Avoiding a Capital Gains Tax

Bruss is away. These questions are taken from previous columns.

Q: DEAR BOB: My fiance and I will be selling our residences for capital gains exceeding the $250,000 exemptions for each. If we put ourselves on each other's titles and file a joint tax return, can we take advantage of the $500,000 married exemption per property and avoid capital gains tax? If so, can we use the $500,000 exemption twice in the same tax year? -- Wilamena P.

A: DEAR WILAMENA: Adding your name to the residence title owned by your fiance, or vice versa, won't change anything. To increase the tax exemption from $250,000 for a single owner to $500,000 for a married couple filing a joint tax return, both spouses must occupy the home at least 24 of the 60 months before its sale.

You can sell your principal residences in the same tax year and claim as much as $250,000 tax-free profit on each sale, thanks to Internal Revenue Code 121.

That's presuming that you each owned and occupied your home at least 24 of the 60 months before its sale. But you will owe capital gains tax, plus state tax, on the capital gain exceeding $250,000. For details, consult a tax adviser.

DEAR BOB: I own a ground-floor condominium, which I rent to a tenant. The owners of the unit above replaced their flooring with hardwood. My tenant says the noise from the floors is intolerable, and he wants to move out. I doubt I can sell the condo if I disclose this noise problem to a buyer. I talked with the homeowners association. It said that this is between my neighbor and me. If I can't work things out with my neighbor, do I have any recourse? This noisy floor is ruining my rental property. -- Matthew D.

DEAR MATTHEW: The situation you describe is legally known as a private nuisance because it affects only one owner. If it affected many owners, it would be a public nuisance. If you can't resolve the noise problem on a friendly basis, you may need to retain a real estate lawyer to sue for monetary damages.

DEAR BOB: About two years ago, my neighbor and I built a common cinder-block fence on our property line. She made additional improvements to her driveway on her side of the fence. Then she discovered that her garage floods with heavy rains. She rectified the problem by having the fence contractor punch a hole in the bottom of our fence to let the water drain into my yard. Now that part of my yard becomes a swamp when it rains. When I approached her about this problem she created, she said that is the natural way the water would run. She refuses to do anything. Is she right? Is her flooding my problem to fix? I am tempted to have the contractor come back to plug up that hole. -- Katalin S.

DEAR KATALIN: The general rule is that a lower property owner must accept the natural flow of water from an upper property owner. However, the upper owner cannot divert or channel water to the lower property without liability.

Because you and your neighbor jointly built the cinder-block fence, it appears the rules of natural water flow no longer apply. Now the neighbor appears to be illegally directing the water onto your property.

Consult a local real estate lawyer to determine whether blocking that fence hole is appropriate. Or perhaps you should file a lawsuit against your uncooperative neighbor to abate the private nuisance she has created.

DEAR BOB: After my rental property is converted to my principal residence, how long must I live in the house to qualify for the $250,000 tax exemption on the sale? Some friends say two years, but others say five years. -- Kimberly T.