Must I reinvest home-sale profit to avoid tax?

Worried homeowners needn't fear Uncle Sam

DEAR BOB: I just sold my home last month. Do I have to reinvest my profits from the sale into a new home within a year or two? Will I owe taxes on my profits if I don’t buy another home? – Alan S.

DEAR ALAN: Internal Revenue Code 121, enacted by Congress in 1997, repealed the old principal residence sale tax rules.

Purchase Bob Bruss reports online.

If you owned and occupied your principal residence an “aggregate” total two of the last five years before its sale, up to $250,000 of your capital gain is tax-free. A qualified married couple filing a joint tax return can claim up to $500,000 principal residence sale tax-free profits.

There is no need to reinvest your home sales proceeds into another home. Isn’t Uncle Sam nice? For more details, please consult your tax adviser and read my special report “How to Profit from the New Rules for the $250,000-$500,000 Tax-Free Home Sale Exemption.” It is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.

MOM’S GUILT TRIP WORKED ON SON

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DEAR BOB: My oldest brother died in 1987. He left me all his assets, except his house, which he gave to our mom. My inheritance from him was about $160,000. But my mom was extremely distressed. She believed she should inherit everything since he was her son. How could I let her feel differently? In the spring of 1988, when mom moved to live near me, she used the $160,000 I gave her for the purchase of her condo. Mom is now 90. She moved into a nursing home in March. I just completed the sale of her condo last week. My youngest brother says I should reclaim my $160,000 now. What do you think? – Paula G.

DEAR PAULA: Mom’s guilt trip sure worked well on you back in 1987. There’s a super-secret school someplace where many moms learn how to make their kids, like you, feel guilty.

Personally, my mom used the guilt tactic to get me to accompany her on a trip to South Africa. She said, “Well, if you don’t go with me, if I have a heart attack they’ll just leave me there in the middle of the desert.” Just a few days before she was ready to leave, I reluctantly agreed to accompany her. We had a great trip.

Back to your problem. You have no legal right to reclaim that $160,000 from the sale proceeds of her condo, which are probably needed to pay for mom’s nursing home care. For more details, please consult a local attorney.

HOW TO GET RID OF AN EASEMENT

DEAR BOB: Years ago, there was a driveway easement across our property for the rear neighbor to reach their house. But about 10 years ago, the county built a new road so that neighbor gained easy front driveway access. The easement over our land hasn’t been used since then. Now we want to get rid of that easement so we can build a guest house where part of the recorded easement is located. The neighbor is cooperative. How do we get rid of the easement? – Earl H.

DEAR EARL: You’ll need a real estate attorney to prepare a quit claim deed for the neighbor to sign and record, abolishing his right to the easement over your lot.

If your neighbor was not cooperative in abolishing the unused easement, there are legal methods to eliminate the easement by hostile methods. Fortunately, that won’t be necessary.

CO-OWNER’S PARTITION LAWSUIT CAN FORCE PROPERTY SALE

DEAR BOB: About 15 years ago, my then girlfriend and I bought a house together. We both moved in, planning to marry. But my job was transferred so I moved away from the area. She refused to move. We never got married. She has lived in the house ever since with her husband she married about 12 years ago. They pay all the expenses. However, I paid the $30,000 down payment. As you might imagine, the house has greatly appreciated in market value. I’ve repeatedly asked them to buy out my equity and repay my $30,000. They refuse and stall. Is there anything I can do? – Jonathan R.

DEAR JONATHAN: Yes. You can bring a partition lawsuit against your co-owner to force the sale of the house. The sales proceeds will be divided equally.

But the court might appoint a referee to consider if your co-owner’s payments decreased your share of the equity. For more details, please consult a real estate attorney where the house is located.

READER SAYS TIMESHARES ARE A GOOD DEAL

DEAR BOB: I disagree with your remarks about timeshares. About four years ago, my wife and I bought a Florida timeshare near Orlando. We use it every winter for two weeks. The costs are comparable to what we would pay in a decent hotel. When we tire of Orlando, we can trade for weeks at other resorts. Timeshares are a good deal – Julio R.

DEAR JULIO: I’m glad you enjoy your timeshare. However, if you add up the costs, you can probably enjoy several weeks each year at an upscale Orlando hotel for much less than your annual timeshare cost, but without any investment cost and annual fees.

I hope you bought the timeshare with money you will never need again, because it is virtually impossible to resell timeshares for anywhere close to the purchase price. The only person who usually profits from timeshares is the developer.

DON’T WORRY ABOUT $500,000 HOME SALE EXEMPTION AFTER SPOUSE DIES

DEAR BOB: My husband of 43 years died in March. We paid only about $45,000 for our house. Today, it is worth at least $450,000. A friend told me if I want to sell the house and claim that $500,000 principal residence sale tax break, I must sell by Dec. 31, 2004. Is that correct? – Agnes R.

DEAR AGNES: Yes. But please don’t worry. Presuming you inherited your husband’s share of the house, you received a new full or partial stepped-up basis for the house, depending on how title was held.

If you sell the house in 2004, because you can still file a joint income tax return with your deceased husband, you can claim an Internal Revenue Code 121 principal residence sale exemption up to $500,000. That’s presuming you both owned and occupied the home as your primary residence an “aggregate” total of two of the five years before its sale.

However, if you wait to sell until 2005 or later, then you will be entitled to a $250,000 principal residence sale exemption. But your new stepped-up basis will probably eliminate most or all of the capital gain tax. For full details, please consult your tax adviser.

PREPARING TO INHERIT MOM’S HOUSE

DEAR BOB: What preparations do I need to make before my elderly mother’s death so I will be able to sell her house in Kentucky? I am her only child. She is still able to help with the legal paperwork. I plan to visit her in the next month and would like to handle the details efficiently – Judith S.

DEAR JUDITH: If your mother holds title to her Kentucky home in her living trust, and if you are the named successor trustee, you should have no problem selling it without probate costs or delays after your mother passes on.

However, if your mother does not hold title to her house in a living trust, and title passes according to the terms of her will, probate court proceedings might be necessary. That will mean hiring a Kentucky probate attorney.

When you visit your mother, it would be best to discuss the situation to see if she (1) has a living trust and (2) if she has transferred title to her house and other major assets into her living trust. If title hasn’t been transferred, her living trust is worthless for avoiding probate costs and delays.

A Kentucky probate attorney can help you set up a living trust for your mother to carry out her wishes and avoid probate costs. More details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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