Glum outlook on Clinton's effect on real estateQUESTION...

REAL ESTATE Q & A

May 30, 1993

Glum outlook on Clinton's effect on real estate

QUESTION: How will our country's new Clinton-Democratic leadership change affect the real estate market?

ANSWER: Here's the view of David Liniger, founder and chairman of Re/Max International, a real estate franchise group:

"I think You'll see very little change occur in the real estate market in the next 12 months. Over a longer period of time, I would anticipate increased taxation, especially in the middle- and higher-income tax brackets. Also, I anticipate that the Democrats, controlling all three branches of federal government, will eliminate the income tax deductibility provision of mortgages over $150,000 or $200,000."

Title insurance protects owner against liens

Q: Why is title insurance needed when buying a home?

A: The purchase of a home is most likely one of the most expensive and important purchases you will every make. You and your mortgage lender want to make sure you have insurance that the property is indeed yours and that you are protected against claims of liens or encumbrances that may be on record against the property.

Title companies usually provide two types of policies. One is an owner's policy that covers the homebuyer-owner. The other is a lender's policy that covers the mortgage lender over the life of the loan. Both are important and are issued at the time of purchase.

Condominium sales up 5.7 percent in quarter

Q: Are sales of condos dropping in most areas?

A: No. Condominium sales are increasing significantly in most areas of the country. During the first quarter of 1993, condo sales were up 5.7 percent over the first quarter of last year, according ++ to a report from the National Association of Realtors.

Decreasing mortgage rates opened the home market to many first-time buyers who were searching for an affordable way to achieve homeownership, the NAR report stated. Buying a condo is an excellent way to enter the market, it said.

IRS clear on capital improvements to home

Q: I plan to sell my house later this year for about $500,000. I qualify for the $125,000 exemption of profits available to older taxpayers. I want to buy a house for about $300,000, but I know that any home in this price range will need work. Can I add the "fix-up" costs of the new house to my purchase price to reduce my taxable gains from the sale of the old house? If I can't, then I might as well buy a more expensive home in better condition.

A: The cost of any capital improvements to a newly purchased home are considered part of the home's purchase price if the expenses are incurred within two years of the sale of the taxpayer's original home. This is true whether you are old enough to qualify for the $125,000 exemption or not.

There are some points to consider. The first is "capital improvements." The Internal Revenue Service is clear on what these entail. They must be improvements of a substantial nature. Remodeling a bathroom or kitchen qualifies; repainting the living room does not.

Further, the cost of these improvements must be incurred within two years of the sale of the original home -- not within two years of the purchase of the replacement home. In your case, you would have to buy a home for $375,000, or spend $375,000 on the home and the permanent improvements, to avoid paying any taxes on the sale of your $500,000 home.

Selling federal land could reduce national debt

Q: If our government wants to reduce our $4 trillion national debt, why don't they sell off some federal land and improvements?

A: An increasing number of real estate professionals and analysts are recommending that step.

"If you think about the vast amount of property and real estate the federal government owns, $4 trillion is peanuts," said David Schumacher, a real estate consultant.

"If some decommissioned military bases, postal offices, dams, office buildings, warehouses, vacant land and installations were sold at present fair-market value, it would be sufficient to clear the national debt. The government could offer long-term leases with options for renewal on the properties that sell."

James M. Woodard

# Copley News Service

(Send questions to James M. Woodard, Copley News Service, P.O. Box 190, San Diego, Calif. 92112-0190.)

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