DEAR BOB: My partner and I are domestic partners and have been for 14 years. If we sell our home, does my partner (who owns the home) only get to deduct the $250,000 principal residence sale deduction or can she deduct $500,000? If I were on the title with her jointly, could we then deduct up to $500,000 profit? – Patti B.
DEAR PATTI: Because your name is not on the title to the home, only your partner is entitled to deduct up to $250,000 principal residence sale profits allowed by Internal Revenue Code 121.
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However, if your name was also on the title, then you will also become entitled to deduct up to $250,000 tax-free principal residence sale profits.
To qualify, (1) your partner should sign and record a quit claim deed to you for a half interest in the home and (2) you would need to hold title at least 24 months before becoming eligible for your $250,000 exemption.
Of course, this presumes you both meet the 24-month-out-of-last-60-month occupancy test of Internal Revenue Code 121 before selling your principal residence. For full details, please consult your tax adviser.
RIGHT RESULT, WRONG REASON
DEAR BOB: Is a single homeowner, over 65, exempt from capital gain tax on the sale of the home? A Realtor told my neighbor, age 76, that her sale profit will not be taxable at her age. Is this true? – Mr. A.F.
DEAR MR. A.F.: Age of the home seller is irrelevant for the tax exemption rules of Internal Revenue Code 121. All that matters is the principal residence seller must have owned and occupied his/her home at least 24 of the last 60 months before the home’s sale.
If any home seller, such as your neighbor, meets this simple test, then up to $250,000 capital gains are tax-free. For a qualified married couple filing jointly, up to $500,000 profits are tax-free. For full details, please consult your tax adviser.
MOST BI-WEEKLY MORTGAGE PLANS ARE SCAMS
DEAR BOB: I have a 15-year home mortgage at 4.25 percent interest. It is about a year old. My mortgage holder recently sent me a letter explaining the benefits of a bi-weekly mortgage. It says I will save $6,962 in interest by making a payment every two weeks of one-half my current mortgage payment. However, I would have to pay a $375 enrollment fee. To me, this seems like a scam. Is it? – Steve W.
DEAR STEVE: Most bi-weekly mortgage payment plans are scams because you can accomplish the same result yourself at no extra cost. I appreciate your sending me the lender’s letter because most bi-weekly mortgage plans also involve a monthly fee of $5 or $6, thus adding unnecessary extra costs.
A bi-weekly mortgage is the equivalent of 13 monthly mortgage payments every 12 months. The result is cutting your mortgage term, thus saving interest dollars.
You can accomplish the same result without any extra cost by dividing your monthly mortgage principal and interest payment by 12. Then add that amount to your regular payment.
For example, your current monthly payment is $1,692. Dividing by 12 is $141. Then just add $141 to each regular monthly payment to accomplish the same interest savings result with no extra cost to you.
The new Robert Bruss special report, “How the New Tax-Deferred Realty Exchange Rules Can Make You Wealthy,” 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. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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