DEAR BOB: I have owned a rental house many years. I would like to sell my primary residence and move into my rental property. Is it true that I can sell my rental house as my primary residence if I live in it for two years? If so, are there any restrictions? Will I be able to claim that $250,000 exemption when I sell? – Meryle H.
DEAR MERYLE: If your rental house becomes your full-time principal residence for at least 24 of the 60 months before its sale, it then qualifies for the Internal Revenue Code 121 home-sale tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly).
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However, effective Oct. 22, 2004, you must have owned the house at least five years if it was acquired in an Internal Revenue Code 1031 tax-deferred exchange. Because you have owned the rental house “many years,” you appear to qualify. For full details, please consult your tax adviser.
WILL INHERITED HOUSE WITH STEPPED-UP BASIS INCREASE PROPERTY TAXES?
DEAR BOB: You often say it is better to inherit a property than to receive it as a gift shortly before the owner’s death. However, if the house gets a new stepped-up basis to market value on the date of the decedent’s death, will this have any impact on property taxes and the assessed value? – David R.
DEAR DAVID: As a lawyer, I must give the customary “It depends” answer. It depends on (1) the location of the property and (2) the heir’s relationship to the decedent.
Some states, such as California, do not increase the assessed value and the property taxes when a property is inherited by a close relative, such as a child or parent. Other states automatically reassess whenever title to a property is transferred.
But there are the “in between” states which reassess all properties on a rotating basis every few years. I suggest you phone the local tax assessor in the county or city where the property you expect to inherit is located to learn their local reassessment policy for inherited properties.
CAREGIVER IS ENTITLED TO NOTHING WHEN HOMEOWNER DIES
DEAR BOB: My aunt has been living in California with a gentleman for over 10 years, paying half the expenses of his home, and taking care of him (he has some ailments). They used to be high school sweethearts. The house is in his name. Her question is, when he dies, even if the house is in joint tenancy with his sons, will she be entitled to anything if it isn’t in his will? His sons treat him so badly she wonders if she has any legal rights? – Sandra N.
DEAR SANDRA: If the house is held in joint tenancy with right of survivorship, the sons will automatically receive the title when the father dies. A will has no effect on property held in joint tenancy.
If your aunt’s “friend” leaves anything to her in his will, it can’t be that house because it is already tied up in the joint tenancy with his sons.
There is no automatic provision for a caregiver in a situation like this, even if she helped pay for upkeep of the home. Although the man might regret adding his sons to his title as joint tenants, there is nothing he can do now to get them off the title to leave the house to his caregiver. Your aunt should have a frank discussion with the man. She has everything to gain and nothing to lose.
The new Robert Bruss special report, “How the New Tax-Deferred Real Estate Exchange Rules Can Make You Very 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.
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