On homes and real estate: No deed to the house

Q. We bought a vacant lot and had a house built on it. We have no mortgage; we paid cash for the whole thing. What happens when we go to sell some day? All we have is a deed to the undeveloped property. We do have a notarized letter from the contractor saying that we paid everything we owed. Do we need a lawyer to draw up a new deed?

A. No problem. If you own the land, you own anything permanently attached to it. Deeds and mortgages seldom mention buildings anyhow.

Q. My 85-year-old father, who lives out of state, told me he signed over the family home (of more than 50 years) to my brother and me. I encouraged him to speak to a lawyer — he told me he did and completed the transfer. How does this affect my brother and me?

A. Your father may want to protect the house from being taken for his health care in the future. These days, though, Medicaid has a five-year “look-back” on gift transfers, and he’d have to be 90 before the house would be free of possible Medicaid liens.

Your father may have lost the right to take property taxes he pays as an income tax deduction — or he may not. Same with the home seller’s capital gains exclusion if he ever sold. You and your brother might be responsible for the capital gain. If you waited to inherit the house, on the other hand, you’d have a current-value stepped-up cost basis. All those are questions for your father’s lawyer and accountant.

With his permission, perhaps you could phone your dad’s lawyer and discuss why he did what he did and how the transfer of title fits into his estate plan.

Q. I bought a house more than a year ago. The street floods when it rains hard, which is not an uncommon occurrence. I’m then left with four-plus inches of water in my driveway. Should this have been revealed on the disclosure statement? When I bought the house in May 2010, it didn’t rain until I had closed. I wouldn’t have bought or would have sought concessions if I had known. Do I have any legal recourse?

A. It’s worth consulting a lawyer who specializes in real estate. Do it promptly. “I wouldn’t have bought if I had known” is almost word-for-word what some law books mention as cause for action. But you’ll have to prove that the seller must have known of the defect, perhaps with statements from your neighbors.

One of your attorney’s first questions will be “What do you want?” Are you looking to cancel the purchase and give back the house? Are you asking for money? How much? Have you investigated the cost of installing drains?

Q. I believe it was several years ago you discussed a case where property was acquired initially for rental and then turned into the part-time (think “snowbird”) residence of the owner (whose primary residence was in another state). The original intent when the house was built was as rental property, but it eventually became the owners’ non-primary summer residence.

I thought you indicated that profit from the property, when sold after the owner lived in the home (even if it wasn’t a primary residence), would qualify for the $250,000 exclusion. We have owned the aforementioned property for 30 years, rented it out for 20 and have used it ourselves (part-time) for the last 10 years. If we would like to sell the property, could we take the $250,000 exclusion?

A. Sorry — good try but no cigars. Too bad, because as a married couple filing jointly, you could take twice that amount — up to $500,000 profit — with no capital gains tax due. But I’m afraid that home-sellers tax break is available only for the sale of one’s primary residence — the place, says the IRS, where you live most of the time.

The item you’re remembering was a question about a rental property that was later converted into the owners’ main home. To use the home-sellers’ tax exclusion, it would be necessary to live in the converted property at least five years before the sale, rather than the usual two years. That was because the place had previously been used as a rental. And even then, if it was sold, some of the depreciation previously claimed as a deductible expense might have to be recaptured (repaid).

Ÿ 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 askedith.com.

2011, Creators Syndicate Inc.