Q: I am a buying a house, and the title company handling the closing asked what kind of deed I want. I am drawing a complete blank. What kinds of deeds are there?
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A: I can only provide a general answer. You have to discuss your particular situation with your financial and legal advisers.
Oversimplified, there are three types of deeds.
Quit claim. I convey to you what I have; if I don’t own the Brooklyn Bridge, then my deed to that property is meaningless. Typically, such a deed is conveyed between divorcing husbands and wives. If the grantor does have an interest in the property, then the deed is valid.
Special warranty (also known as a “limited warranty deed). Here, the grantor warrants anything that he/she did from the time he/she took title to the property. However, the grantor is not warranting anything that occurred before taking title.
General warranty. Here the grantor says, “I will give you a warranty that title is good going back in history — George Washington or even earlier. Presumably the grantor, when he first obtained title, got good owners title insurance coverage.
From my experience, you really don’t have a choice; the local custom and usage will dictate what kind of deed you will get. I suspect the type of deed is spelled out in your real estate sales contract.
What I think you were asked is how you want to take title. You may have four options:
Sole owner: This is obvious. If you are going to be the only one on title, you will take title as sole owner.
Tenants in common: Here, you are buying with another person. Under this arrangement, on your death, your interest (could be half, or any division agreed upon between both of you) will go to your heirs pursuant to your last will and testament. In most states, probate will be necessary. But, for example, if you have children from a previous marriage, you may want them to inherit the property rather than have it go to your current spouse or significant other.
Joint tenants with rights of survivorship: As the title implies, on the death of one owner, the property — automatically by operation of law — vests to the survivor. Probate is not necessary.
Tenants by the entirety: This is reserved for married couples. It is similar to the joint tenancy discussed above. The main difference: a creditor can attach a joint tenancy to collect a debt from just one of the parties. In a tenant by the entireties situation, however, unless both spouses created the debt, a creditor has no right against the property.
Q: I know that the capital gains tax was raised to 20 percent from 15. Does that apply across the board to all taxpayers?
A. No it does not apply to everyone. According to the IRS, “the capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply.” Check with your tax adviser before you start the selling process.
Keep in mind that if your profit on the sale of your principal residence exceeds the maximum $250,000 or $500,000 gain exclusion, you may have to pay some capital gains tax. Make sure you have included in your calculations such things as improvements, real estate commissions and other expenses that will increase your tax basis and reduce your tax obligation.
Note to readers: In last week’s column, I wrote that the Americans With Disabilities Act requires businesses that provide goods or services to the public make reasonable modifications to accommodate people with disabilities. I stated that the ADA requirement includes rental properties. However, ADA only applies to commercial rental properties that are accessible to the public such as department stores in a shopping center. The law that applies specifically to residential properties is the Fair Housing Act.