Q: My husband and I are selling our home and stand to make $10,000 to $15,000. We're interested in buying land in Tennessee or some other southern state. But we plan to stay here for at least two years before we move south. We can't decide whether to invest the money for two years or buy the land now. How much time do we have to decide? What would be the most trouble-free but profitable investment? How is the capital gains tax levied?
A: Since you aren't certain what southern state you may settle in, I think on balance, it's better if you invest your money now and purchase your land after you've definitely decided where you want to live. One of the most trouble-free and profitable liquid investments currently is a money-market fund. Investigate and compare several of the best ones. Then decide whether you want to make this type of investment and, if so, which fund to invest in.
Since you're selling your principal residence and planning to buy land and construct a new principal residence, you can defer taxes on the gain on sale of your current principal residence providing (1) the cost of the land and construction of your new principal residence exceeds or equals the adjusted sales price of your current principal residence and (2) you commence construction of your new principal residence not later than 18 months after the sale of your current residence.
You'll be considered to have started construction of your new principal residence if you buy the land, obtain a construction loan, and secure approval of your plan and a building permit within the 18 month period. You must also actually occupy and use your newly-constructed residence as your principal residence not later than two years after the sale of your current principal residence.
Q: You told a reader that he might find it feasible to join in a sound syndicate when he has only a small amount of cash for investment in real estate. How can I find a sound syndicate? I've been trying for a long time.
A: This is difficult. Discuss your desire and goals with (1) upper middle and top echelon executives in your bank (2) a reputable attorney you know, (3) a reputable accountant who is active in real estate accounting, (4) knowledgable, active friends who may be involved in real estate syndicates. Write the Real Estate Securities and Syndication Institute, 430 N. Michigan Ave. Chicago, Ill. 60611. Tell them you want to invest in a sound real restate syndicate. Ask if they can give you any help.
When you have several good leads for syndication investments, carefully and thoroughly check the people who are doing the syndicating. Do they have an excellent reputation for honesty, integrity, ability? What is their track record in past syndications?
What are their fees and commissions for selling the syndicate shares, for buying the real estate, for managing the real estate, for managing the syndicate, on refinancing or sale, or any others? Are these fees reasonable, in your judgement and the judgement of your attorney or accountant? Are the syndicators experienced in buying, selling, financing, and managing real estate?
When you've done all this and answered all your questions, then decide whether to invest in the syndicate and how much, if any, your investment should be.
Q: My wife and I have rented out our home in California for nine of the last 12 years. I plan to return to California next summer to live in the house for two months, sell it, and then buy a more expensive home in Colorado and thereby defer taxes on the capital gains on our California home. Is it true that two months is enough time to reestablish residency to satisfy the Internal Revenue Service for tax deferral purposes?
A: Although your proposed plan leaves some slight doubt, the weight of opinion is that it will qualify you to defer tax on any gain on sale of your California house when you purchase a new "principal residence" whose cost equals or exceeds the adjusted sales price of your California house. Keep these points in mind, however:
(1) The California house must be your old principal residence and your Colorado house must be your new principal residence.
(2) Your principal residence is determined by your "objective actions" (moving into the house) and your subjective intent (to make it your principal residence, not only for tax purposes but for all purposes).
Bear in mind, too, that only 2 to 3 percent of all income tax returns filed, on average, are audited. If your return isn't audited, there's virtually no chance of your deferred tax on any gain being challenged.