Ms. Lank: I have a question about limited liability company properties, or LLC properties.
My neighbor moved out, and I saw a "sold" sign on his house. He happened to stop by this past week, and I asked him who my new neighbors would be.
He said he sold to an LLC and he hopes he hasn't ruined our neighborhood. I tried to find out about an LLC buying the house but haven't had any luck with my research.
Can you shed some light on this issue? The only thing I can surmise is that this could be a group home. Thanks. — R. S.
Answer: Sounds like the place has been bought by a real estate investor. They often organize as limited liability companies. The house is probably going to be rented out or put back on the market and flipped for a quick resale.
Cost of Downsizing
Ms. Lank: I'm trying to decide whether it's worthwhile to sell my house and buy a cheaper one to cut costs, considering the fees and commissions involved. I have bought and sold in the past, but I don't remember what it cost in addition to the cost of the house.
Is there a percentage I could use, such as 10 percent of the cost of the home, to get a general idea? I know there are many variables; for example, a septic inspection on a home that has septics. If it helps, I live in a state where we don't use attorneys as a rule when buying and selling. — S. B.
Answer: In some states, custom calls for attorneys even at simple real estate closings. Elsewhere, sellers pay other professionals for the same services, like proving they have undisputed ownership and the right to sell.
Your expenses can vary widely depending on a few things, like whether your buyers are asking you to bear some of their closings costs. (Yes, sometimes their mortgage plan allows that if you agree.)
It's time to tap real estate brokers' expertise. They're used to giving free information, so you might call a few companies that are active in your neighborhood. Ask to speak to the managing broker, who should have estimates of local closing costs.
Asks for a Friend
Edith: How do I divest myself of a timeshare? Actually, it is my friend who has the question, but I have the computer. We went to high school together over 60 years ago. The timeshare is a yoke around her neck, and she wants to get rid of it. — E. S.
Answer: I assume your friend has tried giving it back to the management.
I always hesitate to say this, but often there's no real consequence when the owner simply stops paying the fees. It may be worth your friend consulting her lawyer about that.
The Timeshare Users Group sounds trustworthy and charges only a small fee to join. Nobody has told me whether it really does get rid of unwanted timeshares, but you might look at the website on your friend's behalf.
Owning Dad's House
Dear Edith: My sister and I own the house that my dad has life use of. He decided it was time to move to an apartment. Is there any way I can avoid paying capital gains tax? We will probably clear $50,000 each after the expenses (septic, radon test, Realtor). Can I give my husband a one-time gift? Or use part of it to pay off a home equity? I just hate the thought of giving $10,000 or more to the government. — B. H.
Answer: Those actions wouldn't help with possible capital gains liability, but not all is lost.
Tax treatment of such a sale can vary. Sometimes, when the parent continues to occupy the house and pay expenses, it's possible there wasn't any real transfer of ownership. That might allow the parent to claim the homesellers tax exclusion on the entire profit. Discuss this possibility with a lawyer and a tax professional.
If that is not appropriate, remember that when you're figuring taxable gain, you don't owe tax on the whole proceeds. Besides the expenses you mention, you also subtract your cost basis before calculating taxable profit.
Cost basis is the value of the property when it was given to you, and there may have been additions since.
If your father has legal life use, the IRS has life expectancy charts showing how much of the proceeds would be his.
Sounds like this would be a good year for professional help with your tax returns.
Contact Edith Lank at www.askedith.com, at [email protected] or at 240 Hemingway Drive, Rochester NY 14620.