Pacific Real Estate

A Fully Licensed Broker / Realtor Serving All of San Diego County

Transfer by will for San Diego, California real estate

A WILL is a document, created by a person, stating how that person’s property is to be conveyed or distributed upon his or her death. It also leaves instructions as to the disposition of the body upon death. This is known as dying TESTATE, which means having made and left a valid will.

There are two types of wills that can legally dispose of San Diego, California real estate:

A WILL is a document, created by a person, stating how that person’s property is to be conveyed or distributed upon his or her death. It also leaves instructions as to the disposition of the body upon death. This is known as dying TESTATE, which means having made and left a valid will.

There are two types of wills that can legally dispose of San Diego, California real estate:

1. Witnessed will (typed)
2. Holographic will (handwritten)

A WITNESSED WILL is a typed document usually prepared by an attorney, dated, signed by the property owners and declared to be a will by at least two witnesses.

A HOLOGRAPHIC WILL is entirely handwritten by the owner, dated and signed. Since it is in the owner’s own handwriting, no other formalities and no witnesses are required, unless the will is signed with an “X”, in which case it must be witnessed.

Note: A REVOCABLE LIVING TRUST is a trust that is effective during the life of the owner, rather than upon his or her death. It can eliminate probate (to prove a will) and serve the same function as a will. The property is placed in a trust created for the heirs and may consist of both real and personal property. It is revocable at the discretion of the benefactor (owner), but becomes fully enforceable upon that person’s death. There can be a considerable estate tax savings under this arrangement, depending on the size of the estate. At the very least, a revocable living trust protects the interests of everyone involved while avoiding the time and expense of probate. This type of trust is, however, rather complicated to set up, so an attorney specializing in this field should be consulted.

FINANCING THE PURCHASE AND RENOVATIONS OF SAN DIEGO HOMES

Banks require higher down payments on older San Diego homes than on new ones. However, there are low down payments available on FHA and VA home loans and repossessions – but in general, it is just as easy to get financing for a fixer-upper as for any other house. It depends on how you present your case to the banker. I will be frank: you have to do a selling job. Go to a bank, loan company or mortgage broker and show how much you are paying for the house, how much you are paying to fix it up, and what you are doing with the money to fix it up. If you demonstrate that you are buying a $400,000 house fixed up for a total cost of $325,000 after expenses, you can get the money, but you need to bring the numbers to them. The numbers must be backed up with written estimates and appraisals showing the value of the CA home after the work is completed. The preceding chart will serve as a guide for your lender. Put all the material in a neat binder with the chart in front, followed by the written estimates, which you should tab and number. Make several copies, since you probably will talk to more than one lender. Once you have made up your mind to buy a fixer-upper, be sure the contract has plenty of those contingency clauses and “subject-tos” in the initial good-faith binder, and/or the contract to purchase, so that you go through with the deal only if you can get the financing for the rehab job, and only if it passes certain inspections.

I highly recommend the purchase of major warranty policies on used San Diego homes. Even the best engineers in the country can miss something in checking a house. Most of the national home inspection services offer used-home insurance.

Trust Deeds for San Diego, CA real estate

A trust deed is NOT a deed!
A TRUST DEED is a security device; it pledges San Diego, CA real estate as security for the payment of a loan. A trust deed is a security device; it gives legal title to a trustee with the power to sell.

A deed does not take effect until it is delivered and accepted. In order for title to be transferred, the grantor must sign the deed and deliver it with the intention of passing title immediately.

Delivery and acceptance of the deed conveys title if it is “intentional.” It becomes effective immediately.

The following are the three basic methods of delivery.

1. MANUAL DELIVERY is a direct transfer of the deed from the grantor to the grantee.
2. DELIVERY THROUGH RECORDING is the act of putting the title of record in the grantee’s name at the county recorder’s office. The grantee must have agreed to the recording.
3. CONDITIONAL DELIVERY requires that a specific event take place before title can be passed. The deed is then delivered manually.

Transfers for San Diego, CA real estate

A sale is the means by which San Diego, CA real estate is usually transferred. A sale is the most familiar way of transferring property, but it is not the only way. The six basic ways to transfer real property are:

1. Deed
2. Will
3. Intestate succession (no will)
4. Accession
5. Occupancy
6. Dedication

Transfer by deedThe deed is not the title, but is “evidence” of the title.

The most common method of acquiring title to a property is by deed transfer. The transfer of ownership of San Diego homes is usually accomplished by a simple written document known as a deed. A DEED is a written instrument that conveys and evidences title.

The GRANTOR is the person who grants the real estate rights (seller). The GRANTEE is the person to whom the grant is made (buyer). A grantee cannot be a fictitious person (example: Batman or Catwoman). It can be a person with a fictitious name (example: Microsoft, Inc.).

All deeds must have a “granting” type clause (action clause). The grantor is the person transferring real property. Both grant deeds and quitclaim deeds are signed only by the grantor. The deed is said to be executed when signed by the grantor.

There are two basic types of deeds:

1. grant deed
2. quitclaim deed.

All other deeds are versions of these two deeds.A GRANT DEED is a document that transfers title with the key word being “grant.”

The granting (or warranty) aspect of the deed is a promise that:

1. The owner (grantor) has not conveyed title to the property to any other person (grantee).
2. The property is free of any encumbrances (liens or other restrictions) other than those already disclosed to the grantee. A grant deed also transfers any after-acquired title, meaning that rights obtained after the sale has been completed are also conveyed.

These warranties are part of the grant deed although they are not written into the deed. They are called IMPLIED WARRANTIES because they are not expressed in writing but are present.Grant deeds contain “implied warranties” even if they are not expressed in writing.

It should be noted that the grant deed does not necessarily give one all the rights to a property. Easements, rights of way, mineral rights, building restrictions and other types of restrictions may still restrict the use of San Diego real estate.

A person who transfers title to real property is the grantor; therefore anyone who signs a grant deed is a “grantor and anyone who signs a quitclaim deed is a “grantor.” The person receiving property is the “grantee.”

Termination of judgment liens on San Diego, California real estate

Most judgment liens are terminated by the satisfaction of the judgment. SATISFACTION OF JUDGMENT is compensation made by the payment of money or the return of the property. A notice that the judgment has been satisfied should be filed with the clerk of the court. It clears the lien from the record. Sometimes certain San Diego, California homes may be released from the judgment, but only with the judgment holder’s consent. This partial release enables an owner to sell a property to satisfy a part of the judgment. A judgment may also be terminated if a bond is posted or if the judge grants a new trial.

Satisfaction of judgment clears the lien from the record.

