Expert: Dick Dennis - 8/14/2006

Question
I am supposed to close on a new home in about 60 days.  When
signing the original contract I had to sign a document saying
that I would keep the home as my primary or secondary
residence for at least 12 month.  The builder claims this is their
way to build a community.
Now that I am having trouble selling my current home I've
decided I would rather sell the new home and keep my current
one.  The builder's document says I would have to forfeit any
profits and possibly pay a penalty for selling.  Should this be
able to stand up even though once I've bought the home it
shoudl be mine?

thanks for your help.

russ

Answer
Sorry to inform you what you did not want to read, Russ, but many builders put that clause in their purchase documents for one main reason: to stop investors. And it is quite legal.

However, they were doing it when things were going gangbusters. Sellers (including builders) were selling so many houses, and investors were buying houses to resell before they even closed on it, that builders decided to stop the wholesale investing. And that is how they did it.

For whatever it's worth, Russ, if you're thinking of investing in houses, you might try taking advantage of the IRC 121 in which the IRS allows you to make all the profit you want up to $250,000 ($500,000 if you and your wife file your returns jointly) but you must live in the residence for a minimum of 24 months out of the previous 60. So, you can actually buy a house, and sell it two years later and pocket the whole profit without paying any capital gains tax over and over again.

I do wish you well.

Dick Dennis            dixiedee13@aol.com