Real Estate Mailbag

Selling Jointly Owned Homes

By Robert J. Bruss
Saturday, October 21, 2006

Q: DEAR BOB: If my partner and I sell our jointly owned home, will we owe capital gains tax if we sell before owning it for two years? We will probably each make about $50,000 in profit. -- Gina B.

A: DEAR GINA: The fact you are not married to each other is irrelevant. What matters is whether both names are on the title to your principal residence, and whether you have owned and occupied the residence at least 24 of the last 60 months before its sale.

If you could meet that test, Internal Revenue Code 121 would provide up to $250,000 in tax-free capital gains for each co-owner.

If you sell before two years, you may lose that benefit. However, IRC 121 specifies if the reason for the principal-residence sale after less than 24 months of ownership and occupancy is a health reason, change of employment location qualifying for the moving-cost tax deduction, or "unforeseen circumstances," each qualified co-owner might be eligible for a partial deduction.

To illustrate, suppose the reason for selling your home is change of employment location at least 50 miles farther from your home than your current job. Let's also suppose you each owned and lived in the residence for 12 months. Each co-owner then would be eligible for up to $125,000 (50 percent) of the $250,000 tax-free home-sale profit exemption. For details, consult a tax adviser.

DEAR BOB: I heard there is talk of changing the Internal Revenue Code 121. Is this true?

-- Kathleen B.

DEAR KATHLEEN: No. Most home sellers are very happy with IRC 121. The only proposal in Congress of which I am aware is to increase the $250,000 principal residence sale tax exemption. But due to the federal budget deficit, the chances of that happening anytime soon are slim to none.

DEAR BOB: I am going to refinance my home and want to add my girlfriend to the mortgage. Should we be "tenants in common?" Since both of us will be responsible for paying the mortgage, can we both claim the interest deduction on our tax returns? -- Mike T.

DEAR MIKE: If you are not married, but both of you hold title to the residence, then the individual co-owner who actually pays the mortgage interest or property tax payments is entitled to deduct that total amount on his or her individual tax return. As for the best way to hold title, discuss that with a local real estate lawyer.

Both names must be on the title if you each are to claim the deductions you each pay. Be sure to keep your cancelled checks to prove your individual payments. A tax adviser can give you further details.

DEAR BOB: My condominium has been listed for sale more than two months with a very fine real estate agent. But the local market seems slow. She has held a broker's tour, advertises it every week, has it listed in the local multiple listing service and on the Internet, and holds a Sunday open house twice a month. Although the condo interior is very nice, especially since it is "staged" to show its best, the condo's street view isn't very attractive. I've reduced the asking price twice. After showing her your recent item about how you've used lease-options to sell homes, she said lease-options don't work and she wouldn't even consider advertising it as a lease-option. Any suggestions to get my condo sold? -- Byron A.

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