DEAR BOB: We own some historic property on which I would like to trace the names of previous owners. If I buy a little abstract, will this show who owned the property and when? Truman L., Annapolis, Md.
DEAR TRUMAN: A title abstract is a written summary of any written, recorded documents or liens affecting a property's title.
If you want a title history of your property, ask for a "chain of title" report from the earliest recorded owner down to the present. Most title insurance companies can prepare a chain of title report for you. But it may not be cheap. Title research is usually done on an hourly basis. Or you can do it yourself at the county recorder/registrar of deeds office if you have lots of time to spare.
DEAR BOB: We're getting ready to buy our first home in a few months. Should we finance it at a bank or savings association? Do we apply for the mortgage before we start shopping for a home or after? Dan and Ginny L., Silver Spring.
DEAR DAN AND GINNY: First, find the home you want to buy. A good real estate agent will qualify you so you'll be looking at homes you can afford in neighborhoods you like.
Your best financing source is not banks or savings associations. It's the home's seller. Try to get the seller to finance the sale with either a first or second mortgage. Write it into your purchase offer. The worst that can happen is that the seller will-say no and you can then go to a bank or savings association to get a mortgage that will probably be more costly.
By letting your seller finance your purchase, it's good for you and the seller. You'll save loan and appraisal fees as well as other costs. The seller will probably qualify for an installment sale (if he or she receives under 30 percent of the sales price in the year of sale) to minimize taxes and maximize total profit from interest income. Retired people are often anxious to finance sale of their homes for extra retirement income.
DEAR BOB: We have just sold our home because my husband has been transferred to Japan by the Air Force. When we return to the states, we would like to buy another house. Is there any way can avoid tax on the $21,000 profit we made on our sale? Virginia G., Bethesda.
DEAR VIRGINIA: Yes, Any home seller selling a principal residence and buying a more expensive replacement has up to 18 months before or after the sales date to buy that replacement. But military home sellers have that 18-month period suspended while on active duty for up to four years from the date of sale of the old residence. Report your sale on IRS Form 2119 and indicate you plan to buy a ualifying replacement proncipal residence when you return from overseas active military duty.
DEAR BOB: My husband and I are looking for a house to buy. The realty agents have been very helpful. But we're confused about all the terms they use, such as "loan fees," "impound accounts," "escrow fees," "title insurance fee," "attorney fee," and "tax pro-rations." These closing costs will add substantially to the down payment required. Are any of these costs tax deductible? Sonja A., Alexandria.
DEAR SONJA: Yes. A "loan fee" or "points" paid to get a mortgage on your personal residence is tax deductible as an itemized personal interest expense. However, a VA or FHA "loan processing fee" is not tax deductible. In addition, you can deduct any property tas pro-rated between you and the home's seller.
But you can't deduct any impound account payments you'll be making each month for the property taxes and fire insurance. However, when the lender remits the property taxes from the impound account to the tax collector, then such taxes become deductible on your income tax returns.
The other costs you listed, for title insurance, escrow, and attorney fees, are not tax deductible. They should be added to your home's purchase price basis.