Occupancy Test Strict for Home Sale Tax Exemption

Q: DEAR BOB: About nine years ago, my parents helped me buy my first home, a condominium. All three of us took title as joint tenants with right of survivorship. The condo turned out to be an outstanding investment. I got married about five years ago and moved into a house with my wife while my parents moved into the condo. Mom died in 2002, but Dad still lives there. He and I have decided to sell the condo to pay for his care in an assisted living residence. The net profit will be about $400,000. Because he owned and occupied the condo 24 of the 60 months before its sale, he qualifies for the $250,000 principal residence sale tax exemption. However, my tax adviser says I can't qualify because I don't meet the occupancy test. Do you agree or disagree? -- Troy W.

A: DEAR TROY: Your tax adviser is correct. Internal Revenue Code 121 says that to qualify for the principal residence sale tax exemption up to $250,000 per owner, you must own and occupy it at least 24 of the 60 months before its sale. For a married couple, only one spouse need be on the title, but both spouses must meet the occupancy tax and file a joint tax return to qualify. Although your dad qualifies for up to $250,000 tax-free profits, you can't qualify because you don't meet the 24-of-the-last-60-months occupancy test. Therefore, about $150,000 of that capital gain will be taxable.

DEAR BOB: At age 73, I recently refinanced my reverse mortgage. Since then I am being bombarded with letters from insurance companies wanting to sell me disability insurance. I am infuriated by these companies invading my privacy. Also, the appraiser came from an area a considerable distance away. How can he know property values in my town? The reverse-mortgage lender didn't use one local company, except the termite inspector. The lender's title insurance came from out of state. What can be done about this invasion of my privacy? -- Marilyn G.

DEAR MARILYN: Most recorded real estate documents are public information. That's because many people, such as mortgage lenders and title insurers, need to know what liens and other recorded documents affect your property. There are nationwide companies that make money obtaining recent public records, such as your reverse mortgage recording, and selling that information to insurance companies and other users. Because public records are not private, there is nothing you can do but throw away the mail you don't want.

DEAR BOB: Thanks for that item a few weeks ago from a real estate agent who got her seller to raise the sales commission to 7 percent and then sold the house that had languished on the market. As my home is listed for sale, I showed that article to my agent. I think he is doing a great job, but the local market is saturated with too many homes in my price range. My listing has about 40 days remaining, so I said, "Let's raise the commission to 7 percent with 4 percent to the buyer's agent." He and his broker promoted my house to the local multiple listing service agents with a tour, weekend open houses and newspaper ads. Within 10 days, I received two good purchase offers. I accepted the best one and kept the other as a backup. Raising the commission really works. -- Cindy R.

DEAR CINDY: That item a few weeks ago resulted in many positive letters from real estate agents, but there were a few negative letters from some home sellers. One asked why the real estate agent didn't work as hard when the house had a 6 percent commission. They didn't understand that the purpose of raising the sales commission is to attract the attention of buyer's agents to get them to show your home rather than another one to their prospects. In the current buyer's market, the key to success is getting your home seen by as many buyer's agents and their prospects as possible.

DEAR BOB: I am perplexed at your answer to stepchildren whose stepmother holds a life estate in their late father's property. If the stepchildren will inherit the house after the stepmother dies, shouldn't they help pay for its upkeep? Most widows live on fixed incomes and often can't afford to maintain the property. I think you need to think this through from the perspective of the second wife who probably took care of the ill father. Why should she spend her money for her stepchildren's inheritance?

-- Muriel O.

DEAR MURIEL: You make a lot of sense. However, the law of every state with which I am familiar says a life tenant must pay the property taxes; mortgage payments, if any; and the maintenance. The person who will eventually receive property, known as a remainderman, has no legal duty to help pay for maintenance. If the life tenant allows the property to go to "waste," the remainderman can have the life estate terminated.

There is no reason why the terms of the life estate could not require contributions by the remainderman to help maintain the home while the life tenant lives in it.

Such a document should be carefully drawn to prevent administrative problems.

DEAR BOB: My niece wants to buy my house without getting a mortgage, and she wants me to sign the house over to her, after which she will get it refinanced and pay me my asking price. I will continue living in the house while this plan is pending, and I will get my money in three months if all goes well. If not, she will deed the house back to me. Is this risky or just plain dumb? I am a widow, and the house is too much for me to keep up. -- Valerie J.