Tenancy in partnership for San Diego, CA real estate

TENANCY IN PARTNERSHIP refers to two or more people who are co-owners in a business. A GENERAL PARTNERSHIP is where the partners share all profits and losses and share management responsibilities. All partners must agree to a sale or transfer of San Diego, CA real estate. Each has a right to possess the partnership property. If a partner should die, his or her interest passes to any heirs who then have a right in the partnership, but not in any particular property. If an agreement cannot be reached with the heirs, the partnership may have to be dissolved.

In a partnership, the amount invested need not be equal but must be agreed upon mutually. The partnership agreement states the amount of money to be contributed by each, the duties of each and sets the proportional distribution of profits or losses.

A LIMITED PARTNERSHIP is one consisting of one or more general partners and limited partners. A limited partner’s losses are limited to the amount of his or her investment. A limited partner does not share management responsibilities.

Tenancy in common for San Diego, California real estate

When two or more people concurrently own San Diego, California real estate (without survivorship rights or community property rights) it is called TENANCY IN COMMON. If there is no other agreement, they will each share an equal interest in the property. All tenants in common have “unity of possession,” which means they each have the right to occupy the property. Often, the property is rented to one of the owners or to a tenant. Tenancy in common gives all owners a share of the income and expenses of the property. An example of the wording illustrating this would be:

“Jim Smith and Mary Smith, husband and wife, as tenants in common”

Each owner may sell or transfer his or her interest separately from the others. For example, if one of the four owners of a building was to sell his or her 1/4 interest, there would be no restrictions. More commonly, if one of the owners dies, his or her heirs will inherit a 1/4 interest in the property.

If the owners do not agree on the ownership or management, and persistent disagreements exist, it would probably be best to sell the property and divide the profits accordingly. If an agreement cannot be reached by the owners, a court of law will sell the property and decide what is best for all concerned. When the courts have the responsibility of selling the property, it is referred to as a PARTITION ACTION. It is obviously better for the owners to sell the property themselves, as attorney’s fees and court costs would be involved. Furthermore, the court would probably sell the land at a lower price to expedite the sale.

Special assessments for San Diego, California real estate (must be recorded and posted)

Local improvements are paid for by San Diego, California real estate owners in a given district through SPECIAL ASSESSMENTS. Improvements such as streets, sewers, street lighting and irrigation projects are generally paid for by owners of homes who have benefited from the work. If these assessments are not paid, they become a lien against the property. Most special assessments are 10 year bonds. This allows the property owner a reasonable amount of time to pay them off. San Diego homes cannot be transferred until outstanding bond’s are paid, unless there are agreement’s between the parties involved.

Sheriff’s for San Diego, California real estate sale (court order to sell – execution)

A SHERIFF’S SALE is the forced sale of a debtor’s property to satisfy a judgment under a writ of execution. The sheriff’s sale is the usual method of forcing someone to sell San Diego, California real estate to pay off a judgment. If a person refuses to pay off the judgment, the sheriff’s sale is the next step. A WRIT OF EXECUTION is a court order requiring the sale of certain property to satisfy a judgment. The writ of execution extends the lien against the real property for one year. If the judgment has already been recorded as a lien on the property, the writ of execution will not create a new lien. The county sheriff, or other local officials, are then ordered to secure and sell the real or personal property to satisfy the lien.

Taxes and assessments have the priority to any proceeds from a sheriff’s sale. Mechanic’s liens and any previously recorded judgments have priority over paying the expenses of the sale. If these expenses are paid, a first trust deed is next to be satisfied. Any amount left over is applied toward a second trust deed and any subsequent liens, in the order of their recording, until the proceeds are exhausted.

Injunction (ordered to stop)

An INJUNCTION is a court order to stop doing something. For example, the court may order a developer stop damming up a river.

DOING IT YOURSELF SAN DIEGO REAL ESTATE RENOVATION

If you fall in love with a house, and you are confident you can do the renovation work with your own hands, you are a good candidate to buy a fixer-upper. If you can do much of the work yourself, you will save thousands of dollars on labor. You will use what is called sweat equity. Obviously, when you work hard you perspire, and in the case of working hard on a house, that sweat becomes dollars in the bank.

How much should you be prepared to do yourself? It depends on your time, expertise and desire. Some people like to paint rooms. The more you do, the more equity you put into your San Diego real estate with sweat instead of dollars. The people who make the most money on fixer-uppers are the handymen and handywomen in this country who make their money through sweat equity. A worried woman called me recently because her handyman husband was eager to get a fixer-upper. She wondered if he might get in over his head. “The fact that your husband has the ability to fix things, to make sure the plumbing is good, to know how much it costs to paint something, to understand the cost of electrical repairs-all this will save you thousands of dollars over the person who must hire someone to get that work done,” I told her.

FINANCING AND INSURING SAN DIEGO CONDOS

Getting mortgages for San Diego condos is no different from getting financing for single-family homes. Insurance becomes a bit more complicated in a condo. To use a liability case that has occurred, let us say that your cleaning person slips, falls, and ends up with a permanent disability. Who pays for it? If the person slips inside your unit, your insurance must cover it. If the fall occurs in the lobby or hallway, the association insurance must cover it, or you will be sued.

Condo associations may also be held liable for criminal acts by strangers against residents or nonresidents. In one case, guests of a condo owner were attacked inside the owner’s unit. A court held that since the assailants had to use the condo’s “common areas,” either elevators or stairs, to gain entrance to the unit, the association was responsible. The association and its management company had a duty to keep the premises well protected. Laws regarding San Diego condos, co-ops and homeowner associations change constantly. The Law Reporter, a newsletter put out by the Community Associations Institute, can keep you posted.

SHOULD YOU BUY IT BEFORE IT IS FINISHED?
Buying a unit in an existing condo is like buying a resale house; you know you can occupy it on closing day. Buying in an unfinished building is like betting on a horse. You are pretty sure the horse will finish the race, but you are gambling that your pony will come in first. San Diego condos under construction are a gamble. If the commitment from the builder is for January 1, you can hope for that date. But plan on moving in six months after that. Condos rarely are finished on time! The good news about buying in a new or unfinished building or development? While the units are being sold, there are no maintenance fees. Usually no fees are paid until the amenities and recreational facilities are completed. However, you will not know how much the fees will be when the maintenance is turned over to the condo association. You take the chance they will not be prohibitive, although the developer will give you an estimate. You will also be inconvenienced. If you are queasy about stepping through muddy roads and having workmen wake you up early in the morning, you may want to reconsider moving into a new or unfinished building. Nevertheless, if you are a bargain hunter, the best time to buy a condo is before it is built. Prices start very low to attract buyers and raise money. You can be the beneficiary, provided you shop carefully.

