DEAR BOB: In 1994, my wife inherited a house from a living trust. We have lived in it since then. When we took possession, it was worth $350,000. Today, it is worth about $1 million. If we sell it today, will we be free from capital gains tax because the property came out of a trust? Or would the first $350,000 be tax-free and we can add our $500,000 to that? – Michael F.
DEAR MICHAEL: Congratulations on the outstanding market value appreciation in that home. The adjusted cost basis for the home is its market value on the date of the decedent’s death, presumably $350,000.
Purchase Bob Bruss reports online.
If the net sales price is $1 million, the capital gain is the $650,000 difference between the $350,000 stepped-up basis and the net sales price. Even if the home’s title is in your wife’s name alone, because you both lived in your principal residence at least two of the five years before its sale, you qualify for the $500,000 married-couple exemption of Internal Revenue Code 121.
That is presuming you file a joint income tax return in the year of home sale. The remaining $150,000 long-term capital gain will be taxed at the new 15 percent maximum federal tax rate. For full details, please consult your tax adviser.
NEIGHBORHOOD TEENS CREATE A NUISANCE
DEAR BOB: I enjoyed your recent article about public and private nuisances. Do you have any suggestions what we can do about a “gang” of neighborhood teenagers? When I talk with them individually, they are “nice kids.” But when they get together with their cars and motorcycles, they are like “Hell’s Angels.” Our neighbors and we are unsure what to do. When they have a party or create a loud disturbance, we call the police but they are ineffective by driving past and asking them to quiet down. As soon as the cops leave, the loud music and noise starts up. The parents are usually gone so there is no supervision. Any ideas? – Carlos R.
DEAR CARLOS: The situation you describe is legally called a “private nuisance” because it only affects a small number of neighbors. If it affects a large number of residents, it is a “public nuisance,” which the city or county attorney can have abated.
I suggest you and your neighbors arrange a friendly meeting with the police chief to explain the problem. He or she can usually apply pressure on the parents, rather than having to resort to legal action.
DON’T EXPECT MOBILE HOME TO BE A GOOD INVESTMENT
DEAR BOB: I am looking for investment property that I can afford to buy. About all I can afford is a mobile home in a nice park, which is for sale at $55,000. The elderly seller just wants to get out to move in with her daughter. I have the funds. But what do you think of mobile homes as real estate investments? – Terry G.
DEAR TERRY: Mobile homes are places to live, not real estate investments. Most mobile homes depreciate in market value, just as your car loses value day by day.
If you have $55,000 cash for a down payment, you can surely buy a modest rental house to get started on your investment career. I recommend fixer-upper houses, which have profit potential.
The new Robert Bruss special report, “Robert’s Realty Rules: How to Avoid the 10 Worst Home Seller Mistakes,” is now 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.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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