How a real estate gift becomes a lose-lose situation

DEAR BOB: About 10 years ago, my parents gave me a gift deedto their house for which they paid about $57,000 many years earlier. Today, itis worth around $275,000. They continued living in it ever since. Now they wantme to sell it so they can use the money to move to Florida and buy a smallhouse. I’ve been paying the property taxes and repairs on the house all theseyears, and it doesn’t seem fair that I should have to sell the house. Would Iowe any tax on this sale? –David R.

DEAR DAVID: Yes. Your situation is another bad example ofwhy it usually is not smart for parents to gift real estate to their adultchildren.

Purchase Bob Bruss reports online.

Frankly, I am surprised that after letting your parents livein the house they gave you and paying its expenses, they want you to sell itand give them the money to move to Florida.

To make matters worse, as the donee of their gift deed, youtook over their low $57,000 adjusted cost basis. Your taxable capital gain willbe the approximate $218,000 difference between your $57,000 cost basis and the$275,000 adjusted (net) sales price.

If they had retained title, their sale profit would betax-free thanks to the Internal Revenue Code 121 principal residence saleexemption up to $250,000 (up to $500,000 for a married couple filing jointly).That presumes they owned and occupied the house at least 24 of the 60 monthsbefore its sale.

However, since the property wasn’t your principal residence,although you generously paid its expenses, you can’t qualify for this taxbreak. For more details, please consult your tax adviser.


DEAR BOB: My wife and I married about eight months ago.Before marriage, she owned her condo and I owned my single-family house. Bothwere our principal residences for several years. We want to sell both the condoand the house in 2006. Can we do so and each claim the $250,000 tax exemption?–Edward H.

DEAR EDWARD: Yes. If your wife held title to her condo inher name alone, and meets the 24-out-of-last-60-months ownership and occupancytest of Internal Revenue Code 121, then she can claim up to $250,000 tax-freeon the sale of her principal residence.

The same applies to you if you meet the tests for yourhouse. For full details, please consult your tax adviser.


DEAR BOB: Several months ago, we contracted to buy a newhouse under construction. Now we have learned several very unfavorable thingsabout the builder and the subdivision. We applied for a mortgage but the bestwe can get is far worse that what was specified in our purchase contract. Canwe cancel the purchase and get our $10,000 good faith deposit refunded? –MacyR.

DEAR MACY: To cancel a home purchase contract due toinability to obtain a mortgage on the terms specified in the purchase contract,you must show a good faith effort to obtain such financing.

If you just applied with one mortgage lender, that’s notenough. However, if you were turned down by several mortgage lenders, thatshows your good faith and should entitle you to a refund of your $10,000deposit. For full details, please consult a local real estate attorney.

The new Robert Bruss special report, “Pros and Cons ofToday’s Five Best Real Estate Profit Opportunities,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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