REAL ESTATE MAILBAG

DEAR EDWARD: Based on what you've told me, you can't avoid capital-gains tax. Part-time vacation homes qualify for neither the Internal Revenue Code 121 principal-residence-sale $250,000 exemption nor the Code 1031 tax-deferred exchange.

However, before selling, you could convert your vacation property into either (1) your full-time principal residence for at least 24 of the 60 months before its sale to qualify for the $250,000 exemption ($500,000 for a qualified married couple filing jointly) or (2) a rental property qualified for an IRC 1031 tax-deferred exchange. Consult a tax adviser for details.

DEAR BOB: We are first-time home buyers. Several weeks ago, we made a written purchase offer through the home's listing agent. She seemed helpful as she prepared our purchase offer. As novices, we didn't question her when she said, "It's standard to make purchase offers good for a week." So we agreed. During that week, we waited to hear from the listing agent. After waiting eight days, I phoned her. She said, "I'm sorry, but yesterday a better offer was accepted by the seller." Should we sue her for not representing us properly? -- Niam R.

DEAR NIAM: No. Don't waste your time dealing with that dishonest listing agent who breached her fiduciary duty to you. But we can all learn from your sad situation.

Your first mistake was not having your own buyer's agent representing you. It does not cost a buyer anything extra to have his or her own agent because the two agents will split the sales commission. A buyer's agent would have made your purchase offer valid for not longer than 24 hours. This prevents "offer shopping," which is obviously what happened.

Your second mistake was making your purchase offer valid for a week. The listing agent clearly intended to shop your offer for a week and recommend that the seller accept your offer only if a better offer could not be obtained.

DEAR BOB: After our mother died in August 2003, my brother and I inherited her assets, which consisted mainly of her house plus stocks and bonds. Her will left everything to us equally. But the estate had to go through probate court proceedings. We just recently received title to her home and listed it for sale. All this time, the house has been vacant, costing us upkeep expenses. The only good thing resulting from the probate court delay is that the house appreciated about $100,000 in market value. However, our probate attorney now tells us that we will owe capital-gains tax because our "stepped-up basis" was determined on the date of our mother's death. Why isn't there a law against this probate rip-off? -- Cindy R.

DEAR CINDY: If you are a regular reader, you know I constantly admonish readers to arrange a revocable living trust to avoid probate costs and delays for their heirs. Obviously, your mother didn't follow that advice.

I especially relate to your situation because I encountered an 18-month delay in Minnesota probate court after my mother died several years ago. She had a living trust, but her Minnesota attorney erroneously told her not to put her condominium title into it. When she died, the condo title had to go through probate. Most states have similar probate court costs and delays.

DEAR BOB: In July 2002, we bought a brand new townhouse. We had it professionally inspected, and everything appeared in good condition. But in August 2004, the slab foundation cracked. We noticed a bulge under the carpet in our living room. Immediately, we notified the builder. He said we had a one-year warranty, and the concrete slab bulged or cracked after that, so we are out of luck. Is this true? -- Bruce N.

DEAR BRUCE: The laws of most states require home builders to warrant their homes for longer than one year. You didn't report where the townhouse is located. In some states, such as California, the home builder is liable for up to 10 years for construction defects. I suggest you consult a local real estate lawyer.

DEAR BOB: Driving to work every day, I go by a run-down abandoned house. I have observed it for at least a year. One day, I stopped to jot down the address, walk around it and ask the neighbors. They said a "strange old lady" owned the house. I researched the title and learned the property taxes hadn't been paid for some time. I finally located a man who claims to be the old lady's son. He said the property is in bad shape and he could give me a quit-claim deed for $1 because he inherited the house after his mother died. Should I get involved, knowing the house needs work? -- Norman O.

DEAR NORMAN: For $1, it's hard to go wrong, unless there are recorded liabilities against the property. Before you accept that $1 quit-claim deed, consult a local title insurance company to learn if the son's quit-claim deed is insurable.

If you can buy an owner's title insurance policy for that house, you may have discovered a super bargain. However, if the title insurer tells you there are lots of unpaid liens against the property, or perhaps the son doesn't really own the property, maybe you should pass on that opportunity.

Be aware a quit-claim deed conveys only whatever title the grantor owns. If that son doesn't own the property, his quit-claim deed is worthless.

DEAR BOB: We bought our home in 2001, lived in it for seven months and then received a job transfer to Europe. The house was rented to tenants until we returned in 2003. We have lived in our home since then. It is amazing how much our home has appreciated in market value. My wife's employer has now offered her another job transfer that is too good to turn down. But the employer has no home-sale program. Can we qualify for that $500,000 exemption though we didn't live in our home for 24 continuous months? -- Craig S.

DEAR CRAIG: Yes. Internal Revenue Code 121 offers a principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly). To qualify, you and your spouse must have occupied your residence a total of at least 24 months during the 60 months before its sale. However, the occupancy need not be continuous. Consult a tax adviser for details.

Readers with questions should write to Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page,http://www.bobbruss.com.

2005, Inman News Service