THE ESTIMATE ON YOUR SAN DIEGO REAL ESTATE COSTS: A LIST OF INGREDIENTS

Under RESPA, the lender is required by law to give you a good-faith estimate of settlement costs and a copy of the Housing and Urban Development booklet entitled Settlement Costs within three business days after the written loan application. The lender also is required to inform you which documents and services must be presented or completed before the closing. If the lender designates that you must use specific settlement-service providers (lawyers, title company, etc.), you must be given the name and address of each. Thus the estimate is your basic list of ingredients. The seller pays the sales commission to the real estate agent, unless other arrangements have been made.

The following fees are paid by you, the buyer: Loan origination fee / Appraisal fee / Credit report / Lender’s inspection fee / Mortgage insurance application fee / Assumption fee (if you are taking over someone else’s mortgage) / First interest payment / Mortgage insurance premium / Hazard insurance premium / Reserves for hazard insurance, mortgage insurance, property taxes, assessments / Prepaid property taxes, utilities (such as heating oil remaining in tank, homeowner’s insurance) / Pest inspection fee / Government recording and transfer charges / Title insurance / Survey fee.

A quick note on the final two items in the list: you might save some money on title insurance if the seller’s policy is less than three years old. Ask the company for an update, rather than a new policy. The same goes for the survey; save money by asking the surveyor to update the current one.

Shocked by how many fees you need to pay? So is everyone who buys San Diego real estate, but at least you are told in advance. You can assume that closing costs will range from 2 to 6 percent of the total cost of your new home.

THE PAPER TRAIL
Sometimes estimates are inaccurate, so do your best to keep tabs on any estimate that might go higher. If someone tells you that a number in the closing cost estimate might be changed, or go higher, protect yourself with a “paper trail.” Send a letter, certified, return receipt requested, confirming your understanding. This provides you with documentation. It puts you in a very strong position for negotiating and suing for breach of contract and nonperformance.

GOING MODULAR – TODAY’S BEST-MADE, LOWEST-COST QUALITY SAN DIEGO HOMES

Did you know that new technology has transformed what used to be called the prefab home? That term has a bad connotation and it is outmoded. Drop it from your vocabulary. Instead, learn the new term “modular housing”-the biggest new force in single-family residences in the country today. A modular home, once it is in place, is exactly like a custom-built, or stick-built home, except that when bought from a reliable company it is sturdier and cheaper. Modular San Diego homes are built on an assembly line like high-tech cars. They are more solid than conventional homes because the engineering is better.

As the words suggest, a modular home is constructed room by room in a factory, then transported to your site and assembled in an amazingly short time. Consider this: a custom home, built piece by piece by carpenters, e1cetricians and roofing people, is a home “manufactured” on the site. The raw materials are delivered directly to the home site. A modular home is built room by room by the same (or by more skilled) carpenters, electricians and roofing people, with the exception that they are inside a factory, in a climate-controlled, quality-controlled environment, using exactly the same (or better) raw materials. There is no such thing in a modular home as a door being a sixteenth of an inch too narrow to close properly. I have inspected modular homes that are so insulated, so energy-efficient, that when you close a door your ears pop! The true test of a modular home is that you can walk up to one and not be able to distinguish it from a far more costly, conventional sticker built home.

FROM MODEST TO DELUXE
Modular San Diego homes have made personal single-family residences affordable but they are not the only ones. The coming of age of modular homes now gives even the purchaser of a high-priced home the chance to get more bang for a buck – more house for less money. I have seen modular homes two stories high, with swimming pools and cathedral ceilings. You can have amenities in a modular home that are as good as those in any luxury home. Modular is not synonymous with “cookie cutter” or “four walls and a roof’- just the opposite. Modular homes come, in some cases, with more features included in the basic price than stick-built tract homes have. Moreover, these homes can be customized at the factory, complete with wallpaper and carpeting. The quality-controlled assembly line and quantity purchases of raw materials bring down the cost of those extras, and usually they are part of the basic package. In the moderate price range, for instance, one leading manufacturer offers its top-of-the-line 1,176-square-foot, two-bedroom, two-bath home at prices beginning at $77,450 (not including land). This home comes equipped with first-rate insulation; heat and air- conditioning; carpeting in the living room, dining room and bedrooms; a kitchen sink, range and garbage disposal; and bathrooms with toilet, tub and sink, all included in the basic price. Also included in that price is site preparation: a 28-inch concrete block foundation, back fill foundation and fine-grade, and even a six-by-six-foot front stoop. Here is an example of modular living on a grander scale.

WHICH BIG REPAIRS ON SAN DIEGO HOMES ARE NOT WORTH IT?

A chronic wet basement is a symptom of something far more serious – bad drainage in the vicinity of the home, or perhaps deterioration of the support walls. The remedy for the illness might be prohibitively expensive. What if you must dig out the basement and put the house up on blocks to rebuild that basement? You are staring a $30,000 repair bill in the face. On the other hand, it could be just a $300 to $500 job involving redirecting water that is draining on the home. Either way, you cannot ignore a chronic wet basement; it causes wood rot and spreads mildew around the house. Eventually basement blocks themselves have to be replaced. The best way to cure a wet basement is to change the drainage around the house. It can be done inexpensively; but you need an engineer to do a topographical survey to determine where the water is going. The typical price for a good engineer and a wet-basement solution: $2,000 to $4,500.

Although most San Diego homes don’t have basements, If yours does, you may want to invest in a sump pump to pump out water that floods the basement quickly. Cost: $500 to $2,000. Wood rot from termites and carpenter ants can sometimes be repaired, sometimes not. Do not panic. It depends upon how much damage the insects have done. If they have been in the home for more than three years, there could be structural damage. Termites live in every state in the continental United States. They usually come in from the ground; therefore a termite expert should be brought in before the closing. Correcting minor termite damage can run a few hundred dollars. Major damage? It makes the home worthless, or it can cost thousands. It is hardly surprising that sellers try to disguise termite damage. Another cause of wood rot is fungus, which can do just as much damage as termites. Be sure to have the termite inspector check for fungus wood rot as well.

SPECIFICS ON SAN DIEGO CONDOS

Condos are usually built by developers in a resort area, or in a community where the real estate land prices are so high that the San Diego condos, which take up less land than single-family homes, make economic sense. The developer runs a new condo community until the majority of units are sold, then turns control over to the condo association.

