DEAR BOB: My fiance and I built our home about a year ago. He has since changed jobs and moved to Arizona. I am still living in our house. We are not married, but we own the house 50/50. He wants to sell it. The market value has greatly appreciated because it is a one-of-a-kind custom home on a beautiful lot. I can’t afford to live in it alone and wait another year for that two-year owner-occupied $250,000 tax exemption. But I hate the thought of paying capital gain tax. What should I do? –Deborah E.
DEAR DEBORAH: You, but not your fiance, may be eligible for a partial $250,000 principal residence sale tax exemption due to “unexpected circumstances” as allowed by Internal Revenue Code 121 although you did not meet the minimum 24-month ownership and occupancy test.
Purchase Bob Bruss reports online.
If I understand your e-mail correctly, you alone have lived in the house since its completion about 12 months ago. You can probably qualify for a financial hardship exception to IRC 121, allowing you to claim up to $125,000 tax-free capital gains for your share of the profits.
But your fiance can’t qualify for any tax exemption since he didn’t live in the house. That means he gets to pay capital gains tax on his profit share without any exemption. For full details, please consult your tax adviser.
CONTACT CITY AGENCY TO PROTECT YOUR INTERESTS
DEAR BOB: The house next to mine has been vacant since June 2005. It is very run-down. The owner has been cited for building code violations, such as making additions without building permits. He has a long history of not making necessary repairs. Now he says he is considering tearing down the house and garages to sell as a vacant lot. We have one common wall and a common fence. We both owned our properties since the 1970s. I paid for the common fence. What can I do to protect myself and be sure I get a fair settlement? –Shulamith B.
DEAR SHULAMITH: From your description, it seems you just need to be sure your neighbor doesn’t damage your common wall or the common fence if he demolishes his house and garages. You should contact the appropriate city department that could issue a demolition permit to be certain you are notified in advance.
As for getting a “fair settlement,” you are not entitled to any compensation, presuming the neighbor’s demolition doesn’t damage your common wall or fence. For more details, please consult a local real estate attorney.
IRREVOCABLE TRUST IS EXTREMELY DIFFICULT TO CHANGE
DEAR BOB: About five years ago, an “estate planning attorney” talked us into putting our house into an irrevocable trust for various reasons. Now we need to sell our house because of health and financial reasons. However, the attorney who created our irrevocable trust has died and we don’t know what to do. Any suggestions? –Ted D.
DEAR TED: Your situation is a classic example why it is usually not wise to create an irrevocable trust. Your only alternative is to consult another attorney to review your situation to investigate if there is any possibility of terminating your irrevocable trust. If you have received benefits, especially tax benefits, it might be virtually impossible to terminate your irrevocable trust.
The new Robert Bruss special report, “2006 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Real Estate Investors,” 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 www.bobbruss.com.
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