Q: We just refinanced our condo, receiving part of our equity in cash. Is the money we received taxable?

Sheila D.

Milpitas

A: No. When you refinance your mortgage and take out all or part of your home equity in cash, you do not owe tax on that cash. It is tax-free for you to spend as you wish.

There is a good reason. Borrowed money must eventually be repaid, whether you repay it over the life of the mortgage, such as 20 or 30 years, or when you sell the condo and pay off mortgage balance in full.

If your refinanced mortgage exceeds your home’s adjusted cost basis (as it probably does), such as a $200,000 mortgage on a condo for which you paid $150,000 to purchase several years ago, that is a mortgage in excess of basis. There is no tax on such a mortgage at the time of refinancing.

However, when you sell your condo, that $50,000 cash-out money becomes part of your resale profit (but you already received that $50,000 when you refinanced).

Of course, if your capital gain profit from the sale is less than $250,000 (less than $500,000 for a qualified married couple filing a joint tax return in the year of home sale), you owe no tax if you owned and occupied the home at least 24 of the 60 months before its sale.

That exemption includes any excess cash-out amount.

Q: I bought a vacant lot that was supposed to be 5,000 square feet. But the title insurance company didn’t report an easement for about 1,600 square feet. As a result, I can’t build the house I want — I must reduce its size. Is the title insurance company in any way liable?

Sergio D.

Santa Rosa

A: If you purchased an owner’s title insurance policy, the title insurer must either pay to get the undisclosed recorded easement removed, or pay you the diminished market value of your property with the recorded easement, which the negligent title insurer failed to disclose to you.

Of course, if you didn’t buy an owner’s title insurance policy, even if you paid for a mortgage lender’s title policy, you have no claim against the title insurer (although the mortgage lender has a valid claim under the lender’s title policy).

However, if the easement was not properly recorded or obvious from a visual inspection, such as a power line easement, then it is not a valid easement and the title insurer has no liability. Talk with a real estate attorney to determine your legal rights against the title insurer.

Q: I am considering buying a property in my neighborhood that needs rehab. The owner wants to sell for around $200,000. But I want to pay only about $100,000. I know the improved property will be worth well over $700,000. Can I ask the seller to add me to the title so I can obtain financing to pay the rehab costs, and then split the profit?

Lisa M.

Chicago

A: I presume by ARV you mean “after renovation value,” or something like that

If the owner agrees to add you to the title so you can obtain financing for renovations, you need to consult a real estate attorney to prepare a joint venture or a partnership agreement.

Few owners would be willing to do that, as the legal complications could be endless. You would probably be better off acquiring the title and then obtaining an improvement loan to pay for the rehabilitation.

Q: I would like to put my name on the title of the home I share with my mother. We are about to sell it. I want to know what I need to do to make that happen. I share in the upkeep and the payments. I was told having my name on the title is the best way to assure funds when the sale is completed. Is this true?

Alicia H.

Reno

A: If your name was not on the title when you paid the mortgage interest and property tax payments, you are not entitled to claim any itemized tax deductions for those expenses.

If your mother gifts you a partial interest in her house, say 50 percent, that makes you obligated for 50 percent of the capital gains tax. The reason is when you receive a property gift, you take over the donor’s (presumably low) adjusted cost basis for that gift.

Even if the house has been your principal residence at least 24 of the 60 months before its sale, you can’t yet qualify for the $250,000 principal residence tax exemption because your name was not on the title at least 24 months before the home sale.

Your mother’s gift to you of part of the house could be a major mistake for both of you. Before she gives you a quitclaim deed for any interest in her house, you should both consult your tax adviser.

Q: A tree that belongs to my neighbor is next to our common wall. The roots are breaking up the wall. The owner refuses to take any action. What can I do?

Steve W.

Las Vegas

A: By common wall, I presume you mean a concrete wall, not just a wood fence.

Legally, you can cut the tree roots back to the property line. However, be careful not to kill the neighbor’s tree. If you do so, you can be held liable to the neighbor for the market value of the tree you killed.

Another approach would be to sue your neighbor for a private nuisance abatement. You could seek a court order to force the neighbor to cut the tree roots back to the property boundary.

The Robert Bruss special report, “How to Buy Fixer-Upper Houses with Little or No Cash for Fun and Fortune,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at (800) 736-1736 or at www.BobBruss.com.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/11/19/REG0RMDGIO1.DTL