Several of these issues have been addressed in our previous columns. At the end of the day, efficient practices protecting titles to real property are a mainstay of a pro-investor environment.
A problem that buyers of houses and apartments sometimes face stems from current tax laws. In order to qualify for tax exemption on income from the sale of a house or an apartment, the taxpayer must have owned the property for at least two years and must have been living at the property being sold for at least two years immediately preceding the sale. These individual, two-year periods need not coincide, though the residency must be in the two years prior to sale.
On the one hand the ownership and residency requirement may prevent unscrupulous land speculators from engaging in sharp selling practices or "churning" by taxing gains made on appreciation for failure to own and reside in the premises for the two-year periods. Certainly, the tax exemption provides an incentive to hold property and to reside there for the given periods. On the other hand, this law encourages questionable practices and leaves buyers less than completely secure in their ownership.
The typical scenario when buying residential property, where the owner has not yet fulfilled the above conditions of ownership and residency, is to enter into a lease agreement and contract on a future contract for the actual purchase at a later time. This permits the owner to maintain ownership and to claim residency at the premises, if in name only, to meet the conditions for tax exemption.
Often, sellers require partial payment up front and will require the difference between their asking price and the appraised value of the property for the "lease." This leaves buyers with a waiting period before the title can be transferred, although much of the full price has been paid and a change in ownership has been more or less fully negotiated. (Whether this money is reported or taxed is another question).
Julian Juhasz and Kevin Connor are attorneys with Squire, Sanders & Dempsey. Their column appears monthly. Send comments or questions to email@example.com.