'Only if' offers shunned by some home sellers

Q. I know you wrote about this in past columns, but I didn't save them. I have fallen in love with a nearby house that's not on the market yet, and the owner says he doesn't want any brokers or contingencies. What are contingencies?

A. A contingency is an uncertain future event with some other event that depends on it. It's a “but only if” situation. For example, a buyer signs a purchase offer that says, “I'll give you a million dollars for your house, contingent upon X.”

The most common contingencies look something like “contingent upon getting a mortgage loan for $800,000.” Or sometimes it's “contingent upon the successful sale of my present home.” Or “contingent upon a satisfactory home inspection.”

Contingencies usually specify some relatively short period of time, as the sellers have to wait around with their house tied up and pretty much off the market to see whether the contingency will happen.

If your neighbor won't accept an offer like that, you could sign a contract in which you offer to buy the home period, come what may. You could still apply for a mortgage loan or put your present home on the market. But if something were to go wrong, and you couldn't come up with the purchase money by the specified time, you'd be in legal trouble.

A home seller who really means no contingencies at all is looking for an all-cash offer. That's fairly rare in many areas. It represents a sure, trouble-free, prompt sale and may be worth some price concession on the seller's part.

Q. We sold our rental home of more than 30 years that is fully depreciated. We did a 1031 exchange for another rental property. We would like to move into the new property. We understand that if we were to rent it out for the first two years and then move in, it would be our own residence and we wouldn't owe any capital gains tax when we sell it. But what about the depreciation? Would we still owe it? Is there any way we could move in now and not owe any taxes or depreciation?

A. Here's a quick explanation of depreciation: Landlords are entitled to subtract a fraction of their purchase price from reported income as a theoretical depreciation expense. That's based on the questionable theory that investment real estate wears out and is worth a bit less every year. This accounting lowers their reportable income and income tax bill.

After years, the whole purchase price has been subtracted and the property is considered fully depreciated. Someday, when the place is sold at a profit, depreciation must be recaptured — settled up with the IRS. One advantage is that the saved tax will be repaid in the future with cheaper dollars.

When you exchanged that rental property for another one under the 1031 rules, that recapture was postponed. But as you fear, it wasn't forgiven.

The rules have been changed several times in the past dozen years, as the IRS targeted techniques that avoided recapturing depreciation. Can you avoid it? Maybe. The matter has become more and more complicated. Better take the whole question to your CPA.

Q. I recently bought a four-unit house to rent out. It is in fine shape and is newly painted inside and out. I understand lead hasn't been used in paint for half a century. Do I still have to give tenants that lead-paint warning booklet?

A. Yes, if it was built before 1978. That was when lead was outlawed for household paint. Lead paint dust can be a real health hazard.

These days it's seldom found, and there's no threat to health when all is new and trim. The dangers could come if new paint were to flake or chip and send the dust of older layers into the air.

At any rate, the federal government requires you to give new tenants of a house built before 1978 an EPA-approved booklet with lots of detail on the subject. Similar rules apply to the seller of a house that old. Buyers are entitled to 10 days during which they can investigate with an inspection. Few bother to do that, these days, though.

Q. Inasmuch as many experts predict the eastern half of the U.S. to be long overdue for an earthquake, can you please let me know how I can obtain earthquake coverage?

A. Try an insurance agency.

• Contact Edith Lank on www.askedith.com, or 240 Hemingway Drive, Rochester NY 14620.

© 2018, Creators Syndicate