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Occupancy Test Strict for Home Sale Tax Exemption
Unfortunately, because of the Alzheimer's disease, it's too late to create a living trust for her now to avoid probate. Consult a probate lawyer for details.
DEAR BOB: Is there a law requiring a landlord to refund the tenant's security deposit after a number of years of occupancy? I have never heard of such a law; have you?
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-- Gus G.
DEAR GUS: No. But landlord-tenant law is controlled by state or city law. Although I try to keep up on new real estate laws, I have not heard of any state that requires landlords to refund tenant security deposits before the tenant moves out. If any reader knows of such a state law, they will surely let me know and I will pass on the information.
DEAR BOB: I heard there is a way to buy a house or condo with a reverse mortgage and not have to make any monthly mortgage payments. Is this true? Is this a way for a senior citizen to buy a retirement home?
-- Mr. L.M.
DEAR MR. L.M.: Yes, a "reverse mortgage for home purchase" is available from Fannie Mae. The two other major reverse mortgage lenders, the Federal Housing Administration and Financial Freedom Plan, do not offer these special reverse mortgages.
A reverse mortgage for home purchase usually requires a large cash down payment, typically around 50 percent of the purchase price. The balance is funded from a reverse mortgage.
Such a reverse mortgage is ideal for the purchase of a retirement home where you obtain the down payment cash from the sale of your former residence. Of course, you must be at least 62 to qualify. Details are available on the Internet at http:/
DEAR BOB: My wife died recently. If I sell our home soon, can I take the $500,000 principal residence sale tax exemption, or am I limited to just $250,000? You often mention "stepped-up basis" for tax purposes. How does this affect my situation? -- Berton McC.
DEAR BERTON: There is no need to rush to sell your home. If you decide to sell in 2006, and your wife died in 2006, presuming you and she both occupied the principal residence at least 24 of the 60 months before its sale, and at least one of you held title for that period, Internal Revenue Code 121 allows you to claim up to $500,000 principal residence sale tax exemption. That presumes you file a joint tax return in the year of your late wife's death.
However, if you don't sell the home in 2006, you will probably come out just as well or better thanks to the "stepped-up basis" rule for inherited property. Presuming your wife held title to 50 percent of the home and you inherited her share, your new basis becomes the market value for that half on the date of her death, plus your original basis for the other half.
But I notice your letter is postmarked from a community property state. If the home was community property, then you get a new stepped-up basis for 100 percent of market value on the date of your wife's death. Consult a tax adviser for details.
DEAR BOB: What is the best and easiest way to add a co-owner to the title to my home?
-- Fran G.
DEAR FRAN: The easiest way is to sign and record a quit claim deed from yourself to yourself and the new owner. Be sure to specify on the deed how you want to hold title, such as tenants in common or joint tenancy with right of survivorship.
Consult a local real estate lawyer to discuss the possible tax and legal consequences. If you decide to proceed, the lawyer can then prepare the quit claim deed and have it recorded.
Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.
© 2006, Inman News Service