Q-Last March, we bought a brand-new home. The first hard rain, the roof leaked badly, mostly around the chimney flashing. We called the builder, who said the house was warrantied for a year. His workman came out and put some patch around the chimney but it leaked again.
This happened several times and the leak continued. We then called a roofing company. They said the roof was incorrectly installed and should be reinstalled correctly, starting from scratch. Several of our neighbors tell us they also have roof leaks.
We also have other problems: Doors won’t close right, the automatic garage door is warped and sags, and the concrete driveway has cracked badly. The builder won’t return our phone calls. We heard he left the state. What can we do to enforce our warranty?
A-As you’ve discovered, a home warranty is only as good as the warrantor. If a home builder won’t honor his warranty, it’s virtually worthless, especially if you can’t find the builder.
Most home builders are very proud of their construction and plan to remain in business many years so they realize their reputation is critical to long-term success. If your builder is licensed, contact the state contractor’s license board to see if they can help you locate him.
Buyers of brand-new homes are cautioned to buy from a builder offering a 10-year warranty from an independent third-party warranty company. Then, if the builder doesn’t repair any defects, the warranty company will. But only the best builders can qualify for 10-year warranty policies.
Purchasers of resale homes should obtain a one-year warranty from an independent home warranty company. These policies pay for repairs during the 12 months after home purchase for the wiring, plumbing, furnace, water heater and built-in appliances.
For an additional fee, the roof, swimming pool and air conditioning can be included. Many home sellers and realty agents include such warranties as sales inducements.
Q-I inherited a vacant lot which had commercial zoning. But about four months ago the city rezoned my land to allow only apartment construction. This reduces the value of my lot by at least $75,000.
I have now received a purchase offer from a developer for my lot. Can I deduct my $75,000 loss on my tax returns?
A-No. There is no vested right to zoning. A city can change zoning and has no liability for zoning changes which reduce a property’s market value. Only if the new zoning takes away all reasonable economic use of a property does the zoning agency have any liability to the property owner.
Unrealized profits are not tax deductible. Your taxable profit is the difference between your adjusted cost basis for the lot (market value on the date of the decedent’s death) and the net price you receive for your lot. The $75,000 “lost profit” you might have earned if you sold before the rezoning has no tax consequence.
However, we can learn from your situation. Holding vacant land for future development can be very risky, especially when the zoning is changed to reduce the property’s potential.
Q-I need to sell my home. A realty agent I talked with says I should first fix it up before listing it for sale. The fix-up cost will be about $4,500. The realty agent said this expense is tax deductible. But my tax advisor says home fix-up costs are not tax deductible. Who is right?
A-Neither your realty agent nor your tax advisor are exactly correct. Internal Revenue Code 1034 allows home sellers to subtract principal residence home sale fix-up costs from their gross sales price.
These expenses must be incurred within 90 days before the sale and paid for within 30 days after the closing. Examples include painting, cleaning and repairing. Normally, these costs have no tax consequences.
However, the only situation when home fix-up costs will save you tax dollars occurs if you sell your home and buy a less expensive replacement principal residence. If you buy a more expensive replacement home, your profit tax is deferred anyway so fix-up costs won’t save tax dollars then.
Q-About three years ago, we sold our home and rolled over the profit by purchasing a replacement home. Now it looks like we need to sell our current home, due to a job location change. Can we again avoid paying profit tax or can we only do that once?
A-The “rollover residence replacement rule” of Internal Revenue Code 1034 allows principal residence sellers to defer their profit tax by buying and occupying a replacement home within 24 months before or after the sale.
This tax break can be used once every 24 months. However, it can be used more frequently if the home sale involves a job location change which qualifies for the moving expense tax deduction.
Since you bought your current residence about three years ago, your situation appears to qualify for IRC 1034 again. Your tax advisor can give you full details.
Q-This summer we plan to sell our vacation home which we have owned many years. But our problem is our sale profit will be at least $50,000. Can we avoid tax if we reinvest this money into a Florida condominium where we can spend the winters?
A-No. The rollover residence replacement rule of Internal Revenue Code 1034 does not apply to vacation home sales. The reason is IRC 1034 only applies to the sale of your principal residence.
However, you can make an IRC 1031 tax-deferred exchange of your vacation home. But first you must convert it into rental property.
Most tax advisors suggest renting a former personal-use property at least 12 months before exchanging it. That means you could trade it next summer for another “like kind” rental property, such as a rental condo in Florida. Later, you could convert that rental property into your winter home.
Please consult your tax advisor to discuss the details.
Q-I’ve been renting my apartments for at least 15 years and have never before been accused of discrimination. My tenants include whites, blacks, hispanics, orientals and even a native American so it’s obvious I don’t illegally discriminate.
But a black woman complained to HUD, saying I discriminated against her because I phoned her two previous landlords and both said they wouldn’t rent to her again. I immediately returned her $50 deposit. Is this illegal discrimination?
A-No. If you treat all rental applicants alike, such as by checking with their previous landlords, verifying their employment, and obtaining a credit report, you are not discriminating illegally.
However, if you only phone the previous landlords of black applicants, that would be illegal discrimination. Please consult a local real estate attorney for further details.
———-
Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
