DEAR BOB: My sister and I inherited about $300,000 plus a house we sold for $270,000 after our father passed away. According to my knowledge of the tax law, as long as an estate is below $650,000 we owe no inheritance tax. But what type of tax will be due on the $270,000 real estate portion. My sister says we will receive a Tax Form K for the next year’s taxes. Is this correct? – Vincent M.
DEAR VINCENT: Although you didn’t give the year of your father’s death, if he died in 2000 or 2001, the federal estate tax exemption was for total assets up to $675,000. If he died in 2002 or 2003, the federal exemption increased to $1 million. If he passed on in 2004, the exemption is $1.5 million. Therefore, his $570,000 estate is exempt.
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However, if your late father was a resident in one of the few states that still have an inheritance tax on heirs, there might be a state inheritance tax.
Those states are Connecticut, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Hampshire, and New Jersey. If he resided in one of those states, check with state inheritance tax officials to see if any state inheritance tax will be due.
NO WAY EX-SPOUSE CAN CLAIM $500,000 HOME-SALE TAX BREAK
DEAR BOB: My divorce settlement in 1990 entitled me to receive the house. But my ex-husband has been living with me for the past six years. We file income taxes separately. Is there an “in spouse” and “out spouse” tax law that allows me to claim $500,000 tax exemption when I sell, rather than just $250,000? We both meet the two-out-of-last-five-years occupancy test – Elenor B.
DEAR ELENOR: You win the “nice try award.” But you can only claim up to $250,000 tax-free principal residence sale profits. If your ex-husband is still on the title, he can also claim up to $250,000 tax-free sale profits under Internal Revenue Code 121.
But there is no way you, individually, can claim up to $500,000 home-sale tax-free profits. In other words, you cannot transfer your ex-husband’s $250,000 entitlement to you. For full details, please consult your tax adviser.
WHERE CAN SENIOR CITIZEN GET REVERSE MORTGAGE DETAILS?
DEAR BOB: I am interested in getting more information about those reversed mortgages. Which are the lenders? Is it safe and what are the interest rates? – Hilppa M.
DEAR HILPPA: The correct term is “reverse mortgage.” To qualify, you must be a house or condominium owner at least age 62.
There are three nationwide reverse mortgage lenders: FHA (Federal Housing Administration), Fannie Mae (Federal National Mortgage Association), and Financial Freedom Plan. The terms of each lender are different.
FHA is the most popular plan with the lowest interest rates. But the FHA loan limit is also the lowest. Fannie Mae currently offers reverse mortgages up to $333,700 (which will increase after Jan. 1, 2005). Financial Freedom Plan has no maximum loan limit, but offers the most flexible plans and the highest interest rate.
More details and names of local lenders in your area are available at www.reversemortgage.org. My special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” 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. Questions for this column are welcome at either address.
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