75 percent of San Diego condos are apartment buildings. Town homes make up almost all the remaining 25 percent. A town home is a general term to describe a condo that is usually two or more floors with a common wall joining one home with the one next door. Another example of a condo would be the “extended-care” (nursing home) condominium, where you own a room in a nursing facility. The common areas include everything you would have in a normal condo, plus an infirmary with a full-time doctor, nurses and a restaurant. In a few special cases there are single-family detached homes that are condos. These are built very close together and on what is known as a “zero lot line” basis, which means that little or no property goes with the residence. These homes usually include a community tennis court, swimming pool and other amenities.

WHAT IT COSTS TO OWN AND LIVE IN A CONDO
As a condo owner, you pay your own monthly mortgage payments and property taxes, plus the condo maintenance fee. Each owner is charged a fee based on the overall monthly cost of maintaining the public areas. In a 100-unit development, if all the units are the same size, and if the cost to maintain the common areas amounts to $10,000 per month, each owner would pay a maintenance fee of $100 per month. However, the size of your condo determines what you pay for maintenance. If you own a larger unit, the more votes you have in the condo association, and the more you pay in maintenance fees. The monthly maintenance fee, incidentally, is not deductible from income taxes. However, it is often smaller than the maintenance fee in cooperative buildings. Also, the common elements of a condo cannot have a mortgage on them. (Co-ops, in contrast, can have mortgages on everything.) San Diego condos are priced according to the marketplace. However, there are certain extra added attractions that make one unit in a condo almost automatically higher in purchase price than another that may at first glance seem very similar.

Expect to pay more for: additional square footage, an attractive view, whether of a city skyline, a park, a lake or simply a pleasant landscape, a higher floor in an apartment building, a terrace or balcony, a lakefront residence, an oceanfront residence or view, a unit close to a golf or tennis clubhouse.

EXTRA PACKAGING FOR SAN DIEGO CONDOS

The selling of San Diego condos begins at the front door, just as it does with a single-family San Diego homes, but you cannot be there to greet every visitor. When I approach an apartment house, I always get a fleeting but strange feeling: “My goodness, we’re going into a strange building, and these people don’t know who we are!” Therefore, your job should be to insure that guests feel welcome. What about slipping your doorman an extra tip? Tell him Mr. and Mrs. Buyer are on their way to view your apartment, and suggest that he be exceptionally sweet to them. A big smile and greeting by name from a doorman never fails to warm a visitor’s heart-and establish the right frame of mind for buying. For those who believe in extra public relations gestures, you might want to have your next-door neighbors standing in the foyer talking to you. Then you can introduce a prospective buyer to these friendly folks. You have a much more difficult problem if the common areas of your condo development or building appear unkempt. A purchaser buys not just your apartment, but common areas as well.

Can you convince your resident manager or handyman to do a little sprucing up as a personal favor to you (perhaps for a tip)? If not, you might show prospective buyers a comparable price situation in your area, plus an appraisal – and then, drop the price of your apartment. You can make excuses from today until Christmas about how the place is about to change management companies. It might help momentarily, although I doubt it. A first impression that is not a happy one turns into a “no sale.” The exception could be a very sophisticated buyer who must have your specific location – but do not hold your breath for such a buyer to come along.

SAN DIEGO CONDOS AND WHO’S IN CHARGE?

The condo association – you and your neighbors – does not take over the management of your new San Diego condos until the developer has sold a majority of the units within the building, usually 70 percent or more. Thus, you have no say in how the community is run until the condo association takes over. In that respect, it is a bit like renting rather than owning.

Once the condo association takes charge, the size of your condo determines the number of votes you have in the association. You and your fellow residents elect officers from among yourselves to sit on the association’s board of directors. The board is entrusted to enforce the rules that, at least in theory, have been created to make your life in the condo more pleasant. The board can also set new rules. Be familiar with the members of your board of directors or board of managers. Many decisions that affect you will be made by the board. One way to become part of the decision-making process is to seek actively election to the board of directors.

If you are unhappy with your board of directors, you can, by petition, have members removed and have some of the bylaws changed. Consider yourself a voter in what amounts to a very small town. Politics plays a very big role. There was a political upheaval some time ago in a local condo development. The owners discovered that the board of directors had given contracts to friends for the common area’s coin-operated washing machines and soft-drink machines. One board member even owned an interest in one of the concession companies. A group of angry owners banded together, put an end to the kickbacks, and had the entire board removed.

One case indicates how common referendums and petitions are in San Diego condos. The condo association of a downtown community began receiving complaints about people coming in and out of a particular unit at all hours of the day and night. The visitors were men; the resident, a woman, was a well-known socialite. The unit was being run as a “house of the night,” just as in the famous song. The other owners did not like the tune. They circulated a petition to have the socialite ousted. When she received notice about it, she promptly sold her unit. Had she refused to sell, the condo association would have sought a court judgment forcing her to sell, on the grounds that she operated an illegal business.

PLAYING IT COOL WHEN INSULATING SAN DIEGO HOME

The elements in new San Diego homes that a builder is most likely to skimp on are the insulation and the heating, and the air-conditioning systems. (As a general rule, with current building codes you do not have to worry about bathroom and kitchen plumbing in a new house.) The first thing you need to know is how the house will be heated. Most new San Diego homes today come with electric, gas or oil furnace heating systems, not boilers. The difference between a furnace and a boiler is that a furnace creates heat within the furnace itself and blows that heat with fans through ducts to the rest of the house. A boiler heats water, which is fed through pipes in the house. The pipes give off heat that warms the home. If you have a choice between gas and oil to heat a home, always choose gas. It is cheaper to buy, operate and install, it is cleaner and simpler, and it requires less service and maintenance.

For cooling, you are better off with central air-conditioning. Individual room air conditioners are not economical. Sometimes an inexpensive heating or cooling unit with a low capacity will have to overwork to cool or heat a CA home. If you buy a large furnace that has to work only 80 percent of the time to heat a 2,000-square-foot home (as opposed to a furnace that must work full-time) you will save 25 to 30 percent on your fuel bill. It is the same principle as that of an automobile with a four-cylinder engine working at total capacity to go up a hill versus an eight-cylinder engine working at 40 to 50 percent of capacity to get up the same hill.

Get as much insulation as possible. The best heating and air-conditioning systems will not save you a dime, or make you feel more comfortable, if your home is poorly insulated. You want double-paned insulated glass windows. If these are not available, are storm windows included? What about window shades and curtains? What about ceiling fans? Yes, you will spend more for these items when you buy a new California home than you will on a resale house, but they are worth it. In new construction, super-insulating a house (which brings energy bills down 35 to 50 percent) costs 2 to 5 percent on the total cost of the home. Let us assume you pay $10,000 for super-insulation on a $400,000 CA home. You live there for the next 10 years. During the course of your stay, the cost of super-insulation will be less than $40 a month, and your savings on heating and air-conditioning will be closer to $100 a month. Makes sense, doesn’t it?

