Zero capital gains tax available for payers in lowest income brackets

Q: In your column, you referenced an upcoming break in long-term capital gains in 2008-2010 (you were answering a question about someone’s principal residence and just mentioned it in passing). Sorry if this is something you have previously addressed, but can you tell me what you know about this? And, by "long-term," does that mean over one year? — P. C.

A: Yes, long-term gain means net profit on property owned for more than one year. Taxpayers in the lowest brackets currently pay only 5 percent federal tax on long-term gains. For those taxpayers only, the long-term rate will drop to zero from 2008 through 2010.

Verbal commitment

not binding for first bid

Q: I put in my original bid on Dec. 8. The sellers never responded. Now, this week I was asked to place my final offer. A verbal commitment was given to me and I handed over my signed offer. Another bid came in on the same day. We now have a bidding war. What about that verbal commitment? Do they have a legal responsibility to tell me what the other party’s bid is? Does my original offer not place me at an earlier time? — J.

A: I’m afraid not. The first bid in doesn’t have any priority. Sellers are free to deal with any offer they choose until they’ve signed an acceptance or a counteroffer. That verbal commitment you received doesn’t mean anything. Where the sale of real estate is concerned, nothing is binding unless it’s in writing. And to top it off, they don’t have to reveal the amount of other offers if they don’t want to. Sorry, but that’s the way it is all around.

Bidder has no way of

confirming bank’s veracity

Q: My son and his wife are buying a foreclosure, and the bank that owns it is in another state (not sure which one). My son made an offer on the house, and he was told there was already an offer much higher than the one he was going to make. As a result, he made his bid higher and got the house, actually at a pretty good price.

My question is this: Was there really a higher offer, or could a bank just say there was to raise the price? My husband and I have been arguing about this. I say a bank couldn’t tell you there was a higher offer if there was not one. My husband says that it could. He says you would have no way of knowing whether there was an offer or not. I say it would have been illegal for the bank to do this. — L.

A: Surely you’ve lived long enough to know that illegal things are done all the time. My guess is, though, that there was indeed a higher offer. Otherwise, the tactic can backfire. The bank could risk scaring your son off, and ending up with no buyer at all.

Accountant should sort

out tax return for investor

Q: I purchased my first investment property this year and with tax time rapidly approaching, I have a question. I know that depreciation, repairs, mileage, lawn care, etc. can be claimed as expenses, but can certain parts of the closing costs also be included? If so, which items? — P. and J.

A: It’s possible some prepaid property taxes or mortgage interest may be claimed. With investment property, though, the calculation, particularly of points paid on your mortgage, can be complicated. As an investor, you should have had an accountant lined up even before making your first purchase. That’s the person to sort it out for you now.

Price-boosting plan could

lead to serious consequences

Q: I am selling a two-family house. I need advice from you because my tax accountant is too busy until after tax season, and my tenant and I are ready to sit down with our lawyers.

The buyer has some high-interest debt, and I was discussing with him what we could do about that. We thought we would boost the price up and then I would give him some of the mortgage money back to pay off his bad debt. Is this possible, and if so, what would my tax consequences be? — K. N.

A: You have a few potential problems here: Will the lender’s appraiser find that the place is worth the fake high price you list in the sale documents? Can your buyer qualify for a mortgage loan at all? Are you ready to pay capital gains tax on more profit than you really make? And by the way:

Do you realize that lying to a federally chartered bank is a felony, punishable by two years’ imprisonment?


Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at

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