DEAR BOB: Last fall we sold our home and realized about $40,000 net cash, which we now have sitting in a money market fund. We finally found a home we want to buy. The seller will finance our purchase. She doesn't care if we put $15,000 down or the full $40,000. Which is best? Myra C., Arlington.
DEAR MYRA: Keep your down payment lean and put $15,000 down. Always make a minimal down payment. As home sellers are now discovering, when you decide the sell, the larger your existing mortgage the easier it is to resell your home.
Other advantages of a large mortgage include maximum income tax deductions for interest, repayment in cheaper, inflated dollars; and cash conservation for emergencies or other investments.
DEAR BOB: Some time ago, you said that to increase the depreciation deduction on income property it was a good idea to depreciate each building component separately. I checked with the IRS and they said this is only allowed for brand new buildings. Is this correct? Shepard M., Rockville.
DEAR SHEPARD: No. Last year, the IRS indicated willingness to accept component depreciation on all buildings if the taxpayer carefully documents his allocations. This usually requires the services of a professional appraiser to divide up the building's value among its components such as wiring, plumbing, roof, elevators, building shell, roof, and heating-cooling system. Each component is then assigned its own estimated useful life for depreciation.
The burden of proof is on the taxpayer to prove the component allocation is correct. IRS Letter Ruling 7941002 and your tax advisor can give you further details.
DEAR BOB: You recently said that wrap-around mortgages can be used with FHA home loans. My banks says no. Please clarify. Marybert A., Reston.
DEAR MARYBERT: Wrap-around mortgages can be used if the old mortgage does not have a legally enforceable due-on-sale clause. FHA and VA home loans do not have such clauses. Therefore, second mortgages and wrap-around mortgages can be used when homes with FHA and VA loans are sold. A real estate attorney can give you further details.