Q: Thirty years ago, we bought a house that we lived in until 2-1/2 years ago, when we bought another house and moved. Our neighbor's son and wife wanted the house but didn't have the money for a down payment, so we rented it to them for 18 months until they could save enough for a down payment. Then we sold it to them on land contract. Now our tax man says we have to pay capital gains on the house since we rented it out.
If that is the case, can't we write off all the improvements we put into the house? Unfortunately we don't have the receipts going back 30 years. But there was siding, furnace and air conditioning, two storage sheds, concrete, rewiring the house, and the list goes on.
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A: You can deduct any home improvements that you can prove. You don't necessarily need receipts; photos, contracts, statements from contractors, or affidavits from neighbors, may be enough to convince the IRS that you actually did work.
Remember the classic song "Give my regards to Broadway"? That was written by George M. Cohan. George was too busy writing songs, and when he was audited by the IRS, they disallowed many of his deductions (for business travel and entertainment) because he did not have any receipts.
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George appealed and the court established what is now referred to as the Cohan rule. Oversimplified, the IRS must accept your estimates if they are reasonable and credible. You may not get all of your deductions but you may be able to salvage some of them.
Q: I have been a homeowner for 10 years. We filed bankruptcy in 2013 and kept our house. We are in a homeowners association, and now they are charging us a ridiculous amount of assessments and interest. I want to get back on my payment, but the association wants $8,600. I offered $860 as a down payment and $250 per month.
My association fee is $98, but they want $545 for 24 months, which is over $13,000. I don't know what to do at this point. I have two kids in college and this big monkey on my back is growing. I'm current with my mortgage and my bills, but $8,600 bucks is a lot. What should I do?
A: Over the years that I have practiced law — and have dealt with community associations — I have always preached that a board of directors has to be completely tough but with a heart. Unfortunately, not all board members have followed my advice.
First, you indicated you were in bankruptcy. Have you carefully reviewed the amount the homeowner association is claiming? I am not a bankruptcy attorney, but it may be that some of the debt claimed by the association may have been wiped out when you filed for bankruptcy relief. I would immediately talk with the attorney who represented you in that proceeding.
I do know, however, that once a person files for bankruptcy relief, although pre-filing debt may be erased, post-filing obligations are not. In other words, the association had the right to collect the assessments from you after the time you filed for bankruptcy.
Have you talked with the entire board of directors? If not, please demand that right — and the meeting should be in executive session — in other words, held in private to protect your privacy.
You owe the money, but the board should be willing to work with you. If not, you may just have to sell.
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I wish I could provide a better answer, but the association does need to collect all outstanding obligations. In many states, the law will not overrule a decision by the board in most instances. This is a concept called the business judgment rule. The courts in most states have stated that unless the board is doing something illegal, or completely unethical, "we will not overturn a decision of a board of directors, even if that decision was wrong."
Rate checker. Readers who are planning to buy or refinance a home can find a useful tool on the Consumer Financial Protection Bureau's website at consumerfinance.gov. It is called a rate checker. You fill in some basic information — such as credit score range, state where property is located, and projected loan amount — and you will find the range of interest rates available in your state.
In fact, there is a lot of valuable information for all consumers on the website, including such topics as paying for college, protection against credit discrimination or just trouble paying your bills.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; mailbag@kmklawyers.com.