The quality of insulation is expressed in terms of an R factor. R stands for resistance to heat flow. The R factor is used by the heating and air-conditioning industry to rate various grades of insulation, just as the auto industry uses horsepower to indicate the power of an engine. All builders and insulation salesmen are required by law to tell you the R values in all parts of the home and the type of insulation you are getting. The optimal R factor for the floor of a house built on a basement is around R-19. For a floor on a slab, R-11 is optimal. For walls, the optimum is around R-30, and for an attic, about R-38 is optimal. Anything less than R-10 means the insulation is inefficient. So show off your newly acquired knowledge when you question a builder – do not ask for adjectives like thermal but for BTUs and R factors.

Sale – lease back San Diego, California real estate

Advantages of “sale – lease back” (buyer gets to depreciate new building cost)

If the owner of a business sells her building for cash, and then leases it back, the seller has become a lessee and the buyer the lessor.

The advantage to the seller: all lease payments can be deducted from income taxes and she has received cash for her building.

The advantage to the buyer: he can use the purchase price as the new basis for depreciation and establishes a new depreciation schedule.

Seller now renter, deducts 100% of future rents paid. Buyer can depreciate new cost of buildings (even if they have been depreciated previously).

Sale of real property capital assets (gains and losses)

In real estate a capital asset includes your personal residence (including your second home) and any other San Diego, California real estate because they are long-term investments. When you sell your home or other real estate there is either a capital gain or loss. A CAPITAL GAIN is taxed at a lower rate than is ordinary income. It is in the public interest to foster investment in land and buildings and other long-term assets so that businesses are encourage to expand. This in turn creates more job opportunities for everyone.

Congress and the president have established four capital gains tax rates:

20% maximum capital gains tax rate if held for more than 18 months
15% maximum capital gains tax rate if held for more than 7 years
10% capital gains tax rate if net income is less than $50,000
5% capital gains tax rate (over 7 years) if net income is less than $50,000

“Adjusted cost basis” is the base cost, plus capital improvements, minus depreciation and sale expenses. A broker’s commission is an expense of the sale.

THE SAN DIEGO REAL ESTATE OPEN HOUSE: Y’ALL COME!

What does a San Diego real estate broker do to earn his or her commission? A good one makes up a floor plan of your home, does a market study of the neighborhood, and suggests ways to spruce up the place for sale. When the house is ready, the broker discusses dates for open houses. These are vehicles for making the product you have now attractively packaged available to the consumer, at a time that is convenient for the buying public. Saturday and Sunday are the most popular days, because most working people and both spouses have the time to drop by. Open houses are customary in selling a house, whether you are working with or without a broker. These days, an open house is essential in the sale of residential San Diego real estate. Dismiss any broker who will not take the trouble to announce and arrange one for you. All it takes is – a classified ad in your local paper and some strategically placed signs in your area. Individual appointments may also be arranged, but the open house often comes first. Among other things, an open house brings other brokers who belong to the Multiple Listing Service, or MLS, to see your California home. The more exposure your home gets, the more likely you are to get a quick, profitable sale.

Open houses tend to last 3 hours. It is a wonderful idea to invite friends to this event, to “paper the house.” But do not spend all your time chatting with your pals. Your job is to make yourself available to strangers who have questions about the property that your broker cannot answer. (Some brokers prefer that you not be there.) It is one thing to be a gracious host and quite another to follow prospective purchasers around the house like a puppy. Leave them alone, especially in the kitchen, the backyard, the living room. Give them a chance to talk to each other about the place. Let them get a sense of the house on personal terms. This is the treatment you would want if you were shopping for clothes, for instance; you would want to try on a dress or suit in a dressing room without the salesperson staring or disturbing you. If visitors start asking questions, they are potential buyers; answer them courteously. When a broker shows your home to a specific client, do not hover. The broker and the client should be left alone. Do leave a telephone number where you can be reached during a private showing, just in case the client has a question that the broker cannot answer. Be sure to put away personal items that can be pocketed. Stash valuable jewelry in your safe-deposit box.

Relief for “Forced” Sales on San Diego, California real estate

A relief provision may apply to some taxpayers who sell their principal residence but fail to meet the once-every-two years rule for use of the exclusion. If the taxpayer’s failure to meet the rule occurs because the home must be sold due to a change in the place of employment, health status, or-to the extent provided by regulations-other unforeseen circumstances, then the taxpayer may be entitled to a partial exclusion. Under these circumstances, the excludable portion of the gain that would have been tax-free had the requirements been met is based on the relationship that the (a) aggregate periods of ownership and use of the home by the taxpayer as a principal residence during the five years ending on the sale date or (b) the period of time after the last sale to which the exclusion applied and before the date of the current sale, whichever is shorter, bears to (c) two years.

The law does not specify whether the computation should use days or months.

EXAMPLE: Ms. Jones sells her real estate, which is her principal residence, because she has a new job in another city. On the date of the sale, she has used and owned her principal residence for the past 18 months. Ms. Jones has never excluded gain from another home sale. If she had used her principal residence for two years, the entire amount of the gain ($250,000) would be excluded. Although Ms. Jones fails to meet the use and ownership requirements for the full exclusion, because the sale is forced by employment, she is entitled to a partial exclusion. The amount of gain excluded by Ms. Jones cannot exceed the amount determined by the following computation (computed using months; see the observation above): Ms. Jones occupied her home for 18 of the 24 months required for the full exclusion. Therefore, she is entitled to a 75 percent exclusion from her gain (18/24 = .75) As a result, Ms. Jones may exclude $187,500 (250,000 x .75 = $187,500.) of her gain on the sale of her principal residence.

For income property, taxpayers can use real estate operating losses (passive losses) to offset real estate income without limit. Real estate losses also can be used, with limitations, to offset active income such as wages.

Taxpayers with an adjusted gross income of less than $100,000 can use real estate losses (which are considered passive losses) to shelter up to $25,000 of their active income. Taxpayers whose adjusted gross income is between $100,000 and $150,000, lose $1 of this $25,000 maximum for each $2 that their adjusted gross income exceeds $100,000.

If investors do not actively manage their San Diego, California real estate (active management includes hiring a property manager), however, then the taxpayer is precluded from sheltering active income. Because investors have no management responsibilities in investments such as limited partnerships, the investor cannot use such losses to shelter active income.

