retire (we'll be 69), sell our house and rent an apartment on the fringe of suburbia for a year. In that time, we'll look for a place to retire. How long do I have to buy another dwelling before I get creamed by capital gain taxes? — email

Answer: You'll be happy to hear that the rules about this changed years ago. The home-sellers' tax exclusion is no longer once in a lifetime, there is no age limit, and the IRS no longer cares whether you buy a replacement home.

As a married couple filing jointly, you can take a profit of up to $1 million on the sale of your home with no federal tax due. The only requirements are that you have lived in the property as your main residence for at least two of the five years before you sell and that you haven't used the tax break on some other home within the previous two years.

OWING THE BROKER

Ms. Lank: A real estate agent has shown me a couple of houses for sale and will show me others this week. I also located another house, spoke with that different agent and was shown the house by the owner. If I was to purchase this other house, am I in any way financially responsible to the first agent? — email

Answer: Given what you've told me, and if you haven't signed anything specifically hiring Agent 1 to represent you, you have no legal obligation to him or her.

If you want to continue working with Agent 1, however, and you're interested in that particular property, discuss the situation. Agent 1 may be willing to help negotiate on that house, especially as Agent 2 didn't personally show it to you. Any controversy about commission-splitting would be between the agents and shouldn't concern you.

FORGIVEN DEBT

Ms. Lank: In a recent column, you answered a question on short sales by saying that through 2012, forgiven debt would not get a 1099C and would not be taxed as ordinary income because of an IRS ruling in regard to the loan mess.

Does this ruling apply to all mortgage short sales or just primary residences? The mortgage was on a property that was intended to become my primary residence, but because of being underwater, this did not happen.

Answer: Congratulations on negotiating a short sale on property that wasn't your main home. Lenders are usually reluctant about allowing short sales in that situation.

The IRS will not count forgiven mortgage debt as income, but only if it was on the home-seller's principal residence. I'm afraid the amount you once borrowed and never repaid will be reported to the IRS as taxable income.

NO PAYOFF DOCUMENT

Ms. Lank: When my dad died a few years ago, my siblings and I found the deed dated 1954 with a 15-year mortgage. But no mortgage-paid document can be found. The loan was with a private person who has been dead 25 years and who had no children. The lawyer said not to worry about it.

Will this be a problem when we sell the home in the future? It's been almost 58 years since the loan was taken. The amount was $8,000 for a 15-year term. — H.

Answer: If problems ever arise about that old mortgage, a fairly simple court procedure can clear it up. It could involve a little paperwork and legal expense, but meanwhile, I'm with your attorney. Not to worry.

BAD NEWS

Ms. Lank: I have just found out that federal employees can be fired if they don't pay their mortgages! The Human Resources Office emailed me the Bush-era policy stating that any employee of the federal government who fails to pay his or her mortgage, or federal, state, city, county, etc., financial obligations, may be terminated! And if the person's spouse isn't a U.S. citizen, he or she may be subject to deportation!

It's not worth the risk for me to stop making my mortgage payment. I'm now between the hard rock and the wall. I must move. My debt is $174,000. The tax assessor mailed me the value of the house, which is assessed at $130,000. What can I do? — R.

Answer: We have to think that if that regulation were strictly enforced, unemployment figures would be a lot higher than they already are.

I assume you've discussed this with your lender's "work-out" department. Beyond that, about all I can offer you is sympathy.

Edith Lank will respond personally to any question sent to www.askedith.com.

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