DEAR BOB: I am selling a condo that is in my daughter’sname. I have lived in the condo for the last seven years and paid the mortgagepayments. The sale will close the first of next month. It will show up as a$120,000 capital gain for my daughter. Can she use the sales proceeds to payfor another house for me to live in and claim it as a gift? –Sandra R.
DEAR SANDRA: Because the condo was not your daughter’sprincipal residence at least 24 of the 60 months before its sale, she is notqualified for the Internal Revenue Code 121 tax exemption up to $250,000.
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Since your name is not on the title to the condo, althoughyou paid the mortgage payments, you are also not eligible for the $250,000 taxexemption. Therefore, when the condo sale closes, your daughter becomes liablefor the capital gain tax on her $120,000 condo sale profit.
It is a shame you and your daughter didn’t consult your taxadvisers. If you had done so 24 months ago, and if your name was on the condotitle, then you could have deducted the mortgage interest paid and you wouldqualify for the IRC 121 principal-residence sale-tax exemption up to $250,000.
Your daughter can give you up to $12,000 in 2006 withoutfiling a federal gift tax return. Above that amount, she must file a gift taxreturn. However, if her lifetime non-exempt gifts have been less than $1 million,she will not owe any gift tax if she gives you $120,000 to buy another home.For full details, please consult your tax adviser.
DATE-OF-DEATH MARKET VALUE DETERMINES STEPPED-UP BASIS
DEAR BOB: My three sisters and I sold a house inherited fromour mother. Do we owe capital gains tax on the sale proceeds? The house wassold for about $150,000 more than she paid for it some years ago –Lucy S.
DEAR LUCY: All that matters are (1) what was the”stepped-up basis” market value of the house on the date of yourmother’s death, and (2) what was the net amount received from the house sale?
If the net amount received, after paying sales expenses,exceeds the market value on the date of death, the difference is your taxablecapital gain. In most situations where an inherited property is sold shortlyafter receiving title with a stepped-up basis, the capital gain tax will bevery small. For details, please consult your tax adviser.
OWNER’S TITLE INSURANCE PAYS UP TO POLICY PURCHASE PRICELIMIT
DEAR BOB: Let’s assume I purchased my home 10 years ago for$150,000 and obtained an owner’s title insurance policy at that time. Suppose Isell it now for its current $400,000 market value but I discover I don’t ownmarketable title. Will the title insurance pay me $150,000 or $400,000? –BillS.
DEAR BILL: Your owner’s title insurance policy will pay you,in the event of a 100 percent total loss, the $150,000 policy limit at the timeof your purchase.
However, total title losses rarely occur. In a situationsuch as you describe, the title insurer will attempt to negotiate a settlementwith the title claimant so you will not lose the property.
If that isn’t possible, perhaps because your grantor forgeda signature on your deed and the true owner or the heir now claims ownership,the most the title insurer would have to pay you is the $150,000 policy limitin this example.
LONG COMMUTE DOESN’T ENTITLE HOME SELLER TO PARTIALEXEMPTION
DEAR BOB: In October 2005 I bought my home. But in March2006 I found an excellent job, which is a 1.5-hour drive from my home. My wifeand I have put the house up for sale and are in the process of moving close tomy new job. I know that to get the full $250,000 per ownerprincipal-residence-sale tax exemption, we must own and occupy the home 24 ofthe 60 months before its sale. But what are the tax implications in oursituation where after only a few months of ownership and occupancy we have tomove due to a long commute? Is this an “unforeseen event” so ourexpected $20,000 net profit will be tax-free? –Abdoul K.
DEAR ABDOUL: Sorry, a long commute does not qualify as an”unforeseen event” so you can claim a partialprincipal-residence-sale tax exemption. Your $20,000 net profit will be taxedas ordinary income if you own the house less than 12 months.
If you own it 12 months or longer, then you qualify for thefederal long-term capital gain maximum tax rate of 15 percent, plus theapplicable state tax. For full details, please consult your tax adviser.
LEASE TERMS DON’T CHANGE WHEN PROPERTY IS SOLD
DEAR BOB: My husband and I own a property that is leased toa business with nine years left on the lease. What legal complications willarise if we sell that property? –Susan K.
DEAR SUSAN: There aren’t any special complications when yousell a property that has an existing lease. The lease terms remain unchanged.
The new owner must honor the terms of the existing lease.The current tenant then will pay the rent to the new owner. You must transferthe tenant’s security deposit to the new owner. Everything else remainsunchanged. For more details, please consult a local real estate attorney.
AVOID BUYING A CONDO ON LEASED LAND
DEAR BOB: What was the name of that book you recommendedsome time ago about buying a condominium? I am thinking of buying a condo inNew Hampshire where there are land lease payments, plus association dues. Isthis a good or bad deal? –Barbara L.
DEAR BARBARA: The excellent recommended book is”Everything You Need to Know Before Buying a Co-op, Condo, orTownhouse” by Ken Roth. It is available in stock or by special order atlocal bookstores, public libraries, and www.Amazon.com.
I suggest you avoid buying a condo on leased land. Thereason is, as the lease draws to a close, such as in 50 years or longer, thecondo becomes worth less and less. When the land lease expires, unless thehomeowner’s association has an option to buy out the land lease, the buildingbecomes the property of the landowner. For full details, please consult a localreal estate attorney.
HOW TO SURVIVE A BAD LOCAL REAL ESTATE MARKET
DEAR BOB: We own our home in a bad local real estate market.There seem to be no jobs and no money. All our income goes to pay for gasolineand credit card interest. Two out of three houses in our neighborhood are forsale. Please help –Fred W.
DEAR FRED: I’m sure things really aren’t that bad. If youare motivated to sell your house or condo, I suggest a lease with an option tobuy. I’ve been using lease-options for more than 25 years, through good timesand bad. When structured correctly, lease-options never fail.
However, if you want a fast all-cash home sale for topdollar, under the circumstances you describe, forget it. Details are in myspecial report, “How to Profitably Use a Lease-Option to Buy or Sell YourHome or Investment Property,” available for $5 from Robert Bruss, 251 ParkRoad, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instantInternet delivery at www.BobBruss.com.
CAN SISTER FORCE BROTHER TO BUY OUT HER PROPERTY INTEREST?
DEAR BOB: My sister and I inherited two 10-acre parcels astenants in common. We each own half of each parcel. I live on one parcel andthe other one has no public road access. It is landlocked. My sister wants toget an appraisal and then wants me to buy her out or sell the properties. Canshe force me to sell? Can the two parcels be appraised separately? –Brett J.
DEAR BRETT: Your sister can force you to sell both parcelsin which you are tenant-in-common owners. The legal action is called apartition lawsuit.
However, she cannot force you to buy her out. All she can dois bring a partition lawsuit and the judge can order both parcels sold with thesales proceeds divided between the co-owners.
If you want to keep the parcels, I suggest you somehow comeup with enough cash to buy out your sister, such as by refinancing. Or maybeshe will accept a mortgage for her half of the equity. Yes, the two parcels canbe appraised separately. For more details, please consult a local real estateattorney.
The new Robert Bruss special report, “Five Easy Ways toBuy Your Home or Investment Property for Nothing Down,” is now availablefor $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit cardat 1-800-736-1736 or instant Internet delivery at
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News