Q. I am considering the purchase of a small house. The house is not on a septic system but could hook up at a cost of $3,750. However there is also a sewer bond of $4,000 that is billed over the next 10 years at $400 per year in the tax bill. I feel that I should receive a credit at closing of $4,000.
A. If you were informed about the sewer bill before you signed a purchase contract, I'd say you've already agreed to whatever financial arrangements are set forth in that document. If on the other hand you found out about that $4,000 claim against the property after you'd already made your offer, it's time to talk with your real estate lawyer.
But if you're still just "considering the purchase," you can ask for whatever you feel is fair when you make your written offer. The seller will then be free to accept, reject or counter your terms, depending on what the seller thinks is right.
Q. My husband and I plan to list our house for sale this spring and disagree about whether to fix it up first -- e.g., new carpeting, refinish hardwood floors, reglaze the tub -- or do none of those and list the house at a lower price and let the buyer do what they want. He thinks a lower price will attract more buyers, and I think a fixed-up house will. Or should we use the higher price but offer money back to the buyer so they can do it themselves?
A. I haven't seen your property so I don't know how badly it needs fix-ups. Nor do I know how much it would be safe to invest in your neighborhood. You can get advice tailored to your home's condition and buyer expectations in your area, and you can get it for free. It's perfectly acceptable to call a few local brokers and put the question to them. That won't obligate you, some may come over to see for themselves, and you'll get valuable advice.
Q. What would be the consequences, if any, when your house is going into foreclosure (being auctioned off) and you take out the appliances and mess up your front landscape? A family member is thinking of doing this, but I am totally against it.
A. Leaving aside the ethical and legal aspects involved, there could be dollar consequences. If the exterior is trashed up, the property will probably bring less at the foreclosure auction. Sometimes a lender goes after the ex-homeowners for the rest of the debt, seeking what is known as a deficiency judgment. If the auction brought a lower price, they'd be suing for a larger amount.
Q. When I wrote before, you answered that starting with the purchase price of a property makes sense in determining depreciation allowance. In my case, though, it makes less sense. In 2012, I bought a rental for a very low price. In determining the depreciation allowance, I took the purchase price and added the new plumbing, heating and cooling system, and some other improvements I made. So I added those to my cost basis in determining the allowance.
However, my insurance company says the market value is more than double that. Is it wiser to overestimate or underestimate? My real estate owner's guidebook just warns, "Be aware that the IRS knows the approximate value of homes in your area."
You told me to retain an accountant, but I do not think a CPA is necessarily in a position to determine the appropriate value.
A. You're wrong. A CPA or enrolled agent is the exact person in a position to determine the appropriate value. Starting with your purchase price doesn't just "make sense" -- it is the law. I'd hate to think any book recommends estimating.
We're talking here about the landlord's right to subtract a percentage of cost as depreciation expense on income tax returns. Cost basis has nothing to do with insurance figures or estimates of market value.
When you sell someday, you'll have to recapture depreciation you've claimed (or could have claimed) and pay capital gains tax on it. Meanwhile, it reduces your income tax bills and adjusts your cost basis.
Here's just one example of why it might have paid to use professional help with your tax return last April. Some of the work you did might have qualified as immediately deductible repairs. Other improvements might have been depreciated individually over fewer years, further reducing your tax bill.
Trust me -- you're shortchanging yourself trying to go it alone. The whole thing is too complicated. Experienced landlords use appropriate professional help.
• 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.
© 2014, Creators Syndicate Inc.