Question: We are moving to a different state and have been looking at houses and are buying our first home. The realty agent keeps referring to a trust deed or a deed of trust. Is this the same as a mortgage?
Answer: Both are security devices. If you don't make your monthly payments, the lender can foreclose and take away your house. With a mortgage, only the borrower and lender are involved. If you default on a mortgage, foreclosure is usually by court judicial sale. There is often a redemption period after the sale for the buyer to buy the property back.
With a trust deed, or deed of trust, there is an additional party, called the trustee. If the borrower defaults, the trustee files a notice of default, which provides for a reinstatement period.
After that, the trustee holds a non-judicial foreclosure sale, often on the courthouse steps. (I actually did this twice when I lived in California). Where allowed, lenders prefer deeds of trust because there is no redemption period after the trustee's sale
Question: Bob, I have enjoyed reading your columns for many years and the several articles on exchanges. Now it is actually happening to me. The sale of my eight-unit apartment building is now pending. It should close next month. My net profit will be about $97,000-$98,000. Am I correct I have two years to reinvest this money in another apartment building so I can defer my profit tax? Please answer this by last of July
- Tom R.
Answer: Tom, keep reading, I hope this is soon enough, had 13 e-mails, etc., before yours.
No. You are thinking of Internal Revenue Code 1034, the "rollover residence replacement rule," which only applies to sales of principal residences.
If you were selling your home, you would have two years to buy a replacement principal residence of equal or greater cost to defer your profit tax.
However, the only way to defer profit tax on the sale of investment property, such as your apartments, is to make an Internal Revenue Code 1031 tax deferred exchange. Since your sale has not yet closed, if you consult your tax advisor or attorney now you can probably convert this into an IRC 1031(a) (3) Starker delayed tax-deferred exchange.
To qualify, your sales proceeds must be held beyond your constructive receipt by a third-party intermediary, such as a bank trust department.
Then you have 45 days from the date of sale to designate the "like kind" investment property you will be acquiring and 180 days to complete the tax-deferred Starker delayed exchange.
As always refer to your tax adjustment - tax consultant - tax attorney ... good luck!
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty, Inc.
4040 Del Prado Blvd., Cape Coral, FL