About Real Estate: Many housing-related expenses not tax-deductible

Q. We paid nearly $600 in property “transfer taxes” when we purchased our new home last year. Can we deduct this amount on the tax return that we are doing now, just like we deduct our property taxes?

A. I’m sorry, but the answer is no.

Although the Internal Revenue Service will indeed let buyers deduct any real estate property taxes that they pay, it won’t let them write off any transfer taxes (sometimes called “stamp taxes”) that are levied at the time of the actual purchase.

However, the costs can be added to the “tax basis” of the home, which can reduce any money the homeowners might owe to Uncle Sam on the profits when they eventually sell.

Transfer taxes are just one example of housing-related costs that typically aren’t deductible. Others include fees for trash pickup and similar residential services, dues paid to a homeowners’ association and the cost of hiring a professional gardener or pool cleaner. Separate and more generous rules are offered to property owners who rent to tenants.

Tax law is a bit muddier when it comes to public-related improvements, even if the project is right outside your home and the cost of the work is billed by the city or county directly to you, or simply added to your annual property-tax bill as a special assessment.

You cannot deduct amounts you pay for local benefits that tend to increase the value of your property, IRS rules say. That includes the construction of new streets, sidewalks or water and sewer systems. But, as with transfer taxes, the cost can later be used to trim any taxes you might owe when you sell.

You can, however, immediately deduct the cost of maintaining or repairing those same items. An example would be a bill that was generated by local officials to fill a pothole on the existing street or a crack in the sidewalk that runs in front of your home.

Talk to an accountant or similar professional for details. Also get a free copy of IRS Publication 530, Tax Information for Homeowners, by calling the agency at 800-829-3676 or by downloading it from www.irs.gov.

 

Q. I want to buy my first home. I have a couple of negative marks on my credit report, so I went to a free seminar about “credit rebuilding.” The guy who led the seminar promised he could get the bad information removed from my credit file for a $750 fee. Is this a legitimate offer?

A. Probably not.

Rules published by the Federal Trade Commission clearly state that no one — including you or a hotshot seminar producer — can legally remove negative information from a credit report if the info is accurate. So, if the black marks on your credit report are legitimate, they’re going to stay on there for at least seven years from the time the accounts turned sour.

Of course, if the negative information on the report is incorrect, you can call the three big credit-reporting agencies — TransUnion, Experian and Equifax — yourself or visit their websites to learn how to have the inaccurate data removed. It’s a lot easier than you might think, so there’s clearly no reason to pay someone hundreds of dollars to do it for you.

 

Q. I am a widow, and I am interested in forming a living trust so that my home and other assets will pass automatically to my only son when I die instead of forcing him to spend lots of money and time in probate court and for a probate lawyer. But I have two worries: My son has been in and out of drug-rehabilitation programs three times, and I’m afraid that he might even overdose and die if he gets a big amount of cash in a lump sum when I pass away. If I create a trust, would it be possible for the trust to require that he gets only a set amount of money each month instead of all the money at once?

A. Sure. Many homeowners who create a money-saving trust include a provision that requires one or more heirs to receive a monthly, quarterly or annual stipend rather than getting all the cash in a lump sum.

Often it’s because the heir has a drug, alcohol or gambling problem. But other times, the clause is included in the trust documents simply because the parents don’t want their heirs to quickly waste the money and other assets that the folks may have spent decades to obtain.

I hope your son will be able to overcome his drug problem. But whether you create a trust or just use a common will, I don’t think it would be wise to name him as the trustee or executor unless you become absolutely sure that he has conquered his demons.

Right now, it doesn’t sound as if you would trust him to carry out your wishes.

A better idea would be to put your estate and final directives into the hands of a trusted attorney or estate planner. Many banks also have representatives who can help. It might even be worthwhile to hire a professional “trustee services” firm that can help you formulate a solid plan now and process periodic payments to your heirs after you pass away.

 

REAL ESTATE TRIVIA

Unmarried women now account for one out of every five home purchases, the National Association of Realtors says, second only to people with a spouse.

 

Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.