Dear Michael: I want to sell my investment property and buy another at a higher cost with a higher return. Can I qualify for a 1031 exchange?
Answer: In 1990 the IRS came out with Internal Revenue Code 1031, also known as 1031 exchange. This allows a seller to reinvest the proceeds from a sale into a like kind property.
In other words a property held for investments, or a property operating in productive use in a business.
The main benefit of participating in 1031 exchange properties allows the taxpayer to sell investment, business, or income property and purchase like-kind replacement property without having to pay taxes to the federal government until the property is sold, and the seller has decided to cash out. Please check with an intermediary exchange Co. to see if you qualify.
Dear Michael: I received a letter stating that my lender sold my Mortgage, what does this mean?
Answer: At some point after you close escrow, your lender may notify you that
your mortgage is being sold to another investor.
These investors, known as
the “Secondary Mortgage Market,” group your loan with other loans and trade
them as mortgage-backed securities.
By aggregating smaller loans into
larger pools, the overall risk of a single loan going bad is spread out
among other loans thereby making it a more attractive financial instrument
for large investors.
Another benefit of the secondary mortgage market is
when the investors buy mortgages from primary lenders, they provide the primary
lenders with the cash required to make new loans and/or to restructure
their portfolio.
It is important to note that if your loan is sold, it will have no effect
on you, your mortgage terms or your monthly payment. Also, the secondary
mortgage market should not be confused with second mortgages.
Dear Michael: What can be claimed as a tax deduction when buying a home?
Answer: This is a good question for your tax preparer. I encourage you to follow up with a professional tax adviser, as I am neither qualified nor authorized to give advice in two areas – legal matters and tax matters.
Briefly put, providing you itemize deductions, own and occupy your home, you can deduct both property taxes paid on your home and interest paid on your mortgage. You can deduct the points and prepaid interest you make during the actual purchase, whether you pay them or the seller pays them on your behalf.
Dear Michael: The sellers on the home I am purchasing are unable to find a replacement property by the close of escrow. They have requested an extension of 30 days. If we do not agree to that extension, will we lose the appraisal fee, the home inspection fee, and our deposit?
Answer: If seller does not perform and you must cancel because of sellers fault then yes, you will get your deposit back, minus a small possible cancellation fee from escrow.
However, the appraisal and home inspection have been done and those guys don’t work for free, so that money is gone. Since both the appraisal and home inspection were done for that specific property, if you choose not to extend, and buy a different property you will have to pay those fees again on the new property.
Do you want to extend and wait around another 30 days and find that the seller still has not purchased something? If you agree to a contract extension, put conditions on it. Give them a certain number of days to find a home. If they do not, then get them to compensate you for appraisal, home inspection, etc.
Michael Kayem is a Realtor with Re/max Estate Properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or email them to him at: homes@agentmichael.com