Regulation of San Diego, Ca real estate financing

Truth-in-Lending Act

The Truth-in-Leading Act (Regulation Z) is a key portion of the federal Consumer Credit Protection Act passed in 1969. The Truth-in-Lending Act applies to banks, S&L’s, credit unions, consumer finance companies and residential mortgage brokers. This disclosure act requires that lenders reveal to customers how much they’re being charged for credit in terms of an annual percentage rate. Customers can then make credit cost comparisons among various credit sources.

The act gives individuals seeking credit a right of rescission of the contract. This means that under certain circumstances a customer has the right to cancel a credit transaction up until midnight of the third day after signing. This right of rescission applies to loans that place a lien on the borrower’s residence. The rescission rights do not apply to primary financing (first trust deed) to finance the purchase of the borrower’s residence (purchase-money loan).

Real Estate Settlement Procedures Act

The regulations contained in the Real Estate Settlement Procedures Act (RESPA) apply only to first loans on one – to four – unit residential properties. Within three days of the date of the loan application a lender must furnish the buyer with an itemized list of all closing costs that will be encountered in escrow. This must be a good-faith estimate provided to every person requesting credit. Each charge for each settlement service the buyer is likely to incur must be expressed as a dollar amount or range. The lender also must furnish a copy of a special information booklet prepared by the secretary of the Department of Housing and Urban Development (HUD). It must be delivered or placed in the mail to the applicant no later than three business days after the application is received.

A controlled business arrangement (CBA) is a situation where a broker offers “one-stop shopping” for a number of broker-controlled services, such as financing arrangements, home inspection, title insurance, property insurance, escrow, etc. RESPA permits such controlled business arrangements as long as the consumer is clearly informed of the relationship between the broker and the service providers. Fees may not be exchanged between the companies simply for referrals. A broker-controlled mortgage company must have its own employees and cannot contract out its services or it would violate RESPA provisions that prohibit kickbacks for referral services.

It’s the position of the Attorney General of California that a broker may not pay referral fees to a real estate salesperson for referral to broker-affiliated services.

Fair Credit Reporting Act

The Fair Credit Reporting Act affects credit reporting agencies and users of credit information. If a loan is rejected because of information disclosed in a credit report, the borrower must be notified and is entitled to know all the information the agency has in its file on the buyer, as well as the sources and the names of all creditors who received reports within the past six months.

OTHER KINDS OF REAL ESTATE MORTGAGES

Conventional fixed-rate and adjustable-rate mortgages are the instruments the majority of Americans use to finance their real estate. But there are others that might be right for you. The graduated-payment mortgage, or GPM, literally could be just what the doctor ordered. This is a fixed-rate mortgage with accelerated payments each year as your income goes up. A GEM, or growth equity mortgage. is almost the same thing. In both, you might make payments of $600 a month the first year, $800 the second year, $1000 the third year. Thus, instead of paying off your loan in 30 years, you may pay it of in 18 years or less. Typically, this benefits a young professional who is just beginning his or her practice, and who knows his or her income is going to increase dramatically in coming years. It is not much good for teachers or other people on non-growth salaries.

A RAM, or reverse annuity mortgage, is helpful to the senior citizen or anyone whose California home is paid for in full. You go to a non-bank lender and sell the home to that lender. The seller now gets regular payments from the lender. You still live in the home. A RAM, sometimes known as a Grannie Mae, is good for seniors on fixed incomes, without a life expectancy of more than thirty years. It gives extra bucks to live on. A buy-down is a situation in which you buy from a builder, and the builder pays some money toward your mortgage. This reduces your mortgage payments over the first 3 to 5 years of a loan. It is a sales inducement.

MAKING THE SELLER YOUR LENDER
In certain cases a buyer is better off financing a San Diego, CA home without ever visiting a bank or mortgage broker. The alternative is for the buyer to ask the seller of the home to finance the sale. In a soft marketplace, seller financing is common. That is understandable. A seller eager to get rid of a house, knowing that sales in his or her area are slow, often jumps at the chance to take a note for the down payment and have a buyer take over an assumable mortgage. Seller financing makes sense to you, the buyer, not just when the seller has an assumable mortgage. It is quick – you do not wait weeks to qualify for a mortgage. It is a handy way to buy a California home that has no mortgage on it. It also clears a major hurdle when you want to buy but do not have enough money for the down payment and the seller does not need the down payment in cash.

DOES YOUR SAN DIEGO, CALIFORNIA REAL ESTATE HAVE LOCATION, LOCATION, LOCATION?

What are the selling points of your area. Is there an accessible country club, jogging trail, community swimming pool or park nearby? What are the school districts? Are there colleges nearby? How long does it take – in minutes, not miles – to get to various places such as the convenience store, gas station, shopping center, churches, hospitals, beaches, commuter bus or train? Have a list ready with telephone numbers of police, fire department, hospitals. People like to have those things at their fingertips. How about a community or neighborhood map? Real estate companies often stock these. A good broker will have all this information put together for you. If you are selling San Diego, California real estate yourself, you need to prepare this material.

Also, have a complete description sheet of your house. It should include the following:

1. Dimensions of property.
2. Names of water, gas, oil, electric and telephone companies, and service people.
3. Floor plan, if possible, with dimensions of rooms in feet, as well as total square footage. (You need not include the dimensions of bath- rooms, just state whether they are full or half.)
4. Copies of the professional inspection report and of the one-year warranty you have on those items inspected. This is a remarkably effective selling tool, well worth the cost (under $350).

Qualifying San Diego, Ca homes (collateral)

After the loan is granted, the lender has to rely for a long time on the value of the security for the loan for the safety of the investment, should the borrower default. For this reason lenders consider it important to qualify the property as well as the borrower.

Because the underlying security for almost every property loan is the property itself, lenders require a careful valuation of the property. The value depends on the property’s location, age, architecture, physical condition, zoning, floor plan and general appearance. The lender will have an appraisal done by the financial institution’s appraiser or by an outside fee appraiser. Brokers who are familiar with lending policies of loan companies are in a good position to make accurate and helpful estimates.

Different lenders have different underwriting standards for different properties. An experienced agent will help clients select a lender whose standards match the San Diego, Ca real estate being purchased or refinanced.

Items that affect physical use for San Diego, Ca real estate

Items that affect physical use are non-money encumbrances that affect the physical use of property. They include: easements, zoning and encroachments, which are conditions that limit the physical use of the property.

Encumbrances that affect the physical use of San Diego, Ca real estate are:

1. easements
2. restrictions
3. encroachments
4. leases

Easements (the right to use another’s land)

An easement is an interest in another’s land; it is a right. Easements are non-money encumbrances; they are not liens. San Diego homes that are burdened with an easement are said to be “encumbered.”

