DEAR BOB: In a recent article, you said the sale of a vacant lot adjoining an owner’s principal residence could qualify for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return). I sold my principal residence in April 2003 and sold the adjoining lot in January 2005 (21 months later). I went to the public library and read all three pages of IRC 121, but I couldn’t find the part about tax exclusion on an adjacent lot. Do I qualify? – Marce C.
DEAR MARCE: You appear to qualify if you owned and occupied your principal residence at least 24 of the 60 months before its sale. You will find the provision about the tax exclusion for the sale of a vacant lot adjoining your principal residence in IRS Regulation 1.121-1(b)(3).
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To qualify for the IRC 121 principal residence sale exclusion up to $250,000 or $500,000, the adjoining vacant lot must be sold within 24 months before or after the sale of your principal residence. Your situation appears to qualify since the lot was sold 21 months after you sold your principal residence.
However, if your total capital gain for the house and the lot exceed your $250,000 or $500,000 exclusion, the excess capital gain would be taxed at the 15 percent federal tax rate, plus any applicable state tax. Please consult your tax adviser for details.
WHAT IF EX-SPOUSE REFUSES TO SIGN QUITCLAIM DEED?
DEAR BOB: My wife and I divorced about six years ago, and we each had separate attorneys. We worked out a fair, friendly settlement. She got our house, subject to its mortgage, and I got the bills, but no alimony or child support costs. However, we both forgot about some Idaho land we bought many years ago and have never visited. After our divorce was final, I got the modest property tax bill (which I have paid each year since), and now I want to sell that land. But my ex-wife refuses to sign a quitclaim deed so I can convey marketable title. She wants half the sales proceeds. Since she got the huge equity in the house, I feel it’s only fair I get to sell the land with its modest profit. Can I force her to sign a quitclaim deed? – Mark C.
DEAR MARK: Not without a court order. The court divorce proceedings might have to be re-opened to modify the settlement to provide for the overlooked Idaho land.
Instead, I suggest you first try to work out a friendly written agreement with your ex-wife in return for her quitclaim deed. If that isn’t possible, you and she should hire attorneys to go back to court (unless you’re willing to give her half the sales proceeds).
CAN A LIVING TRUST BE CONTESTED?
DEAR BOB: My wealthy mother died recently. She had been in poor health for about four years. My sister lived nearby, visited her almost every day, and made sure she had good medical care. I live about 600 miles away and visited four or five times a year. After our mother’s death, I learned her living trust left virtually everything to my sister, including her house worth around $700,000. The living trust was dated about six months before her death. I knew there was a previous living trust that left my mother’s assets to both of us equally. Can I contest the living trust? – Sarah S.
DEAR SARAH: Yes, a living trust can be contested, just as wills are sometimes contested. However, living trusts are rarely contested because they are not under court supervision as a deceased’s will normally is.
Unless you have solid proof of legal grounds to contest your late mother’s living trust, such as undue influence or mental incapacity, I suggest you forget it. Please consult a local probate attorney to discuss the situation.
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