REAL ESTATE TAX ARTICLES
Escrow Company Required to Transfer to IRS 15% of Sales Proceeds of Real Property Sold by a Non-U.S. Citizen
Question: We are Mexican citizens who sold a 20-acre parcel of land in Buckeye for $3,000,000. At close of escrow, the escrow company transferred 15% of the sales proceeds, i.e., $450,000, to the Internal Revenue Service (“IRS”). The escrow company said that the reason for this transfer to the IRS is that we may have to pay capital gains taxes on the $3,000,000 sale of the 20-acre parcel. Is that correct? Answer: Yes. Under the Foreign Investment in Real Property Tax Act (“FIRPTA”), an escrow company is required to withhold and transfer to the IRS a certain percentage of the…
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Vacation Home Sale May Have Tax Consequences
Question: We have owned a vacation home in Sierra Vista for 15 years. We would like to sell this Sierra Vista home, but we do not want to pay any taxes. Will we have to pay any taxes if we sell our vacation home? Answer: Probably. Although there is a $250,000 single-person exemption/$500,000 married exemption for any gain on the sale of a principal residence, there is no exemption for the gain on the sale of a vacation home. Therefore, when you sell your vacation home, you should have to pay tax on the gain. Note: If you rented out…
Read More >>Lose Vacant Lot if Don't Pay Property Taxes or HOA Fees
Lose Vacant Lot if Don’t Pay Property Taxes or HOA Fees Question: Twenty years ago my husband and I purchased a lot in northern Arizona. Although there were promises by the developer about development of the entire area, no development has occurred, and no development is anticipated. Every year we pay the property taxes and property management fees related to the development. We are retired, and want to reduce our expenses. Is there anything that we can do with the lot that would not harm our credit rating? Answer: If you fail to pay the property taxes you…
Read More >>Adverse possession won't help man keep building
Adverse possession won’t help man keep building Question: I recently read in the newspaper about a gentleman who had owned a building for many years in a Maricopa County “island” near Tempe. The gentleman lost the building because he technically never had title to the land under the building. Didn’t the gentleman acquire title to the land under the building by adverse possession against Maricopa County? If not, would there have been a different result if he had paid property taxes for all of those years? Answer: First, the law of adverse possession generally does not apply to…
Read More >>Lower Taxes If Senior Citizen Owns the Home
Lower Taxes If Senior Citizen Owns Home Question: My husband and I purchased a home in Surprise from a senior citizen who was moving to an assisted living facility. During the escrow period we saw the amount of the property taxes on our home. This year we were surprised to see a significant increase in our property taxes although home values in the Surprise area have been relatively stable. When we complained to the County Assessor’s office, they said that the increase in property taxes was because a senior citizen no longer owned the home. Is that correct? …
Read More >>Avoiding Capital Gains Tax on Stock Profits Used to Buy Home
Avoiding Capital Gains Tax on Stock Profits Used to Buy Home Question: We have made a significant amount of money in the stock market. We would like to “cash out” our investments in the stock market and use this money to buy a second home in Flagstaff. If we use the money from the sale of our investments in the stock market to buy this second home will we have to pay tax on the capital gains that we have made on our investments in the stock market? In other words, can we do a “1031 tax-free exchange” of our…
Read More >>Mortgage Debt Forgiveness Law Expired in 2016
Mortgage Debt Forgiveness Law Expired in 2016 Question: Last summer we did a short sale of our home in Peoria. Our lender agreed to the short sale and reduced the amount of the mortgage loan by $100,000 in order to close the sale of our home. Although we never thought of any income tax consequences, our accountant said that we may have income tax liability for this debt forgiveness of $100,000. Is that possible? Answer: The general rule is that any debt forgiveness by a lender has income tax liability to the borrower. In light of the numerous foreclosures…
Read More >>Converting Rental Property to Principal Residence
Converting Rental Property to Principal Residence Question: In a recent article you said that IRS income tax law was changed to limit the tax benefits when the owner of a rental home moves into that rental home–which then becomes the owner’s “principal residence.” My husband and I are considering converting rental property to our personal residence. We have owned a rental home in Paradise Valley, Arizona for eight years. The appreciation on that home is approximately $500,000. We are planning on retiring to Utah, but don’t want to pay tax on this $500,000 in appreciation. We are willing to move into…
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