DEAR BOB: In 2001, my son got married and purchased a home,but the house is titled under his wife’s daughter’s name. The reason was mydaughter-in-law owed the Internal Revenue Service a large amount of money. Myson has paid all the expenses such as mortgage payments, property taxes andmaintenance. His wife recently died of cancer. What are my son’s rights to thisproperty? –Celia C.
DEAR CELIA: Your son should immediately consult a local realestate attorney. I presume the daughter is at least 18. The simple solution isfor her to sign a quitclaim deed to your son.
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If she refuses to do so, it may be necessary for your son tobring a quiet title lawsuit against the daughter. But that could involve theIRS in the dispute, depending on the facts.
This situation shows the very high risk your son created bynot insisting his name be on the home’s title at the time of purchase.Unfortunately, although your son has paid all the expenses, the court mightdetermine he has no right to ownership.
STEPPED-UP BASIS ONLY APPLIES TO INHERITED PROPERTY
DEAR BOB: Your educational and entertaining articles are ahighlight of reading the newspaper. I wish they ran every day. After all theseyears of reading your articles, now I need your help. Three years ago, Ifinally married (at age 48) and added my wife’s name to the title to my home. Ihave owned the house since 1981 and it has greatly appreciated in market valuesince then. We sold it in October 2005. I presumed that by adding my wife’sname to the title I would get a new stepped-up basis to market value. However,when we recently had our 2005 income taxes prepared, we learned adding mywife’s name to the title did not step up the home’s basis. Although we wereentitled to the $500,000 principal residence sale tax exemption, the net profitwas about $610,000 so we owed capital gain tax on $110,000. Is this correct?–Brett W.
DEAR BRETT: Yes. Stepped-up basis only applies when there isa death and you inherit property. Adding your wife’s name to your home titledid not create a new stepped-up basis for the home. Your tax adviser appears tohave given you correct information.
DEAR BOB: For the past eight years, I have owned a condo atthe beach that I rent to tenants. The rent income and expenses are reported onSchedule E of my tax returns. That is where my accountant deducts depreciation.If I sell the condo, how does depreciation catch up with me? Or, if I make atax-deferred exchange, what happens to the depreciation deducted on my taxreturns? –Janet J.
DEAR JANET: Depreciation is a non-cash tax deduction forestimated wear, tear, and obsolescence of business and investment property.Residential rental property must be depreciated over a 27.5-year estimateduseful life. Land value is not depreciable because land never wears out.
When you sell a rental property on which you have beendeducting depreciation, the total depreciation you deducted is”recaptured” (which means taxed) at a special federal tax rate of 25percent. In addition, state income tax may apply.
However, if you instead make an Internal Revenue Code 1031tax-deferred exchange for another business or investment property of equal orgreater cost and equity, you avoid paying tax on both the deducted depreciationand the remainder of your capital gain. For full details, please consult yourtax adviser.
READER SAVES $8,000 TAX ON SALE OF ADJOINING LOT
DEAR BOB: Thank you for your article last October explainingthe sale of a vacant lot adjoining a principal residence can qualify for thatInternal Revenue Code 121 tax exemption of $250,000 for a single or up to$500,000 for a married couple filing jointly. When we had our income taxesprepared, I showed that article to our tax preparer who was not aware of thattax break. But he verified it with the IRS. As a result, we avoided payingcapital gains tax of about $8,000 on the sale of a lot adjoining our home. Manythanks. –John S.
DEAR JOHN: I’m always glad to hear happy results like yours.However, please be aware that Internal Revenue Code 121 allows the taxexemption on the sale of a vacant lot adjoining your principal residence onlyif you sell your home within two years before or after the sale of the lot.
If you haven’t already sold your home, it must be soldwithin 24 months after the lot sale otherwise you will owe that $8,000 tax,plus interest, from the lot sale.
INTERVIEW THREE, NOT JUST ONE, AGENTS BEFORE LISTING HOME
DEAR BOB: My home is worth over $700,000, many people tellme. The similar home across the street was recently refinanced and appraised at$769,000. But the real estate agent who expects to get my listing says my houseis only worth only about $700,000. How do I get a reasonable appraisal of myhome? –Mavis B.
DEAR MAVIS: Your situation is a classic example why homesellers should always interview at least three successful local real estatesales agents. The agent you consulted should have prepared for you a writtencomparative market analysis (CMA). This CMA form shows the agent’s estimate ofyour home’s market value based on (1) recent sales prices of similar nearbyhomes, (2) asking prices of neighborhood homes currently listed for sale (yourcompetition), and (3) asking prices of recently expired comparable homelistings.
Only after you have compared CMAs from at least threesuccessful agents who sell homes in your vicinity can you decide, with theadvice of your listing agent, the correct asking price for your home.
REALTY AGENT QUESTIONS ZILLOW.COM WEB SITE
DEAR BOB: You should retract your recommendation of
DEAR BETTY: I never recommended or endorsed the Zillow.comWeb site. I only said it is another resource and I found it to be reasonablyaccurate for the properties I checked.
The unique aspect of Zillow is, for many of the 60 millionresidences in its database, it also shows global position system (GPS) aerialphotos of the property, including the lot boundaries. I find this is amazingand a great way to discover what is located near the subject home.
You are correct Zillow is not 100 percent accurate. I foundsome of its recent comparable home sales prices are not truly comparable.
For example, I checked the house where I grew up in Edina,Minn. Zillow shows a current market value of approximately what I understandhomes in that neighborhood are now worth. But it says I grew up in aone-bedroom, one-bathroom house. That sounds like a shack to me. The house isactually a very spacious three bedrooms with two bathrooms.
WHEN A GIFT TAX RETURN MUST BE FILED
DEAR BOB: A few weeks ago you mentioned a quitclaim deed totransfer title to real estate. Does transfer of title by quitclaim deed requireboth parties to file a Gift Tax Return with the IRS? –Roger B.
DEAR ROGER: No. Gifts below $12,000 each year per donor toeach donee are exempt from federal gift tax. No gift tax return is required forgifts below $12,000. That means, for example, a husband and wife can give$12,000 each to a donee ($24,000 annual total) without having to file a gifttax return.
A donor must file a federal gift tax only if the net annualgift amount per donee is greater than $12,000. But no gift tax will be dueunless the donor’s lifetime non-exempt gifts exceed $1 million.
Gift donors should be aware total non-exempt lifetime giftsare subtracted upon their death from their current $2 million federal estatetax exemption. For full details, please consult your tax adviser.
HOW TO FIND LOCAL REAL ESTATE INVESTOR CLUBS
DEAR BOB: Some time ago you mentioned real estate investorsshould attend local real estate investor club meetings to hear speakers andmeet local real estate attorneys and tax advisers. How can I find such a clubin my area? –Loretta S.
DEAR LORETTA: The best source for finding local investorclubs is www.creonline.com/clubs.htm.
The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” is available for $5 fromRobert 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