Q:I was told a long time ago if you make one extra home mortgage payment each year on a 30-year fixed-rate loan it will be paid off in 15 years. If that is not true, how many years will it take off the mortgage by making one extra payment every year?

Geri F.

Brentwood

A: Your information is incorrect. However, depending on the interest rate on your mortgage, making an extra mortgage payment each year (13 payments in a 12-month period) will usually cut the term of your 30-year mortgage down to about 22 years.

Of course, if you don’t plan to stay in your home that long, then there is little sense in making extra mortgage payments.

This is the same principle behind biweekly mortgage payments (which I do not recommend). Biweekly mortgages paid every two weeks are the equivalent of making 13 monthly mortgage payments each year.

An easy way to make 13 mortgage payments every year is to divide your monthly principal and interest payment by 12 (not including any property tax or insurance escrow).

Then add that amount to each monthly mortgage payment you make, clearly marked “extra principal payment.” The result will be to speed up your mortgage payoff and decrease the total interest paid over the life of the mortgage.

Q: I have owned and occupied my home since 1973, but I am ready to sell and move into something smaller. My problem, if I sell now, is I will have an enormous capital-gains tax. Could I rent out the house for several years, then sell it, and do an Internal Revenue Code 1031 exchange for another property? Would this reduce my huge capital gains tax?

Sara G.

Mill Valley

A: I presume “enormous capital- gain tax” means your profit will exceed the $250,000 (up to $500,000 for a married couple filing jointly) principal residence sale tax exemption of Internal Revenue Code 121. To qualify, you must have owned and occupied your primary home at least 24 of the 60 months before its sale.

If you move out and rent the house to tenants, thereby converting it to a rental, then you can make an IRC 1031 tax-deferred exchange for another rental property of equal or greater cost and equity.

You will then forfeit your unused $250,000 exemption and you can’t take any cash out of the exchange.

However, after the trade is completed, you could refinance the acquired rental property to produce tax-free cash. But when you eventually sell that rental property, you will owe capital gains tax (unless you then make another IRC 1031 trade up).

Q: I have lived in my house for 12 years. On one side of my property there is a concrete wall and chain-link fence that runs the length of the lot. I had always thought that was the property line. But I recently learned the true boundary is about 5 feet to my side. I have heard of “squatter’s rights.” Since I have mowed the grass along my side of my neighbor’s lot, how do I get the property line moved?

Tim P.

Oakland

A: Squatter’s rights have nothing to do with your situation. That term applies to obtaining title to an entire property by occupying it, such as moving into a vacant house. The legal term for squatter’s rights is gaining title by adverse possession.

If I understand your question correctly, the fence is 5 feet on your neighbor’s side of the true boundary line. Because you have been occupying and using that 5-foot strip of your neighbor’s lot, you may be entitled to gain a permanent prescriptive easement.

The legal requirements for obtaining a prescriptive easement include open, notorious (obvious), hostile (without permission) and continuous use for the required number of years in your state. California has the shortest time limit of just five years. Some states require hostile use 30 years.

If you meet the requirements for a permanent prescriptive easement, consult a local real estate attorney. To perfect your claim, you will need to sue your neighbor in a quiet title lawsuit.

However, I must warn you the neighbor’s legal defense will be “permissive use,” thus defeating the hostile-use requirement.

Q: Three years ago, my mother married a widower. He told her that upon his death she would get 30 percent of the house he received after the death of his previous spouse. The remainder will go to his son and grandson. She is not on the title. Since she lives in California (a community property state), won’t she get either 50 percent or the entire house?

Leslie LeB.

Seaside, Monterey County

A: No. Inherited property is the separate property of its owner, even if that owner is married. Your mother’s husband can leave his separate property by will to whomever he wishes.

Only if community property assets were used to maintain the property, such as making mortgage payments, maintaining it, or making capital improvements from earnings after the marriage, could a spouse acquire a community property interest in a spouse’s separate property.

Q: If we sell our rental property, can we use the Internal Revenue Code 1031 tax-deferred exchange to acquire another rental property in Germany?

Mary P.

Phoenix

A: No. Internal Revenue Code 1031 tax-deferred exchanges only apply to U.S. real estate.

The 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 at www.BobBruss.com. Questions for this column are welcome at either address.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/12/10/REGFCMQPI31.DTL