Exempt From IRC 121? Not Quite.

Q: DEAR BOB: My in-laws owned a house from 1973 until this year. It was their principal residence until 2004, when they bought another house. They recently sold the first house, and they want to sell their second house this year, as well. Because they had established their principal residence in both houses for at least two consecutive years within a five-year time frame, will they owe any tax under that $500,000 exemption rule? The total sales prices for both houses is less than that amount. -- Kevin F.

A: DEAR KEVIN: To qualify for the Internal Revenue Code 121 exemption on capital gains up to $250,000 ($500,000 if filing jointly and both spouses meet the occupancy test), the sellers must have owned and occupied their primary home at least 24 of the 60 months before its sale. But IRC 121 can be used only once every 24 months.

If the first house was sold more than 36 months after your in-laws moved out, that sale is not eligible for the IRC 121 tax exemption. As for the second house, if they bought it in 2004 and have lived in it since then before selling this year, that sale appears to qualify for the IRC 121 tax break.

They should consult a tax adviser for details.

DEAR BOB: My sister and I own a house. We want to sell part of it to my fiancee so the three of us will have equal ownership. How should we go about this without having to refinance with a higher interest rate? -- Usanee S.

DEAR USANEE: You and your sister could sign a quitclaim deed, adding your fiancee as a one-third co-owner. There should be no need to refinance because the two original owners are on the title and the mortgage obligation.

But have you thought about how to hold title? One possibility is to own equal interests as joint tenants with right of survivorship. That means each owner's will has no effect on the property when that person dies. After one joint tenant dies, the surviving two joint tenants each become 50 percent owners. A major advantage of joint tenancy is that such transfers avoid probate.

Another possibility is to hold title as tenants in common, where each co-owner's one-third share would be subject to his or her will. Consult a local real estate lawyer for details.

DEAR BOB: I made an offer to buy a house listed at $700,000. I offered $705,000 and agreed to pay all closing costs and take care of all the deferred maintenance. The termite inspection revealed $30,000 of needed repairs, but I didn't ask the seller to pay this expense. The house has three heirs who are battling on the sale, but I really wanted this house. Two of the heirs accepted my purchase offer. The third heir held out. Sixteen days after I made my purchase offer, the sellers counter-offered at $850,000. If the house had been listed for sale at that price, I wouldn't have even looked at it because it is out of my price range. Can the sellers do this? I am insulted and don't know if I should waste more time with this house. -- Toby M.

DEAR TOBY: A home seller who has signed a listing doesn't have to sell the house at any price. However, because the house was listed for sale at $700,000 and you made a $705,000 purchase offer, the listing agent could be entitled to a full commission even if no sale occurs.

The situation you describe shows the difficulty of dealing with heirs. Walk away, but let the listing agent know of your interest in buying at $705,000. If the house doesn't sell in a month or two, you might get a phone call from the sellers.

DEAR BOB: We recently bought an expensive weekend waterfront home. The next-door neighbor plays music continu ously, and there are no noise ordinances in the county. Our requests to turn down the volume have been ineffective. He has now mounted expensive speakers on his pier. We cannot enjoy our property because being outdoors is intolerable. We learned this has gone on for many years and was a major reason why our seller sold. Did she have a legal duty to disclose this nuisance to us before purchase? Is our only recourse a private nuisance lawsuit against the neighbor? -- Beth P.