Tax bite from selling Mom's home?

DEAR BENNY: After my father-in-law passed away, my husband's mother moved to be near us and bought a home, eventually putting it in my husband's name. She passed away four years ago and my husband has not sold the home. We are a few years away from retirement. Would it be better to wait until his income is lower to sell or sell now? We really don't know what to do and I think my husband worries about the big tax bill he will get. --Irene

DEAR IRENE: I suggest you discuss the tax situation with your financial advisors. I cannot advise you or even speculate on what your tax bill might be if and when you sell the property. You have to determine what the tax basis of the property was on the date your mother-in-law died, and (depending on what state you live in) you may be eligible for what is known as the "stepped-up" basis -- i.e., the value of the property on the date of death. (Note: For 2010 only, this concept is not applicable unless Congress changes its mind.)

But if you are nearing retirement, and plan to move to another area, have you considered a Starker (section 1031 exchange)? The house in question is not your principal residence and thus would be considered investment property.

Let's say you want to move to Florida two years from now. You sell the house, and exchange it for a rental property in Florida. After renting it out for a year or two, you move into it and declare it your principal residence. The tax basis of the new property will be the basis of the exchanged property, but you will not have to pay any tax now if you follow the procedures of such an exchange.

You will need professional guidance to do it right.

Also make sure that the house is in the name of your husband only. If it's not, you may have to probate your mother-in-law's estate so that the property will go into his name.

DEAR BENNY: I am an 81-year-old widow who bought a townhouse four years ago. There were some odd things going on here so I installed a security system. I have been told that the security sign I have in front of the townhouse is considered advertising and I have to take it down. There are three other areas in town that have townhouses and none of them have a problem with this. What happens if I refuse to take the sign down? --Lillian

DEAR LILLIAN: Different associations have different rules and regulations, and all homeowners are legally obligated to follow those rules. If your association does not permit signs to be posted outside your home and you refuse to remove your sign, the board of directors could fine you and/or ask a court to require you to honor and follow those rules.

That's a general answer as to the things that association boards of directors can do if a unit owner fails to comply with the rules. However, in your case, you should meet personally and talk with the president of the association. Explain your situation and ask for a waiver of the rules. Point out that your sign really is not advertising. ...CONTINUED

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