DEAR BOB: I want to sell my second or vacation home andavoid the profit tax. I was told if I sell and reinvest the profits in anotherhome I could avoid the tax. But I have considered moving into my second orvacation home to establish it as my primary home so I can avoid the tax.Another friend told me I have to live there three years to qualify. Is thattrue? –Donald P.
DEAR DONALD: You’ve been hanging out with a “badcrowd.” They are giving you incorrect information.
Purchase Bob Bruss reports online.
To qualify as your principal residence, you must own andoccupy the home as your primary residence at least 24 of the last 60 monthsbefore its sale. Then you can qualify for up to $250,000 tax-freeprincipal-residence-sale profits, thanks to Internal Revenue Code 121. Aqualified married couple filing a joint tax return in the year of the sale canclaim up to $500,000 tax-free capital gains.
Buying a replacement residence has no effect on your IRC 121benefits. Full details are available from your tax adviser.
DON’T COUNT ON YOUR INHERITANCE UNTIL THE TESTATOR DIES
DEAR BOB: My father, age 85, owns and lives in a house inLas Vegas. I am the executor of his will. It says when he dies, all hisproperty is to be divided between my sister, brother and myself. But now he isconsidering selling his house and buying a plot of land in New Mexico,adjoining my sister’s property. He will bring in a mobile home to live in. Ifthat occurs, what are my obligations concerning that property? Does my fatherneed to re-write his will? –Marsh R.
DEAR MARSH: Until your father dies, his will has no effect.As executor of that will, you have no duties until he dies.
He can do whatever he wishes with his assets. If his willleaves you and your siblings an asset he no longer owns at his death, namelythe Las Vegas house, it’s your tough luck. You inherit nothing.
If he moves and buys the New Mexico land and mobile home,you might then suggest he write a new will to distribute that property upon hisdeath.
STATE LAW PREVAILS OVER MORTGAGE TERM
DEAR BOB: I own a house in a state where the law says therecan be a mortgage prepayment penalty only during the first three years of themortgage term. However, my mortgage from a major nationwide lender says I havea prepayment penalty for the first five years. Which is correct? –Emil T.
DEAR EMIL: Presuming you are correct about the three-yearlimit on residential mortgages in the state where your home is located, thatstate law prevails over any conflicting term in the mortgage agreement.
Because nationwide lenders do business in most states, theirmortgage documentation doesn’t always comply with state laws. If in doubt, havethe situation reviewed by a local real estate attorney where the property islocated.
The new Robert Bruss special report, “When It’s Smartto Prepay or Refinance Your Mortgage,” is now available for $5 from RobertBruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736or instant Internet delivery at www.BobBruss.com.Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2007 Inman News