Please Help!! Equity Line Small Sale Property Tax Question?
The question
Okay – I bought a home 3 years ago on an ARM. I have since refinanced to a loan and have a 1st mortgage that is interest only fixed until 2013 at 6.25% and an equity line that is adjustable at about 9%. I currently rent the home and that covers the mortgage payments entirely, but does not give me enough $ $ to cover taxes and insurance, which are together about $ 9,000 a year. I don’t have an extra $ 9,000, so I’ve been paying the taxes out of my equity line. I now owe close to or just over what the home is worth…I have about 60k left on the equity line, but I’m frightened to keep using it to pay for taxes and repairs. The home is has 3 units and is in a college town 3 blocks from the beach, so it’s a fantastic investment, but I’m thinking I might have to small sell it even though I’ve never missed a payment…I can’t afford the taxes! Do I stick it out until 2013 and hope that my equity will have exceeded the money I used on the equity line for taxes, or should I small sell it now?
Really, I have 30k left on my equity line, not 60k. Thank you to everyone for advice!
Best answers:
YES, you need to sell the home, before you back yourself up into a foreclosure situation, which is EXACTLY where you are headed.
When you couldn’t rent it to cover ALL of the expenses, PLUS a positive cash flow…that should have told you right there that you couldn’t afford to keep the house and needed to sell.
Please Help Tax Question?
The question
Your father died in 2011, leaving you raw land worth 8,000,000
(your father’s basis was 80,000). During 2011 you invested $ 3,000,000
of your personal money beginning the construction of a commercial
office building. In 2012 you borrowed $ 11,000,000 from a bank (using
the building—not the land—as collateral) to complete construction.
This was an interest-only recourse loan with all principal due in 2020.
On April 1, 2013 you started renting the entire space.
a. [AUTHORITY REQUIRED] What is your basis on April 1, 2013 in the
i. Land
ii. Building
Best answers:
Inherited Property
Your basis in property you inherit from a decedent is generally one of the following.
The FMV of the property at the date of the individual’s death.
The FMV on the alternate valuation date if the personal expressive for the estate chooses to use alternate valuation. For in rank on the alternate valuation date, see the directions for Form 706.
The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.
The decedent’s adjusted basis in land to the extent of the value excluded from the decedent’s taxable estate as a qualified conservation easement. For in rank on a qualified conservation easement, see the directions to Form 706.
If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes.
The building would be the cost of construction
If this is a hypothetical question:
i. Neither construction nor borrowing changed the basis in your land. Your basis in the land is the same as your basis was after you inherited it and before you started construction.
ii. Your basis in the building is the $ 3,000,000 you spent to start construction plus whatever part of the $ 11,000,000 loan was used for construction (not any part that has not yet been spent or that was spent on other things) MINUS any decrease that you either did deduct OR could have deducted.
All answers that neglect to mention that decrease reduces your basis in the building are incorrect.
