The typical real estate investor can get lots of tax benefits, such as deductions for property taxes and mortgage interest, as well as the ability to depreciate the property on your annual tax return. However, if your IRA owns the investment property, you cannot take advantage of any such tax benefits. In fact, it is even more complicated if you are over age 70½ and have to start taking the required minimum distributions.
Since the annual calculation is based on the balance of your IRA at the end of each year, you actually have to get your investment appraised, so as to plug that number into your calculations.
Contrary to popular belief, you cannot invest your IRA in property you already own. Furthermore, even if the property is a vacation home, you cannot legally use it, even occasionally. And all expenses relating to the property must be paid from the IRA.
Bottom line: It may not be worth it. Talk with your advisers about other investments that may be available for your IRA.
Dear Benny: I have a friend who owns his home outright. He is in financial difficulty but refuses to look into a reverse mortgage because an attorney friend of his told him to stay away from reverse mortgages. In my opinion, a reverse mortgage sounds like the only way for him to go since he has no wife or children to consider when he passes. Any ideas why people are afraid of reverse mortgages?
Cindy: That’s a very good question. To some extent, journalists may be part of the reason people don’t like reverse mortgages. Over the years, I often have written that a reverse mortgage should be the last resort; see if you can get a new loan or refinance your existing mortgage before looking at a reverse.
Why was I so negative? Two reasons: The upfront costs were very high, and all too often, there was no regulation and no enforcement against the reverse mortgage lender. For years, celebrities such as Fred Thompson, Henry Winkler and Pat Boone were touting the benefits of reverse mortgages, but they were not disclosing all the facts — all the pros and cons.
However, there have been significant changes in recent years. To get a reverse mortgage, you now have to demonstrate you have the ability to pay your real estate tax and maintain adequate homeowner insurance. Before you can get such a loan, you must meet (or talk) with a professional housing counselor. You have to know the facts before you can get this kind of loan.
Yes, in your friend’s situation, since he has no real family, a reverse mortgage probably makes sense. However, I will continue to strongly suggest that anyone considering a reverse mortgage should first look at all the options, such as refinancing, selling and downsizing from your present home or getting loans or gifts from relatives. Once you have carefully reviewed all options, then make your decision.
Dear Benny: I am an owner in a six-unit fee-simple townhouse complex (the owner pays for some exterior maintenance) with a $200 annual assessment. Last year, we decided to have the complex painted. However, one of the owners wanted to wait until the spring. Currently, the same owner is negligent in returning the painting company’s emails in regards to paying the deposit.
Do the other five owners have any recourse? We would really like to get the complex painted. As an added note the negligent owner lives out of state and is renting out the unit.
David: First, did the association formally vote to paint the complex? Was the out-of- state owner advised of the vote? Do you have proof that the owner got notice?
If you are satisfied that you all complied with the legal requirements in your association, then all of you should pay the contractor and then pursue legal action against that owner.
You should retain a local attorney who can guide you through the process. You might be able to file a lien against the negligent owner’s home, and, in fact, you might even be able to foreclose.
Different states have different collection procedures, but the fact that the owner is out of state should not be a problem.
Benny L. Kass is a Washington and Maryland lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. Send questions to firstname.lastname@example.org.