DEAR BOB: My mother died with a trust listing her two homes to be divided equally among her living children. My sister and her sons have lived rent-free for more than 20 years in our mother’s second home. They did give my mother a token amount of money to pay the property taxes and fire insurance (or so they say). They now claim the house belongs to them by adverse possession because they paid the property taxes. Is this correct? – John N.
DEAR JOHN: No. To claim title to a property by adverse possession, the adverse possessor must prove “open, notorious, hostile, and continuous” occupancy, plus payment of property taxes, for the number of years required by state law.
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Even if your sister and her sons can prove payment of the property taxes for the statutory period, they can’t meet the “open, notorious, and hostile” adverse possession test because your mother gave them permission to live in her house. For full details, please consult a local real estate attorney where the house is located.
MUST RENTAL PROPERTY OWNER CLAIM DEPRECIATION DEDUCTION?
DEAR BOB: In 2000 and 2001 I was out of the country and did not have enough income to pay tax or file an income tax return. However, I own a rental condo. In 2002, I had enough taxable income to file a tax return. My tax adviser filed my tax return as if I had claimed depreciation on the rental condo in 2000 and 2001. If I sell that rental condo, will I be taxed on the depreciation for 2000 and 2001 for which I never received any tax deduction benefit? – Jagan V.
DEAR JAGAN: Yes. Even if a landlord does not receive any tax benefit, rental property depreciation is calculated as if it was claimed as a tax deduction. Your tax adviser appears to be correct.
When you sell your rental condo, the un-deducted 2000 and 2001 depreciation that you didn’t deduct will be “recaptured” and taxed at the special 25 percent federal income tax rate, plus any applicable state tax.
If you move into the rental condo for at least 24 months as your principal residence, you can claim up to $250,000 tax-free home sales capital gains under Internal Revenue Code 121. But you will still owe the 25 percent recaptured tax on both the deducted and undeducted depreciation. Your tax adviser can explain further.
LIVING TRUST COULD SOLVE ADVENTURER’S PROBLEM
DEAR BOB: I am in my late 70s and I constantly travel to dangerous places, such as mountains exposed to storms and avalanches. I fear, should an accident occur, my remains might not be found. My house could be very difficult or impossible for my will beneficiaries to sell. What kind of legal document would be appropriate? – Mr. E. A.
DEAR MR. E. A.: Transferring title to your house and other major assets into a living trust could solve your problem (which probably won’t occur).
You could specify in the living trust that if you disappear for a specified time period, perhaps a year or two, your successor trustee can distribute your living trust assets according to the terms of the living trust. Most probate courts would require waiting longer, usually seven years after your disappearance.
For safety, be sure a probate attorney prepares your living trust so it will be legally enforceable in the state where you reside. More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” 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 download at www.bobbruss.com. Questions for this column are welcome at either address.
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