Private mortgage premium costs are tax deductible

Q: Hello. A mortgage broker recently told me tax laws changed for 2006, and private mortgage insurance can now be deducted on tax returns. I have not been able to find documentation confirming this. Offhand, do you know if this is true? I have already filed my return. Would it be worth filing an amended return? -- T., Los Angeles

A: Relax. You haven't missed anything.

It's true that private mortgage premiums will be income tax deductible, but that's only for new mortgages placed in 2007. And unless it's later extended, the deduction will apply only to 2007.

Inheriting house preferable

for capital gains purposes

Q: My uncle recently had a severe heart attack. Fearing that he would die soon, he was advised to give his daughter a quick-claim deed to his house to avoid probate court.

A friend told him, however, that because of not inheriting the house through a will, his daughter would have to pay capital gains tax based on the original basis of the home rather than the stepped-up basis afforded a house at inheritance.

Please advise whether the quick-claim deed was a prudent action to avoid probate or whether inheriting the house through a will would have been better for capital gains purposes. -- A.

A: I can't judge what was prudent for your uncle. I hope he got his advice from an estate-planning attorney who took into consideration his whole situation. Much more is involved than just avoiding probate.

But simply from the capital gains tax aspect, yes, inheriting the property is indeed better. The heir gets a new "stepped-up" cost basis, value at the time of death. Sell for approximately that amount, and there's no taxable gain. One who receives the property as a gift, on the other hand, also takes over the donor's cost basis.

That's "quit-claim" deed, by the way, not "quick-claim." The person who signs it says "I quit (I give up) any claim I have in this property."

Civil suits can resolve

nondisclosure issue

Q: I keep hearing about sellers' property disclosure laws (in your column and elsewhere). However, I never hear about what happens if these laws are broken. About a year after I bought my house, I learned that it had a defect that, had I known about, would have kept me from buying it.

I don't know what recourse I have. My real estate agent says she's never had to deal with a situation like that. -- A.G.

A: Unless there's a widespread instance of fraud, such matters are usually handled by civil suits. Your challenge is to prove that the sellers knew about the concealed defect.

For problems involving only a few thousand dollars, small claims court allows unhappy home buyers to represent themselves at little cost. You can tell your story and see whether a judge agrees that the seller is at fault.

When you say that knowing about the problem "would have kept me from buying the house," though, you're talking about something that exactly fits the definition of a "material" -- a really serious defect.

Do you want to try to rescind the purchase and give the house back? Get a judgment for enough to remedy the defect? First decide what you're looking for, then take the matter to a lawyer who specializes in real estate and discuss your options.

Dead man's estate causes

snafu with new owner

Q: Long story short, three guys bought property in 1983 for $30,000. All three names are on the deed. One died in 1997. In 2006, the two others sold their shares for $12,000 each. The estate of the dead man was offered the same amount; the estate had an appraisal done that said the value is $240,000 plus or minus $20,000; land value $200,000. The new two-thirds owner says the estate owes taxes, insurance, improvement costs and other expenses occurred since 1983, since the dead man never paid for anything. The estate believes that since his name is still on the deed, its share is one-third of current market value. Also, the fact that no one ever attempted to remove his name while he was alive or dead must say something about this mess. -- R.O., via e-mail

A: You don't say what your question might be, but that won't stop me from giving you an opinion. Bearing in mind that I'm not a lawyer, and that I have only the brief sketch you sent, let's assume they were listed as tenants in common. I'd guess that the estate does own one-third right now, at today's value. I'd also guess that the estate might be liable for a share of expenses over the years, though it might take a lawsuit to settle that.

Edith Lank will personally respond to any questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.