DEAR BOB: My wife and I hold title to our home as joint tenants with right of survivorship. We understand that the survivor will own the house after one of us dies. But what if we both die at the same time, such as in a plane or auto crash? –John M.
DEAR JOHN: You ask an extremely important question. As you correctly explain, when one joint tenant dies, the survivor owns the entire property. The deceased’s will has no effect on real estate held in joint tenancy with right of survivorship. However, if both joint tenants die at the same time, or about the same time, complications can develop.
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To illustrate, a few years ago a Berkeley, Calif., couple was out for a walk one evening when they were both shot in a drive-by shooting. The woman died shortly thereafter in a hospital, but the man was kept on life support for several hours because he was a potential organ donor.
The result was the woman’s share of the joint tenancy property went to the man by survivorship. When he died a few hours later, the entire property went to the man’s heirs and the woman’s heirs received nothing.
If they had both died at the same moment, such as in a plane crash, then their individual wills would determine who received their shares. For this reason, in case of simultaneous death, you and your wife need individual wills.
As you can see, joint tenancy with right of survivorship is far from the ideal way to hold real estate joint title, although it does avoid probate costs and delays. A far better method is to hold title in a revocable living trust.
A living trust lets you and your wife specify who will receive ownership of not only your real estate, but also your other major assets. More details are in my special report, “24 Key Questions: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com.
SPECIAL TAX RULE FOR HOME SALES FOR MILITARY MEMBERS
DEAR BOB: I am retiring from the U.S. military, but I still own a home in northern Virginia, which I bought in May 2001. In August 2002, I received military orders, moved out of the house, and have rented it since then. The current lease expires in July 2007. I then plan to sell the house. Will I get the full $500,000 exemption because I left on military orders? I didn’t live in it for the two out of five years required. But I understand there is an exception for military members. Is this true or must I move back into the house to establish the two out of last five years requirement? –Bradley B.
DEAR BRADLEY: You and your wife currently do not qualify for the full $500,000 principal residence sale tax exemption. The reason is, although you meet the ownership test, you have not occupied the home at least 24 months
Internal Revenue Code 121(d)(9) is a special military and Foreign Service exception, which suspends the 24 out of last 60 months occupancy test for up to 10 years. However, you still must meet the 24-month occupancy test, even if it was more than five years before selling the home.
If you had sold the home after just 15 months of ownership and occupancy, you could have qualified for a partial capital gain exemption of 15/24 of the $250,000 IRS exemption (up to $500,000 for a qualified married couple filing joint tax returns). However, when you sell the home in 2007, if you want the full exemption, you and your wife will then have to make the home your principal residence for an additional eight months. For full details, please consult your tax adviser.
MAJOR HOME BUILDER IS MISLEADING HOME BUYER
DEAR BOB: In May 2005 we contracted to buy a brand new home from a major national home builder. Completion was to be by November 2005. It’s now early January and our home construction has not yet been started. Each time we call the builder, we are given a different excuse. Today we were told the start date will be eight months late due to construction material shortages. We are now without a home, having sold our previous residence, and are incurring storage charges. What are our rights as home buyers? –John M.
DEAR JOHN: I suggest you ask to speak with the regional or division manager for your home builder to work out a fair settlement for the builder’s major breach of contract.
If you are not satisfied, I suggest you file a complaint about that home builder with your state contractor’s license board and follow up to be sure the builder is disciplined.
Yes, there are shortages of some building materials. But I don’t know of any home builder who is eight months behind starting construction on a home that is pre-sold. You should also consult a local real estate attorney about possible legal action against your home builder.
FIFTY PROPERTY OWNERS ARE NOT A GOOD SIGN
DEAR BOB: Our family owns land, which has been passed on to us by our great-grandparents. There are about 50 family members involved. Currently, there are no homes on the property. No property taxes are due. Is there any way to put the title into one person’s name, or maybe a trust? If we want to give or sell parts of the property to another family member, what is the best method? My personal reason is to build a home for my mother on the spot of her birth and where she was raised as a child. Also, some of our family members are buried in unmarked graves on the grounds –Jimmy B.
DEAR JIMMY: I suggest you consult a local real estate attorney to examine the title to determine who owns an interest in the property. With 50 possible co-owners, finding all those owners and getting them to agree to anything is virtually impossible. Without clear title, no mortgage lender will make a loan to build a house on the land.
You say no property taxes are due. Every city or county assesses property taxes annually, so paying those taxes should be considered by the 50 possible co-owners. If the property taxes are unpaid, the local tax collector will eventually sell the property for unpaid taxes.
WHAT HAPPENS TO DEPRECIATION WHEN PROPERTY OWNER DIES?
DEAR BOB: I know the “stepped-up basis” for inherited property is the market value on the date of the owner’s death. But suppose the real estate has been depreciated as rental property. Does the same rule apply? –William McV.
DEAR WILLIAM: Yes. You just discovered one of the greatest real estate tax shelters of all. It is called death of the property owner.
If you inherit rental real estate which has been depreciated for many years by its deceased owner, you not only receive it with a new “stepped-up basis” to market value on the date of the owner’s death, but Uncle Sam forgets about all that depreciation that has been deducted by the deceased owner. Isn’t Uncle Sam nice? For more details, please consult your tax adviser.
TOP 10 REAL ESTATE BOOKS OF ALL TIME
DEAR BOB: I greatly enjoyed your recent list of the 10 best real estate books of 2005. Do you have a “Top 10 Real Estate Books of All Time” list? –K. C.
DEAR K.C.: No, but thanks for a great idea for a future article. Why didn’t I think of that? Readers who would like to nominate a truly great real estate book, with a short paragraph explaining why it is so great, can send their e-mail book nomination to RobertJBruss@aol.com.
The only truly great real estate book that I think should be on that list is the best seller classic by the late William Nickerson “How I Turned $1,000 into $1,000,000 in Real Estate in My Spare Time.” It was first published in 1959.
I understand it now sells for over $100 on Ebay. Several months ago, a reader wrote explaining when he checked it out of the library he had to sign a promise to pay the library $125 if he didn’t return the book.
That book changed my life and that of many other real estate investors. What truly great real estate book would you nominate? If there are enough suggestions, I will write an article on the best real estate books of all time.
The new Robert Bruss special report, “Foreclosure and Distress Property Profit Secrets,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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