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Consult tax professional before selling house

Q: I read in your column that there might be no federal income tax for the sale of a longtime home. Two years ago I sold my home of 22 years on a land contract. The price is less than $200,000.

Does this no-tax rule apply to the monthly payments the buyers are making to me for the sale? I have been including this income on my tax filing. They will pay monthly for one more year, and then they are to get a conventional mortgage. Will I have to pay federal taxes on that? — C. H.

A: It’s always wise to consult a tax professional for the year in which you sell a house.

For tax purposes, your land contract is treated as an installment sale. The interest portion of the payments you receive is subject to regular income tax. But yes, it sounds as if you qualify to claim the homesellers exclusion on the rest. Even if you don’t, you should have been paying tax — at favorable capital gains rates — on only the portion that represented profit.

You’re allowed to file an amended tax return as far as three years back, so promptly take copies of your returns and all the paperwork you can find and head to a certified public accountant or an enrolled agent.

Standard deduction or itemize

Q: I’ve been a volunteer tax preparer for 12 years for a program that provides free preparation for low-and moderate-income families.

You are quite right that “It’s never worth spending a dollar just to get 28 cents back.” I’ve heard many times the argument that it’s beneficial for people who otherwise wouldn’t have enough deductions to itemize to pay on a mortgage rather than taking a standard deduction. But that’s not so. Those 28 cents may actually be 20 or 15 cents. It would probably be even less as the mortgage is paid down and the interest amount decreases. — G. W.

Foundation cracks

Q: I recently purchased a home and have had a couple different contractors point out defects in the home that, in their opinions, either my appraiser or the bank’s appraisers should have flagged, the most obvious being large cracks in the foundation. Do I have any recourse for reimbursement of repairs, or perhaps a case for legal action? — askedith.com

A: I see you’re in New York, which means you probably used a real estate lawyer for your closing. That’s who should answer your questions.

In New York, the seller is required to give you a written disclosure of property condition. What did that say? Could you have seen the cracks for yourselves, or were they hidden (latent) defects? Did you retain a home inspector?

All of that might make a difference. In any event, your real estate lawyer is the best resource now.

Three bedrooms or four

Q: We have a 2,000-square-foot, split-level house with one bedroom on the first floor and three bedrooms on the top floor. One of the three bedrooms, bedroom C, is very small; the other two — bedroom A, which shares a bathroom with bedroom C; and bedroom B, which has a small private full bath — are about the same size as each other. Similarly, the house has 2 1/2 baths — one generously sized full bath with a combo bath and shower, and one small — really small — full bath with just a shower.

What would we risk by turning bedroom C into a bath and walk-in closet off bedroom A, and turning the two full baths into more of a master bath and a walk-in closet off bedroom B?

We are two adults. The arrangement would work for us. We will probably live in the house for five to 10 more years. Thinking of resale value, buyers seem to want a bath and walk-in closet for each bedroom. However, we’d be changing the house from a four- to a three-bedroom. What should we consider before making a decision? — S. S.

A: I’ve read and reread your note. I understand you’d be giving up one small bedroom in return for an impressive master bathroom and walk-in closet. But I still can’t figure out how many baths you’d end up with.

At any rate, let’s just pose the question to the readers: Would you rather buy a four-bedroom house or a three-bedrooms with a fancy master bath and lots of closet space?

If there’s a chance you will live there for 10 years, perhaps you might as well just make whatever changes you’d really enjoy yourselves.

Contact Edith Lank at www.askedith.com, at edithlank@aol.com or at 240 Hemingway Drive, Rochester NY 14620.

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