DEAR BOB: My husband and I purchased an investment property in June 2004 with a friend. We held the title as tenants in common. The friend died in February 2005 without a will or trust. The property has appreciated nicely in market value. However, because of the delays in the probate process, it appreciated an additional 15 percent to 20 percent since his death. We want to sell the property and divide the proceeds with the estate. Does the estate receive 50 percent of what the property was worth on the date of death, or 50 percent of the sale proceeds when it actually sells? – Shirley W.
DEAR SHIRLEY: The deceased’s estate is entitled to 50 percent of the net sales proceeds. It is a shame the probate process takes so long and costs so much, thus delaying the property sale.
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The situation you describe shows why it is so important for every real estate owner to hold title in a revocable living trust so their estate can avoid probate costs and delays.
Unfortunately, in the situation you describe, the estate administrator appointed by the court cannot convey the property title without probate court approval. For further details, please consult the probate attorney.
RECOMMENDED BOOK FOR FIRST-TIME HOME BUYERS
DEAR BOB: Can you recommend a good book for first-time home buyers? – Dan W.
DEAR DAN: The best-selling book for home buyers, and in my humble opinion, the best home-buying book available today, is “Home Buying for Dummies” by Ray Brown and Eric Tyson. It has sold more than 600,000 copies and is available in stock or by special order at local bookstores, public libraries and www.amazon.com.
AFTER YOU SELL THE PROPERTY, IT’S TOO LATE TO DEFER PROFIT TAX
DEAR BOB: We recently sold our land (there is no house on it), which we purchased for investment and retirement purposes. Is there any way to avoid or defer paying tax on our profit, such as reinvesting in real estate or using the money to pay down our home mortgage? – John M.
DEAR JOHN: Sorry, if you received the cash from the sale, it’s too late to avoid paying tax on your profit. Your land sale is fully taxable as a long-term capital gain if you owned the property more than 12 months.
You missed the only opportunity to avoid tax by making a tax-deferred Internal Revenue Code 1031 exchange for another investment or business property of equal or greater cost and equity. Paying down your home mortgage won’t avoid capital gains tax.
Because you received the sales proceeds cash, and it wasn’t held by a third-party intermediary beyond your constructive receipt, your long term capital gain is taxed as the 15 percent federal tax rate (or less) plus any state tax. For details, please consult your tax adviser.
The new Robert Bruss special report, “24 Key Questions: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery 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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