DEAR BOB: My husband has a terminal illness. I wonder howlong I have after he passes away to take advantage of his $250,000 principal-residence-saletax exemption. We have owned our home for 30 years and have no mortgage but alot of equity, thanks to market-value appreciation. I want to stay in the homefor a while, but I don’t want to miss out on his exemption. –Geri D.
DEAR GERI: Please don’t rush to sell your home after yourhusband passes on. Making quick decisions after the death of a loved one isoften a major mistake.
Purchase Bob Bruss reports online.
If you sell your home in the tax year of your husband’sdeath, you can still use the $500,000 principal-residence-sale tax exemptionfor a married couple, thanks to Internal Revenue Code 121. That’s presuming youboth met the 24-out-of-last-60-month occupancy requirement and title is held inat least one spouse’s name.
You should be aware that if he leaves his half of the houseto you, as I presume he will, you then receive a new stepped-up basis on yourinheritance. In a common-law state, this would be a 50 percent stepped-upbasis. But in community-property states with the names of both spouses on thetitle, then a new 100 percent stepped-up basis to market value on the date ofdeath applies.
Thanks to the generous stepped-up-basis tax rules, you cansee why there is no need to hurry to sell the home in the year of yourhusband’s death. For full details, please consult your tax adviser.
WHAT IS A SHORT SALE?
DEAR BOB: What is meant by the real estate term “shortsale”? –Rich F.
DEAR RICH: A short sale means the mortgage is in default andthe lender agrees to accept a sales price below the amount that is owed on themortgage as payment in full.
This situation usually occurs when a home has declined inmarket value or the home was overfinanced for more than it is worth. Forexample, suppose a mortgage in default has a $200,000 balance, but the fairmarket value of the house is only $180,000. If the lender agrees in advance toaccept a $180,000 short sale as full payment, then the title can be deliveredto a buyer who agrees to pay $180,000.
However, the defaulting borrower will have $20,000 oftaxable debt relief income, as shown on the lender’s IRS 1099 form sent to theborrower and the IRS. Lenders who agree to short sales insist that borrowersnot receive any cash from a short sale. For more details, please consult themortgage lender.
BIG DRAWBACK OF HOME EQUITY LOANS FOR SENIOR CITIZENS
DEAR BOB: How can you recommend a reverse mortgage insteadof a home equity line of credit for a senior citizen homeowner? As a loanofficer, I am often frustrated with your advice. I run my lines of credit formy clients at almost zero commission to myself. With fees of only about $175including the appraisal, there isn’t room for much commission. Reversemortgages should be outlawed. I will never do that type of mortgage for myclients. Reverse mortgages require mortgage insurance. The commissions I’veseen are about four points. I am appalled. Seniors who have equity in theirhomes should do a cash-out refinance and have a financial advisor manage theirmoney. This is the most cost-effective loan. And they get to keep their house.–Jamie B.
DEAR JAMIE: I am shocked a loan officer like you doesn’tfully understand reverse-mortgage benefits. If a senior citizen has little orno income, how can they afford the payments on a home equity loan or arefinanced mortgage?
I suggest you fully study the benefits of reverse mortgagesbefore you close your mind. Refinancing a mortgage and turning the proceedsover to a financial advisor makes no sense (except for you, who will receive aloan origination fee). How will the senior citizen homeowner make the mortgagepayments?
Senior citizen reverse mortgages require no monthlypayments. Yes, the up-front fees can be stiff. For that reason, a reversemortgage should not be obtained unless the senior plans to stay in the home atleast five years. All reverse mortgage lenders now require counseling so theborrower fully understands the details.
How else can senior homeowners obtain the money they needfrom their home equity without having to make monthly payments? Contrary toyour mistaken remark, the senior citizen with a reverse mortgage keeps his/herhome.