An EASEMENT is the right to enter, use and exit another person’s land for a certain purpose. The right to enter is called INGRESS and the right to exit is EGRESS. Included in this definition is the right to profit from the easement, such as the right to take minerals, oil and gas.

Creation of an easement

Easements are created in three basic ways:

1. Expressed in writing, as in a deed or contract
2. By implication of law (implied easement)
3. By virtue of long use (prescription)

1. EXPRESSED IN WRITING, AS IN A DEED OR CONTRACT. If real estate is transferred as part of the deed, an easement appurtenant to the land would be included in the grant. The same thing is accomplished by transferring a property, but reserving an easement over the land. In any event, a written contract can create an easement between the parties. For legal protection, this contract should be acknowledged and recorded.

2. CREATION BY IMPLICATION OF LAW (IMPLIED EASEMENT). If an easement is implied in a transfer, or if it is necessary for use of the land, then the easement is said to be implied by law. The right to use the land for obtaining minerals implies that you have the right of surface entry in order to extract the minerals.

EASEMENT BY NECESSITY (LANDLOCKED) Is an easement granted by a court if it is absolutely necessary for access. If a person is sold San Diego real estate that landlocks that person, he or she may acquire an easement by necessity. When the grantor transfers a portion of his or her land that leaves the grantee totally surrounded by the grantor (transferor), the grantor can be forced to give an easement of access to the grantee. An easement of access does not have to be the most convenient way of entering the property. If the grantee later acquires another access to his or her property, the easement by necessity is then terminated.

3. LONG USE (EASEMENT BY PRESCRIPTION). Prescription is an easement to continue using land by virtue of having used it for a long period of time (an easement that can be obtained after 5 years of uninterrupted use of another’s land).

Possession for 5 continuous years can create a prescription, as long as there is:

1. Open and notorious use
2. Uninterrupted use for 5 years
3. Hostile (without permission of the owner)
4. Under a claim of right.

If a person acquired an easement by prescription, he or she would not have to confront the owner nor would that person have to pay taxes and assessments. An easement obtained by prescription can be terminated if not used.

Original basis for San Diego, Ca real estate

Of particular interest to buyer’s of San Diego, Ca homes is the original basis (OB) – purchase price plus allowable costs – of the residence. Someday the homeowner will want to dispose of the home, and the higher the basis, the lower the gain, resulting in lower taxes. As previously mentioned, the OB is equal to the purchase price (PP) plus the buying expenses (BE): OB = PP + BE Original basis = Purchase price + Buying expenses

Building

For taxpayers who build their own home, basis would be the total cost of building the home. This would include cost of the land, legal fees, permits, architectural fees, materials and so forth. The taxpayer would not include the value of his or her own labor if no compensation were actually paid for the labor.

EXAMPLE: Five years ago Ms. Bell decided to build her own personal residence, and she purchased the land for $20,000. This year she paid $3,000 for permits and plans. Materials cost her $77,000. Bell’s basis in her new home is the total of these expenses, or $100,000.

Inheriting

For the taxpayer who inherits a home, the basis would be the market value at the time of the decedent’s death. This is called the stepped-up basis. An alternative valuation date also can be used; it is beyond the scope of this text, but the agent should be aware that the method exists.

EXAMPLE: Mr. Hanson died and left his home to his son. His basis in the home was $10,000, but at the time of death it had a fair market value of $150,000. The son’s basis in the home is $150,000.

The No-Choice Rule for San Diego, California real estate

If an exchange qualifies as an exchange, it must be treated as an exchange. If the real estate transaction was structured as an exchange, the gain must be deferred (postponed). The no-choice rule can be stated simply: An exchanger who qualifies for a 1031 tax-deferred exchange has no choice; the exchanger cannot recognize the gain or loss.

The No-Loss Rule

In conjunction with the no-choice rule is a rule called the no-loss rule. If a San Diego, California real estate transaction qualifies as an exchange, a loss cannot be recognized. Losses must be deferred along with gains.

In general – no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment. No loss can be recognized if the transaction is a tax-deferred exchange.

A Delayed Exchange allows the following characteristics:

REQUIREMENT THAT PROPERTY BE IDENTIFIED WITHIN 45 DAYS AND THAT EXCHANGE BE COMPLETED NOT MORE THAN 180 DAYS AFTER TRANSFER OF EXCHANGED PROPERTY–For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if:

(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or

(B) such property is received after the earlier of’: 1) the day which is 180 days after the date on which the taxpayer

transfers the property relinquished in the exchange, or 2) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.

Mello-Roos liens on San Diego, California real estate

MELLO-ROOS LIENS are municipal bonds issued to fund streets, sewers and other infrastructure needs before a housing development is built. This financial device allows developers to raise money to complete off-site improvements in a house or condo subdivision. The developer is usually responsible for making payments on the bond until the home is sold. The homeowner then becomes responsible for payment via a special tax.

The Mello-Roos Community Facilities Act is a way that a city or governmental district can skirt the property tax limitations of Proposition 13. The city can include the cost and maintenance of infrastructure items in the property tax bill as a special tax, which is allowed to go above the limits of Proposition 13.

This has been a boom for developers who need help financing their projects and for municipalities anxious to upgrade new developments under the restrictions of Proposition 13. The downside is that if something goes wrong with the economy or the project, the municipality may have to foreclose on the developer.

Warning: Whereas property taxes are totally deductible from state and federal income taxes, Mello-Roos taxes may only be partially deductible depending upon whether they are for maintenance or improvements. Consult with your C.P.A. before claiming such a deduction.

Gift and estate taxes

For federal purposes, the transfer of property by a gift or inheritance is taxed. Exemptions may reduce the taxes and sometimes eliminate them.

A gift of San Diego, California real estate may avoid federal estate taxes. So if a person wants to give a property away, it will most likely escape (the future) federal estate taxes. But, if you are to avoid federal gift taxes, usually only a fractional interest in the property should be given away each year. For example, you could give a son and daughter each a 1/30 interest in your home every year for 15 years to give the house to your children.

Like-Kind Rule for San Diego, Ca real estate

Exchanges of real estate must observe the like-kind rule. In exchanging, property is categorized as either personal or real property. Personal property and real property are not like kind.

For personal property, like-kind property must be exactly the same in character or have the same nature, and this sometimes is very difficult to determine.

No gain or loss is recognized if (1) a taxpayer exchanges property held for productive use in his trade or business, together with cash, for other property of like kind for the same use.

