DEAR BOB: Years ago, when my wife and I divorced, I agreedshe could have a life estate in my house in upstate New York. She lived thereuntil September 2005 when she had to be moved to an Alzheimer’s care home. Hercondition is such that she will never be able to live alone again. I want tosell the house. But her nasty daughter, from a prior marriage, claims I can’tsell the house as long as her mother is alive. The daughter has now moved intomy house. Her mother, age 72, could live many more years in the Alzheimer’scare home. I talked with an attorney representing the largest title insurancecompany in the area. He said his company, because of the circumstances,wouldn’t insure the title for a buyer. What can I do? –Herman R.
DEAR HERMAN: Your situation is another classic example why Ido not recommend life estates. At the time, you and your ex-wife thought youwere doing the fair thing. But now look at the mess, with no end in sight.
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The wording of the life estate should have specified itterminates when the life tenant dies or moves out for longer than six months.Because that wasn’t done, the life tenant’s daughter feels the life estateshould continue while her mother is still alive.
The legal solution is to bring a quiet-title lawsuit againstthe life tenant, your ex-wife. Her daughter might seek to intervene in the case.After the evidence is presented, then it will be up to the judge to rule if thelife estate is terminated or if it lasts until your ex-wife passes on.
WITHOUT A TAX-DEFERRED EXCHANGE, PROFIT TAX IS OWED
DEAR BOB: In November 2005 I sold a rental house and usedthe sales proceeds to pay down the mortgage on an apartment building I own.When my 2005 income taxes were prepared, I argued with my tax preparer this isthe equivalent of making a tax-deferred exchange. She said it isn’t and refusedto complete my tax returns until I reluctantly agreed to pay the capital gainstax for the sale of the rental house. Don’t you think my paying down themortgage balance was a tax-deferred exchange? –Ron H.
DEAR RON: No. What you did clearly was not a tax-deferred exchange.Internal Revenue Code 1031 requires the sale of a property held for investmentor use in a trade or business and the use of the sales proceeds to acquireanother “like kind” such property of equal or greater cost and equitywithout your having “constructive receipt” of the funds.
Your property sale followed by paying down the mortgage onan already owned property doesn’t qualify as a tax-deferred exchange. Your taxadviser is correct.
NO TAX DEDUCTION UNLESS YOU ARE THE PROPERTY OWNER
DEAR BOB: Last August my mother bought me a two-bedroomcondo near where I attend college. I rent one bedroom to a friend. The condo isin my mother’s name but I have a job that, along with my roommate’s rent, paysthe mortgage, property tax and condo fee. However, when I filed my 2005 incometax, I couldn’t prove to my tax preparer that I made the payments because I payrent to my mother and she pays the expenses. The tax preparer says I must be onthe title to claim the interest and property tax deductions. Is this true? As aresult, I had to pay income tax on my meager job earnings, which would havebeen sheltered by the mortgage interest and property tax deductions –Jordan W.
DEAR JORDAN: Your tax preparer is correct. Because your nameis not on the title to the condo, you have no legal obligation to make themortgage and property tax payments, so you are not entitled to those itemizedincome tax deductions.
This problem can be solved if your mother will add your nameto her condo title. However, that might have an adverse effect on her taxsituation if she loses the tax benefits of owning rental property. She shouldconsult her tax adviser before adding your name to the title.
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
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News