Small real estate inheritance sparks taxation

DEAR BOB: In 2000, my wife’s parents both passed away within a month of each other. They left their estates to my wife and her brother. The estate was worth more than $650,000 so they paid estate taxes. Part of the estate was a property in Sarasota, Fla. At the time of the inheritance, it was valued at $1,600. My wife and her brother recently sold that property for $53,000 and split the proceeds. Do they need to pay taxes on the $53,000? How can they avoid paying taxes? – Larry C.

DEAR LARRY: The capital gain on the sale of that property was $53,000 minus its $1,600 “stepped-up basis” market value in 2000 at the time of the inheritance. Your wife’s taxable share is presumably half of that capital gain.

Purchase Bob Bruss reports online.

The co-owners could have made a tax-deferred Internal Revenue Code 1031 exchange for another investment or business property of equal or greater cost and equity.

However, it’s too late now to avoid tax because they received the cash proceeds from the sale. Fortunately, long-term capital gains are taxable at the low federal tax rate of only 15 percent. For full details, your wife should consult her tax adviser.

STATE LAWS DON’T DETERMINE HOMEOWNER ASSOCIATION FEES

DEAR BOB: Do you know the state laws about homeowner association fees? When we moved into our town home, the fees were $90 per year. Now they are $185 a year. We have only lived here for five years. Our retirement income hasn’t increased and this fee is really hurting. The homeowner’s association doesn’t do anything; neither the tennis courts nor the playground are ever used, and the pool was broken for half of the summer. Isn’t there a state law about homeowner association fees? – Kristina D.

DEAR KRISTINA: I know your letter is serious. But readers in higher fee homeowner associations are laughing and saying to themselves “Be happy. You’ve got a bargain to only pay $185 for your homeowner association fees.”

That’s very low. State laws do not determine homeowner association fees.

Your homeowner association board of directors sets the monthly or annual fees. I suggest you attend the meetings and ask for a copy of the latest financial reports so you can see how the money is being spent.

Your fees are used to keep up the common areas, such as the pool, tennis courts, playground, etc. If you feel the money is not spent wisely, attend the homeowner association meetings and speak up with constructive suggestions. Don’t just complain.

HOW TO FIND LOCAL REAL ESTATE INVESTMENT CLUBS

DEAR BOB: I am just starting real estate investment. About six months ago, I bought my first rental house. I was lucky and found some great tenants who are improving my property at their expense. I’ve heard there are real estate investor’s clubs. How can I find one in my area? – Katherine W.

DEAR KATHERINE: Congratulations on starting your real estate investment career with rental houses. I think they are the best long-term investments.

To find a local real estate investment club, on the Internet go to www.nationalreia.com. That is the official website of the National Real Estate Investors Association (NREA) Web site.

Also check the local newspaper real estate pages for lists of real estate meetings. Most clubs allow visitors to attend meetings for a nominal fee. But the “best deal” is to become an annual member so you can attend all the events. You will soon discover these meetings are a great resource to hear interesting speakers and for locating properties, vendors, buyers, and other local investors to help you.

The new Robert Bruss special report, “How to Avoid Buying or Selling a Bad ‘Lemon’ House,” 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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