Money Management Q & A
|Jump to:||Choose article section...Deflating an excessive property assessmentSelling a home after a divorceDoes your pension plan need an investment manager?Claiming depreciation for a leasehold improvementFinancing a home built to orderIncome that's taxed if you're not a US citizenPayout rules for an inherited Roth IRA|
Q. I'm shortly going to meet with the local assessor to argue fora reduction in my property tax. Can you give me some tips on how to buildmy case?
A. First, look around your neighborhood for properties similarin lot size and location, interior space, age and type of construction,improvements, and public amenities like sewers, sidewalks, and greenbelts.Check with real estate brokers and lenders to get an idea of the currentmarket value of such properties.
Next, check the assessor's or county clerk's record on your propertyto make sure the description is correct and current. (If you dismantleda greenhouse, for example, it may still appear on an outdated record.) Thenaverage the assessments on properties with comparable features. If yourassessment is higher, you've got a strong talking point. Bring your paperworkto the meeting with the assessor. Also take along pertinent photos, sketches,and documentation of your property's defects, such as faulty constructionor drainage problems.
If the assessor won't budge, and you decide to appeal formally, investin a certified appraisal. This carries more weight than letters from realestate brokers.
Q. My former wife and I hold title to our house as tenants in common,and she has continued to live in it since our divorce in 1996. If I buyher half-interest at current market value and later sell the house, howshould we figure our tax?
A. Each of you now has a cost basis equal to half of what youoriginally paid for the house and any subsequent improvements. If your wifesells her share to you for more than her basis, the difference is capitalgain, but she can exclude up to $250,000 of it from tax, because she occupiedthe home for at least two of the five years before the sale.
The amount you pay her will increase your cost basis for the entire houseaccordingly, and you'll owe tax if your proceeds from a future sale topthat. However, you may be able to claim a $250,000 exclusion, too. A nonresidentowner is considered to have used a house as a primary residence during anyperiod when the former spouse lives in it under a divorce agreement.
Q. Because our group's retirement plan now totals about $500,000,we're thinking of hiring an investment manager. Can you shed some lighton what other medical practices have to say about working with such an adviser?
A. According to our most recent survey, nearly three out of fiveplans that had at least $500,000 in assets employed investment managers.In general, the arrangement worked out well: Only one doctor in 10 expresseddissatisfaction with his adviser. Poor investment choices and performancewere the most frequent complaints, while failure to consider doctor clients'views and requirements was another source of friction.
Some doctors work with managers who handle both investing and plan administration.This "bundling" may result in lower overall costs, but it canalso multiply troubles if the manager is inefficient, hard to get hold of,or lacks expertise in one area.
To gauge a manager's competence before you hire him, ask each candidateto show you results for accounts similar to yours that he's had under long-termsupervision. And get the names of several clients who can tell you how heis to deal with and whether he keeps up with the paperwork needed to complywith constantly changing laws and regulations.
It's important to choose a manager who's as compatible as he is competent.Before you entrust one with your practice's pension fund, make sure he andyou are both clear on the limits of his authority and the objectives youexpect him to seek.
Q. The landlord of the building where I have my office is allowingme to make some improvements at my expense. Since I'm paying for them, Iassume I can depreciate them over the remaining seven years of the lease.Is that correct?
A. No. The write-off period for the improvements is the same asfor the building--39 years in this case--starting when you place them inservice. The lease term makes no difference, nor does it matter that youdon't own the building.
Assuming you end your tenancy in less than 39 years, and your cost isn'tfully depreciated, you'll be allowed to take any undepreciated balance intoaccount when you leave.
Q. We're planning to build a new home, but mortgage financing won'tbe available until the house is finished. How do I deal with this?
A. You could get a loan to cover building costs and pay it offby obtaining a conventional mortgage loan on completion of construction.But this could involve the nuisance of shopping for two loans, as well aspaying two sets of closing costs. A less expensive alternative may be combinationfinancing through a single lender, who will convert the construction loanto a mortgage loan when the time comes.
A construction loan generally has a term of six months to a year, duringwhich the lender makes partial payouts to the builder at various stagesspecified in a "draw" schedule. The lender charges a fee for thisprocess. With a combination loan, an adjustable interest rate may applyduring the construction period. As the close approaches, you can lock ina fixed rate for the mortgage. For example, Fannie Mae has initiated a one-rate,one-closing Construction to Permanent Mortgage program through cooperatinglenders. For information, phone 800-732-6643.
Q. Although I'm a British subject, I now live and practice in theUnited States. I came here in August 1999 and obtained a green card in October.Will I have to include interest income from a London bank account on myUS tax return for the year?
A .Yes, if you received the income after the issue date of yourgreen card, which grants you lawful permanent residency. Resident aliens,like US citizens, pay tax on income from all sources worldwide. But they'regenerally not taxed on foreign income received before they became residents.
Two other points to keep in mind: You're liable for tax on 1999 earningsfrom practice in the US before you officially became a resident. And youcan claim a deduction or credit for foreign taxes paid on income includedin your US return. For information on other special rules that apply inthe first year of residence, see IRS Publication 519.
Q. I know I don't have to take money out of my Roth IRA during mylifetime, if I don't want to. Will that also be true for the IRA's beneficiary?
A. It will if your spouse is the beneficiary and transfers theaccount to his or her own IRA. For a beneficiary other than your spouse,there are two options: (1) He can take annual distributions based on hislife expectancy, starting before the end of the first year after your death;or (2) he can take the entire amount by the end of the fifth year. If youdon't specify either option, your beneficiary can choose.
Do you have a money management question that may be stumping other doctors,too? Write: MMQA Editor, Medical Economics magazine, 5 Paragon Drive,Montvale, NJ 07645-1742, or send an e-mail to email@example.com(please include your regular postal address). Sorry, but we're not ableto answer readers individually.
Lawrence Farber. Money Management. Medical Economics 2000;1:191.