Split the Mortgage, Get Tax Benefits?

DEAR JIM: You should be aware that the tax term "like kind" does not mean "same kind" of property when referring to IRC 1031 tax-deferred exchanges.

"Like kind" means the qualified property must be held for investment or use in a trade or business. Almost every property can qualify except a personal residence or dealer property, such as a home builder's inventory of houses.

To illustrate, an investor can make a "like-kind" trade of a rental house for a warehouse, or an apartment building owner can make an IRC 1031 "like-kind" tax-deferred exchange for a shopping center, as long as the trade is equal or more in price and equity without any cash "boot," which is taxable "unlike-kind" property.

DEAR BOB: I am in the process of refinancing my mortgage. What fees are unnecessary junk fees? -- Darrin B.

DEAR DARRIN: The definition of a mortgage lender's unnecessary junk fee is any charge that is not for a specific service. Examples of legitimate lender fees include the appraisal fee paid to the appraiser, title insurance paid to the title insurer, and the credit report fee paid to a credit bureau.

But a junk fee is nonspecific, often for vague services that do not benefit the borrower. Unnecessary junk fees may have creative names, such as administrative, documentation, warehouse, underwriting or loan review fee. Those services should be included in the mortgage interest rate.

DEAR BOB: I don't understand the "60 months" part of Internal Revenue Code 121 for home sales. Can I own my home for 24 months, live in it as my primary residence and qualify for the $250,000 sale exemption? Or must I own the home for 60 months and live in it for 24 of those 60 months? -- John C.

DEAR JOHN: Unless you acquired your principal residence in an Internal Revenue Code 1031 tax-deferred exchange, you do not have to own it for 60 months before qualifying for the IRC 121 principal-residence-sale exemption of up to $250,000 ($500,000 for a qualified married couple filing a joint tax return).

At a minimum, to qualify for the capital gains tax exemption, you must have owned and occupied your principal residence for at least 24 months before its sale. That means you could have purchased it as recently as 24 months before its sale if you occupied it as your primary residence for that time.

DEAR BOB: My late mother and I owned a house together as tenants in common. Her written will left everything to me, her only offspring. When I went to see a local probate lawyer, she said it would take at least six months and cost me about 5 percent of my mother's modest estate to transfer everything to me. Is this true? -- Sophie R.

DEAR SOPHIE: Unless your late mother's estate qualifies for an exception to the probate requirements in the state where she was a resident, the probate lawyer is probably correct that the estate is subject to jurisdiction of the local probate court.

The only easy title transfers without probate after a property owner dies are if the title was held in joint tenancy with right of survivorship or in a revocable living trust. Then probate court jurisdiction does not apply.