For real property, like-kind property is simply any piece of real property exchanged for any other piece of real property.

The words “like kind” have reference to the nature or character of the property and not to its grade or quality.

Real property

To summarize, real properties include

• vacant land (unimproved real estate);
• improved real estate, such as farms, buildings, orchards and so on;
• leases that have a remaining term at the time of the exchange of 30 years or more (the 30 years may include all options); and
• mineral and water rights (if they are considered real property by the state, they are included)

Therefore, the general rule for real property is that any piece of real estate may be exchanged for any other piece of real estate, except for inventory and personal residences.

Life estate (indefinite period) for San Diego, California real estate

“Life” and “fee” are the two types of freehold estates.

A LIFE ESTATE is an ownership interest in real property that only exists for the life of any designated person or persons (grantee). The usual intent of this type of estate is to provide a lifetime residence for an individual. A life estate can be created by either a will or a deed.

A “life estate” is a freehold estate with a limited duration based upon someone’s lifetime. This can be the lifetime of the person granting the estate or any other person so designated. When that designated person dies, the estate reverts back to the original owner (reversion).

A person holding a life estate cannot grant more rights than he or she holds.

The life tenant usually has certain interests and obligations as long as the life estate is in effect. The life tenant:

1. has the right of physical possession of the San Diego, California real estate.
2. has the right to all rents and profits, but this terminates when the life estate holder dies.
3. can usually lease, sell or finance the property, but not beyond the time frame of the life estate.
4. is obligated to keep the property in good repair, although he or she is not required to make improvements.
5. may not damage or destroy any permanent part of the property to the detriment of succeeding interests.
6. is usually responsible for all annual costs and expenses.

Judgments for San Diego, Ca real estate (involuntary & general liens)

A JUDGMENT is a court decision determining the rights of the parties involved and the amount of compensation. A judgment can be appealed. For a judgment to become a lien, an ABSTRACT OF JUDGMENT, or formal filing of the judgment, must be recorded. The judgment would then become a lien upon all nonexempt real estate of the debtor. It also becomes a lien on all future property he or she later acquires until the lien is paid. A judgment lien is good for ten years. If any property is transferred within this, ten year period, the lien must first be paid off. Under additional court action, the judgment holder may be able to force the debtor to sell their property to pay off the lien.

At this point, it is important that you understand the use of the Small Claims Court. Anyone can take someone else to court regarding civil cases for a $6 filing fee plus the fee for serving the subpoena. Neither party is allowed to be represented in the courtroom by legal counsel. The current maximum amount of a judgment is $5,000. This limit will be adjusted periodically by the state legislature to meet inflationary trends. Night court is also available in some districts, making this process even more accessible. You should be aware, however, that for a plaintiff, the judge’s decision in a small claims action is final. The defendant, though, has the right of appeal. This is an excellent way to settle a dispute with a minimal amount of time and expense.

Joint tenancy for San Diego, California real estate

JOINT TENANCY occurs when two or more people own San Diego, California real estate together with the rights of survivorship. If one of the joint tenancy owners should die, his or her interest is then split evenly with the surviving owners. Joint tenancy can never be willed.

Joint tenants have the right of “survivorship.” A joint tenancy cannot be willed.

When a joint tenancy is established, there are four unites (T-TIP) involved:

1. Title – All owners are granted title by the same instrument.
2. Time – All owners obtain title at the same time.
3. Interest – All owners share an equal interest.
4. Possession – All owners have an equal right to possess the property.

To create joint tenancy, there must be intention by the owners. The deed must be in writing and contain the phrase:”as joint tenants” or “in joint tenancy”

If it does not “state” that it is a joint tenancy, joint tenancy does not exist. Since this form of San Diego real estate ownership is most common between married people, the usual phrase would read:

“Jim Smith and Mary Smith, husband and wife, as joint tenants”

If one of the parties should die, the property is automatically transferred to the remaining parties without having to go through the superior court procedure known as “PROBATE” (to prove a will). The transferred portion conveys the ownership and all debts on the property at the moment of death. Although probate costs may be avoided in joint tenancy, the surviving owners may end up paying higher income taxes later.

Investment San Diego, California real estate

Investment San Diego, California real estate is composed of two items, the land and the structure; only the structure can be depreciated. Because land is not depreciable, its value must be subtracted from the total original basis to arrive at the depreciable basis, the improvements. Three methods for determining the percentage of improvements are the assessed value method, the appraisal method and the contract method.

Assessed Value Method

The county assessor’s property tax statement now lists the full cash value of the land and the improvements. The value of the improvements for depreciation purposes is thus the assessor’s determination of the part of the purchase price that represents the value of the improvements.

EXAMPLE: Ms Adams purchased San Diego real estate for $100,000 and received the following tax bill from the county assessor’s office:

Assessed Value:

Land $30,000
Improvements $70,000
Total $100,000The improvements give Ms Adams a depreciable basis of 70 percent of her purchase price plus buying expenses.

Appraisal Method

A real estate owner may secure the services of a professional appraiser to appraise the building and land. The appraisal method may give either a more or a less favorable ratio than the assessed value method. The taxpayer should compare the ratios from the two methods to verify which is more advantageous.

Contract Method

One other method of determining the percentage of improvements is the contract method. With this method the buyer and the seller determine the relative values of the improvements and land and designate these values in the contract, deposit receipt or escrow instructions. Note that the determination must be at arm’s length and reasonable. Before using this method, we strongly suggest obtaining professional help.

Adjusted Basis

The adjusted basis is the amount that the client has invested in the property for tax purposes. In other words, the adjusted basis is equal to original basis, plus improvements made, less all depreciation taken.

Adjusted basis = Original basis + Improvements – Depreciation

It is extremely important that the homeowner or investor understand the relationship between the basis and the final sales price of the property, because basis is the beginning point for calculating the amount of gain or loss on the sale. Calculation of the basis is affected by how the property originally was acquired.

Basis by purchase is the price paid for the property, as described above.

Basis by gift is the donor’s (gift giver’s) adjusted basis plus the gift tax paid, not to exceed the fair market value at the time of the gift.

Basis by inheritance generally is the fair market value at the time of the owner’s death.

Computing Gain

The basis is the beginning point for computing the gain or loss on the sale, but numerous adjustments to the basis always are made during the ownership period. Some of the costs that increase the basis are title insurance, appraisal fees, legal fees, cost of capital improvements and sales costs on disposition. Accrued (past) depreciation is deducted from the basis. The result is the adjusted basis.

Capital gains due to depreciation are now taxed at the regular capital gains tax rate (20 percent). (They were formerly taxed at a 25 percent rate.)