Q: I will be selling my house soon. How long do I have to reinvest the proceeds in real estate before I have to pay capital gains on the profit? Are there exemptions to that tax? Where do I find the rules governing capital gains taxes on real estate sales?
M.D., via e-mail
A: You left out a few important details to consider, such as how long you owned the property and how much money you made from its sale. But Tim Rowland, a certified financial planner in Scottsdale, Ariz., says that if the home is your "principal residence" (basically, the address you list for tax returns, auto insurance, bills, etc.), and you have lived there at least two of the five preceding years, then you're eligible for an exemption of as much as $250,000 of the gain from the sale - $500,000 if you're married, filing jointly.
Any amount above that will be taxed in accordance with capital gains rules. For information on that you can thumb through IRS Publication 544, "Sales and Other Dispositions of Assets." For information on your home sale refer to Pub. 523, "Selling Your Home." You can download either pamphlet from www.irs.gov.
Q: Debt collectors can purchase a debt that has been written off by a financial institution for only a few cents on the dollar, yet they can collect the full amount of the debt, which sometimes runs into the thousands of dollars. The original creditor receives none of this money. Are debt collectors required to have any kind of license? If they aren't licensed, is it legal for the collection agency to have an attorney collect the debt for them?
E.M., Caro, Mich.
A: When an account gets to be three or four months old without any payments, businesses often "factor out," or sell off, the remaining debt to investors who might pay them just pennies on the dollar. The price depends on how old the debts are, the type of debtors, etc., says Bert Whitehead, an attorney and president of Cambridge Connection Inc., in Franklin, Mich.
The "factor" who buys the debts is in the business of debt collection, and usually doesn't have to be licensed in most states, including Michigan. Mr. Whitehead says that they're still bound by federal laws that protect creditors from harassment (such as calling a debtor's home before 9 a.m. or after 9 p.m.).
They may also employ attorneys to try to collect the debts. They're usually paid on a contingency basis.
The original creditor sells off this debt because he or she isn't in the business of collecting on accounts from slow payers. Seldom is the investor who buys the receivables able to collect them all. These types of debtors often skip town, have no money, or aren't working and simply cannot repay the debt.