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posted: 9/24/2011 12:01 AM

On homes and real estate: Happily ever after

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Q. Nine years ago, you took the time to advise us not to turn over our home to our seven kids. We took your advice and have lived happily ever after. Thanks.

PS: For what it's worth, all seven kids have well-maintained homes of their own without any significant help from us, and we are all good friends.

A. Here's what I wrote then.

"Turning your home over to your seven children strikes me as a poor idea. Of course, I don't hear from the ones that go well, but I do get quite a bit of mail from families where a house is owned by three siblings, or four -- never mind seven -- and all sorts of things go wrong.

"One can't afford to pay a share of the taxes another wants to live there but can't see paying rent to the others one needs money, and the others can't buy him out they can't agree on whether a new roof is needed someone loses a lawsuit and has a lien placed on the property one co-owner dies and her kids live in Australia where it's hard to reach them for signatures -- or her husband inherits her share and then remarries and part ownership ends up in the hands of strangers.

"Of course, I don't know your reasons for wanting to keep the house in the family, so my advice would be -- as you suspected -- to see a lawyer, preferably one who specializes in estate planning."

Today I'd add even more:

If you continued to live in the house, you'd have lost the chance to sell someday and take the homeowner's tax break on your profit. Your kids would owe capital gains tax on their shares. You'd also have lost the ability to take out a home-equity loan or a reverse mortgage if you needed one in the future.

Q. I purchased a new home for $127,000 in 2010. My loan is for $100,000, and I received the first-time homeowner's credit of $8,000 and used it for renovations. The home was built in 2002. Would it be a financially good move to try to sell it within the next year, and if so, what would I have to sell to get my investment back?

A. First off, you can't set a sale price by what you have to get. The only thing that counts is what buyers are recently paying in your neighborhood for similar property.

More importantly, if you move out of the house within the first three years, you must repay a 2010 tax credit.

Q. I'm looking to buy investment homes to rent out. If I'm renting a place for myself (which I currently am not), does it affect my buying for investment?

A. Where you live and how you live makes no difference in buying investment property or in qualifying for mortgage loans. After all, every investor lives somewhere, and I'm sure some of them must be in rented houses.

I will caution you, though, that it can be hard to finance investment property these days. Down payment requirements and income qualifications have tightened up a lot.

Q. I have a seasonal home in the Adirondacks that I purchased in 1985 for $38,000. It is now worth between $300,000 and $400,000. I would like to sell it to my daughter for many reasons, but I have a couple questions. Are there any legal reasons why I can't sell it to her for considerably less than its value (perhaps $100,000)? Secondly, if I do sell it to her for less than the true value, will the IRS swoop down on me and demand I pay a capital-gains tax on the true value?

A. You can make your daughter a gift of the rest of the value with no federal gift tax on up to $1 million. (It comes off what you can leave her tax-free at your death.) There's no New York gift tax either.

For the words "capital gains" you can pretty much substitute "profit." Your cost basis for the property may be more than $38,000. It would be increased by legal costs of buying and selling and anything spent on permanent improvements over the years (new roof, landscaping, etc.). If you sell for $100,000, your profit will be less than $62,000, and yes, subject to capital gains taxes, which aren't all that high these days.

If your daughter later sold the place for more than her cost basis of $100,000, she'd have a taxable gain herself.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through

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