DEAR BOB: In 1989, my wife and I bought our family home together. In 1998, we separated. I moved into an apartment and she stayed in the house. We divorced in 2003. I agreed to receive a $100,000 lump sum payment when our house is sold. In June 2005 we sold the house and at the closing I received $100,000. Am I still entitled to my tax exemption on the $100,000? –Joe C.
DEAR JOE: Yes. If I understand your e-mail correctly, at the time of the home sale your ex-wife was still living in the family home as her principal residence.
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Presuming she qualifies for the Internal Revenue Code 121 principal residence sale $250,000 capital gain tax exemption, by owning and living in the home at least 24 of the 60 months before its sale, then you also qualify for up to $250,000 tax-free profits.
In tax talk, she is referred to as the “in spouse” and you are referred to as the “out spouse.”
But the tax result is you and your ex-wife are each entitled to up to $250,000 principal residence sale tax-free profits if the “in spouse” qualifies. For full details, please consult your tax adviser.
NO REFUND OF FHA INSURANCE WHEN PAYING OFF REVERSE MORTGAGE
DEAR BOB: I recently paid off my FHA reverse mortgage that I held for only two years. The payoff numbers show I paid an upfront MIP (mortgage insurance premium) of about $5,000. It is my understanding when an FHA mortgage is paid in full, the owner is entitled to part of the distributive share of the unused portion of the 30-year up-front MIP fee. After many inquiries, I was told FHA makes no refunds when a reverse mortgage is paid off. This seems wrong. Please give me the rationale for this FHA rule –Tom C.
DEAR TOM: I don’t make the FHA mortgage rules. You will have to ask FHA officials why there are no MIP refunds when FHA reverse mortgages are paid off early.
However, I am shocked you would pay off a reverse mortgage after just two years. That was a foolish costly mistake.
If you are a regular reader of this column, you know I recommend senior citizen home owners obtain a reverse mortgage only if they plan to stay in their homes at least five years. The reason is reverse mortgages have substantial up-front fees.
Amortized over at least five years, these fees are quite reasonable. However, paying off your reverse mortgage after only two years means you paid a very high cost for limited use of funds.
WHAT IF CONDO NEIGHBOR HAS A PIT BULL?
DEAR BOB: Several years ago, we bought a nice two-bedroom condo in a complex that allows pets. We have a small poodle who is our “pride and joy.” However, a recent purchaser of a condo down the hall has a vicious pit bull. Whenever she takes the dog for a walk outside, she has to walk down the hall with the dog. Although the pit bull is on a leash, there is no way she can control that strong dog. I try to avoid confronting the dog but sometimes it is unavoidable. The condo association board of directors has discussed this problem, with no action so far. Our insurance agent says the insurance company might not renew our building’s liability insurance policy. What can we do? –James R.
DEAR JAMES: At the risk of incurring the wrath of pit bull owners, my opinion is there should be a federal law banning pit bulls (and several other breeds of vicious dogs). The evidence is so strong of unprovoked pit bull attacks, there is no justification for keeping a pit bull in a condominium.
Your condo homeowner’s association could enact a by-law banning pit bulls (and perhaps other vicious breeds). However, such a by-law could not be applicable to condo owners who bought in reliance on the previous rules allowing pets. For more details, the association should consult a local lawyer who specializes in condominium law.
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