The reverse mortgage is repaid when the homeowner sells,moves out or dies. Details are in my special report, “The Whole TruthAbout Reverse Mortgages for Senior Citizen Homeowners,” available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at1-800-736-1736 or instant Internet delivery at
POWER-OF-ATTORNEY FORM DOESN’T ALWAYS WORK
DEAR BOB: About five years ago, when my 83-year-old dadstarted “declining,” his attorney suggested his giving me a power ofattorney. The form was witnessed and notarized. He has now been living in anassisted-living facility for six months and there is no chance he will everreturn to his house. So I put it on the market and sold it. However, the titleinsurance company refuses to honor my power-of-attorney form. The title officersays she must verify my father really wants to sell his house and is not avictim of elder abuse. Since dad often doesn’t even recognize me when I come tovisit him, there is no way he can understand I need to sell his house to payfor his care in an upscale assisted-living facility. Meanwhile, the house buyerbacked out. What should I do? –Harlan R.
DEAR HARLAN: Talk to an attorney about having a conservatorappointed to represent your father’s best interests. Unfortunately, titleinsurance companies have seen too much elder abuse and they have to be cautiousabout accepting a power of attorney.
There are many valid uses for a power-of-attorney form, suchas when a person is unable to attend the closing settlement for a home sale.
Every time I’ve seen a power of attorney used for a homesale, the title officer always phones the individual to be certain (a) he orshe is alive, (b) understands the transaction, and (c) has authorized theattorney-in-fact to sign the documents.
CORRECT TITLE FOR “FLIPPING” BOOK
DEAR BOB: Some time ago you recommended a book”Flipping Properties for Dummies” by Ralph Roberts. I have searchedAmazon.com and my local bookstore but the only book they can find is”Flipping Houses for Dummies” by Ralph Roberts. Is this the correcttitle? –Mic D.
DEAR MIC: Yes. The correct title is “Flipping Housesfor Dummies” by Ralph Roberts. It is an excellent book, which I highlyrecommend.
HOW TO HANDLE HOME TRANSFER TAXES AND RECORDING FEES
DEAR BOB: My wife and I purchased a renovated condominiumlast April. The settlement terms include our paying a city transfer tax andrecording fees. We weren’t too pleased about that, but decided to proceed withthe purchase and are very happy. Are these expenses tax deductible likeproperty taxes? –Bahram R.
DEAR BAHRAM: No. Transfer taxes and recording fees, whetherpaid by the buyer or seller, are not tax-deductible.
As the buyer, you should add these costs to your purchaseprice adjusted cost basis for your condo. The result will be reduction of yourcapital gain when you eventually sell the condo.
If the seller had paid those costs, the seller couldsubtract them as sales expenses, similar to the realty sales commission, fromthe gross sales price, thus reducing the seller’s taxable profit. For fulldetails, please consult your tax adviser.
SOMETHING IS SERIOUSLY WRONG IF HOUSE HASN’T SOLD IN A YEAR
DEAR BOB: I have a house I have been trying to sell foralmost a year. It’s not selling. What should I do? I am alone and running outof money. –Wanda R.
DEAR WANDA: The most frequent reason a home doesn’t sell isit’s overpriced. Or perhaps it is not being effectively marketed. If your houseis not listed with your area’s most successful real estate agent, you aremaking a big mistake.
When a house has been listed with a realty agent for a yearand it is still unsold, that one-year listing was obviously far too long. Amaximum 90-day listing term is suggested instead to keep the listing agentworking hard to get the house sold in 90 days.
Before listing with a realty agent, please interview atleast three successful local agents. Each agent interviewed should prepare awritten CMA (comparative market analysis). This form shows recent sales pricesof similar nearby homes, asking prices of neighborhood homes like yours (yourcompetition), and asking prices of recently expired comparable listings.
The CMA also shows each agent’s opinion of your home’smarket value. Ask each agent you interview why, in their opinion, your homehasn’t sold. Then, after checking each agent’s references of recent sellers,list your home for 90 days with the best agent for your situation.
The new Robert Bruss special report, “2007 Realty TaxTips: Eight Chapters of Tax Savings for Homeowners and Investors,” is nowavailable for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or bycredit card at 1-800-736-1736 or instant Internet delivery at
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2007 Inman News