DEAR BOB: My husband died without a will (suicide). He owned10 rental properties on which I am now paying the mortgages. I want to sell ortransfer them to my son-in-law. My concern is the capital gains tax. I want tosell the properties so I can put money in the bank. Each property is worth onlyabout $75,000, but they have positive cash flow. I just am not the landlord-typeperson. I’m too old for this and I need to have something set aside forretirement. My late husband didn’t have any life insurance. Any suggestions?–Marie McG.
DEAR MARIE: I’m sorry to learn of your husband’s death.However, there probably will be no federal estate tax, gift tax or stateinheritance tax due.
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Because your husband died without holding his assets in arevocable living trust to avoid probate, and he left a substantial estate, itwill be necessary to probate those 10 rental properties through the localprobate court, thus involving costs and delays. Please consult a local probateattorney.
Discuss the probate fees up front. Some probate attorneyswill tell you they must charge the fees set by state probate law. That is nottrue.
Those statutory fees are the maximum allowed. But attorneyfees are negotiable (just like real estate sales commissions). Unless there arecomplications for your late husband’s estate, as his surviving wife you shouldbe entitled under the state law of intestate succession to inherit all hisassets.
If the first probate attorney you contact refuses to”adjust” his/her fees to make them reasonable, shop around. I’m surethere are several good probate attorneys in your county. Probate work is notvery difficult.
After opening probate of your late husband’s estate, unlessthere are problems, the judge will award the assets to you as the closestsurviving relative. Until that happens, you can’t give or sell the propertiesto your son-in-law.
The good new is when you receive title to your latehusband’s assets, you will receive them with a new “stepped-up basis”to market value as of the date of death. The result is no capital gain tax ifyou then sell the properties at the same valuation.
However, if you gift those properties to your son-in-law,you will have to fill out a federal gift-tax return because the total giftexceeds your $12,000 annual tax-free gift-tax exemption per donee. No gift taxwill be due if your total gifts are below $1 million and you haven’t given awayother non-exempt lifetime gifts above this amount.
Since you say you need retirement income, you can sell theproperties to your son-in-law and carry back the mortgages to make thefinancing easy and profitable for you. Only the interest income you receive onthe carryback mortgages will be taxed in future years. For details, pleaseconsult your tax adviser.
WILL HEIRS TAKE OVER CURRENT PROPERTY-TAX BASIS?
DEAR BOB: When my children inherit my home and incomeproperty, will they also keep my property-tax basis or will the properties bereassessed to market value after my death? –David L.
DEAR DAVID: Your answer depends on the state where yourproperty is located.
For example, if the property is located in California,thanks to famous Proposition 13, your children who inherit your real estatewill be able to keep your property tax basis on up to $1 million of assets.
Each state has different rules for reassessment uponinheritance depending on the heir’s relationship to the deceased. For fulldetails, please consult the local tax assessor or property tax collector.
HOW MUCH RENT SHOULD A FOUR-PLEX PRODUCE?
DEAR BOB: I am a new real estate investor. I am consideringbuying a four-plex residential rental with an asking price of $259,000. Howmuch should the rents be for this investment to pay off? –Jason N.
DEAR JASON: The exact answer depends on the amount of yourcash down payment and the mortgage payments.
As a very general rule, if the total monthly rents are about1 percent of the property’s market value, you have a “good deal.”
To illustrate, with a $259,000 purchase price (of course,never pay full asking price), the property should produce gross rent about$2,590 per month.
The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar in a Buyer’s Market,” 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