Q: I am a 77-year-old widower with one child. I have been wondering lately if putting my daughter's name on the deed to the family home would be a good idea.
A: By "putting her name on the deed," I assume you mean adding her as co-owner with you. Generally, I don't find much to recommend this idea. About the only thing it does is to simplify slightly the paperwork involved in transferring the property to her after your death.
The home would escape probate and go immediately to her as the surviving co-owner. Your daughter still would have to visit the county clerk's office with the death certificate and go through the process of having a new deed issued in her name alone.
The addition of your daughter as co-owner may or may not keep the entire home in your estate, depending on how long you live after the transfer and how the transaction is managed. If you go ahead with this idea, you should file a gift tax return documenting the transfer.
But keeping the value of half the house out of your estate really doesn't do much from a tax point of view anyway. In the first place, the estate tax exemption for people dying in 1985 is $400,000; next year it goes to $500,000, then levels off at $600,000 for 1987 and succeeding years.
In any case, under the combined gift/estate tax rules, the value of the half you give your daughter will be used to reduce the estate tax exclusion -- so it effectively ends up in your estate anyway.
Another factor to consider: If your daughter inherits the house from you, she picks up a stepped-up "basis" -- the fair market value on the date of death. If you give her half-ownership now, then only the half you have retained will pass to her with a higher value; the basis for the other half will be subject to the rules for gifts. This might well mean a lower total basis and correspondingly higher capital gain if she sells the house after your death.
Perhaps more important than tax considerations, making your daughter co-owner gives her veto power over your decisions. I'm not implying that she would not follow your wishes, but consider the following possible scenario:
Next year you decide that you would like to sell your home here and move to the sunny South. Your daughter doesn't like that idea; she worries about you and would like you to be close by in case you get sick and need her care. Now you're trapped by her concern -- because you can't sell the house without her signature.
Unless there are some overriding circumstances in your case, I suggest you retain full ownership in your home. No matter how close you and your daughter are, I think you should keep control of your essential assets -- like the home in which you live -- as long as you are mentally competent to handle the responsibilities of ownership.
Q: I am selling my old home and buying a new one. I was told that the points I pay on my new home will be tax-deductible. But I am confused by different answers I got relating to the points I pay on the sale. First I was told they were not deductible, then I was told they might be deductible on my tax return if they were paid in a certain way. Would you please try to interpret this so I can understand?
A: How the question is answered depends on how it is asked and on how you define the word "deductible." Normally, the amount of points you pay to the institution issuing the mortgage on your new home is considered interest and is deductible as interest expense on Schedule A of your tax return.
Points paid by the seller are not considered interest and may not be deducted on Schedule A. But if you pay points as a fee to the lender who is providing the mortgage to the buyer of your home, they may be considered a selling expense.
This amount, along with other selling expenses such as a real estate agent's commission or advertising costs, is deductible from the selling price to determine the net proceeds against which any gain (or loss) is calculated. So while seller points are not directly deductible on your tax return, they are used to reduce your gain on the sale and thus indirectly affect your tax return.
(In your case, because you're buying a replacement home, the amount of the points will not affect this year's tax return but will be used to reduce the amount of gain that must be applied to lower the basis of your new home.)