DEAR BOB: Until about two years ago, I lived in my house (with my late husband) for 24 years. Reluctantly, with my son’s urging, I moved temporarily to an “assisted-living center.” I expected to hate the place. But I learned to like it, especially not having to cook meals. Now I have no desire to return to my house, as I originally planned. For the last two years, my son arranged a rental of my house, which helps pay for my assisted-living bills. Now he urges me to sell my house while the local home-sale market is very good. But I thought I had to live in my home at the time of sale to claim that $250,000 tax exemption you often discuss. Do I have to move back to my house? – Ellena R.
DEAR ELLENA: No. Your son appears to be giving you great advice, first to move to an assisted-living center, and now to sell your house before you lose your $250,000 principal-residence-sale tax exemption.
Purchase Bob Bruss reports online.
To qualify for the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return in the year of home sale), you must own and occupy your home at least two of the five years before its sale.
Contrary to widespread misbelief, you do not have to occupy your home at the time of its sale. After you qualify for IRC 121, you can move out (as you did), rent your former residence up to three years, and still meet the two-out-of-last-five-years occupancy test to claim your $250,000 tax exemption. For full details, please consult your tax adviser.
OCCUPANCY BY FAMILY MEMBER WON’T QUALIFY FOR TAX BREAK
DEAR BOB: About four years ago, my wife and I moved out of our house to retire to Florida. Our college-age son and two of his pals have lived in the house since then, paying us modest rent to take care of the mortgage, insurance and property taxes. When he graduates in June, we want to sell the house. Since he is a family member, can we still qualify for that $500,000 principal residence sale tax exemption? – Rick S.
DEAR RICK: No. The only way to qualify for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly) is for the homeowner (and spouse) to occupy the home. Occupancy by a family member doesn’t count.
Because you have not occupied the home as your principal residence at least 24 of the 60 months before its planned sale in June, you do not qualify for the $250,000 IRC 121 home sale tax exemption. More details are in my new special report, “Everything Homeowners Need to Know About the New $250,000 and $500,000 Home Sale Tax Exemption Rules,” 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.
PROPERTY CONDEMNATION OFFERS GENEROUS TAX BREAK
DEAR BOB: I own a three-unit rental property on a corner lot. It is not my home. The state wants to buy my property and tear down the building to widen an adjoining freeway entrance ramp. They offered me a tremendous price, much higher than my basis in the property. But my daughter reminded me if I sell, then I will owe a large capital gains tax. At my age, 76, I don’t want to do one of those tax-deferred exchanges for another property. Is there any other alternative? – Francis H.
DEAR FRANCIS: If the state takes your property by eminent domain condemnation, that is an “involuntary conversion,” which is eligible for special Internal Revenue Code 1033 tax breaks. You then have two years to acquire a replacement property “similar in use” with the sales proceeds so you can avoid paying profit tax.
This is much better than a tax-deferred exchange, which has a much shorter time limit. For full details, please consult your tax adviser.
WHAT IF CONDO BOARD RESIGNS?
DEAR BOB: I own a condominium in a nice 12-unit building. But we have three “very difficult” owners who constantly complain about petty conditions. All the volunteer elected board of directors have tendered their written resignations, effective April 1. They are very serious and this is not an April fool joke. Nobody wants to be an officer or director of our association. Our next annual election meeting isn’t scheduled until September. We have a non-resident professional property manager, but she says she can’t take over management. What should we do? – Sharon V.
DEAR SHARON: Although a very extreme situation, your circumstance shows what can go wrong in a small condo association. I doubt your condo CC&Rs (covenants, conditions and restrictions) or by-laws discuss the issue. If your association has contact with a local condo attorney, now is the time to consult that person for legal advice.
EASEMENT BY NECESSITY FOR LANDLOCKED PROPERTY
DEAR BOB: There is a big lot in back of our home that is landlocked with no access to a public street. It was owned by the developer of our subdivision. He died about six months ago. His son inherited the lot. Recently we learned he is trying to gain driveway access to the lot so he can build a house on it. My lot and another lot offer possible access to the street. When he contacted me, I said I would sell him an easement for $20,000. This “kid,” about age 25, said, “I’ll see you in court.” What can he do to me? – Kristin R.
DEAR KRISTIN: In most states, it is possible to obtain an easement by necessity over an adjoining parcel to reach a landlocked lot that doesn’t have public street access.
To obtain an easement by necessity, that “kid” would have to prove past ownership of both parcels by a common owner. That shouldn’t be difficult if his dad was the subdivision developer.
The legal theory is that all property should be used and access to a landlocked parcel was mistakenly overlooked. Whether or not the “kid” will prevail and if he will have to pay you anything for an easement by necessity over your land is up to the court.
REZONING A LOT IS NOT EASY
DEAR BOB: We own our house and an adjoining vacant lot where we plant our vegetable garden. Our lot adjoins a commercial building whose owner wants to buy our lot for $75,000. That price seems very reasonable because the lot is too small to build a house. He wants to use the lot for parking. I said that would be fine if he will screen our property with trees so we won’t see his parking lot. He agreed. But his purchase offer is contingent on the city rezoning his lot for parking. How realistic is this? – Kirk R.
DEAR KIRK: It can be very difficult to rezone a lot which adjoins a residential zone. However, there is usually an easier alternative such as a use variance or a conditional use permit.
Hopefully, the buyer of your lot will hire a savvy real estate attorney who can obtain the necessary city approvals to satisfy both his parking use and your privacy.
REVERSE MORTGAGE HOMEOWNER SOLVED INCOME PROBLEM
DEAR BOB: I am so thankful for (1) owning my home and (2) my reverse mortgage which I learned about from you about three years ago. As a widow, now 76, after my husband died about five years ago, my biggest fear was becoming a “bag lady” without a place to live. I’m sure you know what I mean. After he passed on, and his pension stopped, all I had was a lovely free and clear house plus social security. But that’s not enough to live decently. Fortunately, a neighbor showed me your article about senior citizen homeowner reverse mortgages. By coincidence, the local senior center had a speaker on that topic so I attended. But the high up-front costs scared me. Then I realized I would probably live at least 10 years so I might as well spend my home equity. I got an FHA reverse mortgage and selected the lifetime monthly payment option. The extra $322 I receive each month solved my income problem. Now, because my house has greatly gone up in market value, the reverse mortgage agent says I can refinance to obtain more income. Should I do so? – Florence S.
DEAR FLORENCE: FHA has a very good “streamline” reverse mortgage refinance plan. If you need more income, please look into it. More reverse mortgage details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” 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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