Even With a Foreclosure, You Have Options

DEAR BOB: My husband and I have been profitably flipping houses for several years. We are planning on separating soon. I plan to live in my next fixer-upper while making repairs. If we should both own and occupy separate principal residences for a minimum of 24 months within the next 60 months, and one or both of us decides to sell within that time frame, will we each qualify for up to $250,000 tax-free profits even if our divorce has not been finalized by then?

-- Sherry F.

DEAR SHERRY: If your husband lives in one principal residence for the required 24 of the last 60 months before its sale, and you live in another principal residence for the same required time, presuming that individual's name is on the title to the home he or she is living in and selling, then each can qualify for up to $250,000 principal-residence-sale tax-free profits, thanks to Internal Revenue Code 121. (One house per person, please -- you can use this tax break only once in 24 months.)

When your plans become definite, run them by a tax adviser to be certain each of you can qualify for $250,000 tax-free principal-residence-sale profits.

DEAR BOB: I own an unusually shaped lot that juts in front of my neighbor's house. I am willing to execute an equal land swap with him. What is the process to document this arrangement? Will this affect our title insurance?

-- Denis M.

DEAR DENIS: This is not a do-it-yourself project. Please consult an experienced real estate lawyer to guide the land swap through the bureaucratic maze, such as recording new parcel maps and insuring the new boundaries for each parcel.

DEAR BOB: I have paid all the property taxes on my mother-in-law's house for the last six years. She died in 2005. On my 2006 income tax return, can I deduct her 2006 property taxes that I paid? My husband and his sister are the sole heirs. The house is up for sale. I am not sure if probate is completed yet. -- Ellen H.

DEAR ELLEN: If your name is not on the title to the property, you have no legal obligation to pay the property taxes. Therefore, you are not entitled to any tax deduction for being a good daughter-in-law and volunteering to pay the property taxes.

It sounds as if the title is still in the estate, so even your husband, as an heir, wouldn't yet be entitled to the property tax deduction.

DEAR BOB: After much research, my husband, who is now 74, decided to get a senior citizen reverse mortgage on our home two years ago. Since I was only 60 at the time, I quitclaimed my interest in the house to him because I was too young. We chose the reverse-mortgage line of credit and have withdrawn only as much as our savings would cover if my husband dies. I know I could get a reverse mortgage, as I am now 62, but our question is whether our house will have to go into probate court when my husband dies, since I am no longer on the deed. How can we avoid this? Our home is our biggest asset. -- Sheila P.

DEAR SHEILA: That's easy. Your husband can transfer title from himself to his revocable living trust, which, presumably, will name you as the successor trustee and the future beneficiary should he die first.