DEAR BOB: My home of 30 years has become too large for me to maintain. I would like to purchase a two-family duplex so I can have some rental income for my retirement years. I have been told it is possible to avoid the huge tax on the sale of my home by purchasing a building of equal value. But if I pay the sale tax, I cannot afford to buy a duplex. I am a senior citizen and need to supplement my income. Please clear this up for me –Natalie M.
DEAR NATALIE: If you are a single principal-residence seller, you qualify for up to $250,000 tax-free capital gains. Internal Revenue Code 121 requires you to have owned and occupied your principal residence at least 24 of the 60 months before its sale. If you are married and your spouse also meets the 24-month occupancy test, then you qualify for up to $500,000 tax-free principal-residence sale profits.
Purchase Bob Bruss reports online.
But your plan to buy a duplex with the sales proceeds is irrelevant.
If you own your home free and clear, or nearly so, have you thought about a reverse mortgage to provide lifetime tax-free income so you can remain in your home? A reverse mortgage can solve your cash-flow problem. Details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.
ADDING DAUGHTER AND SPOUSE TO TITLE WAS A BIG MISTAKE
DEAR BOB: A few years ago, we bought a vacation home and added our daughter and son-in-law to the title so they could claim part of the mortgage interest and property taxes they paid. Since then, the vacation home has greatly appreciated in market value. Guess what? They are now getting a divorce. The son-in-law (who we still like very much) claims a one-fourth interest in the vacation home. Is this legal? –Ron R.
DEAR RON: Yes. If he is a one-fourth owner of the vacation home, he remains a one-fourth owner until the divorce is final and the assets are divided between the two ex-spouses.
Unless you needed your daughter and her husband on the title to obtain mortgage financing at the time of purchase, now I’m sure you realize it was a major mistake to add them to your title. At this time, there is no way to undo that situation. In the divorce settlement, the ex-husband will somehow be compensated for his one-fourth interest in your vacation home.
STEPPED-UP BASIS APPLIES TO INHERITED PROPERTY
DEAR BOB: Until I started reading your educational columns, I had never heard about “stepped-up basis.” Does this mean, for example, after my dad dies I will inherit his house at its current value and if I sell it the next day I won’t owe any capital gain tax? –Nancy H.
DEAR NANCY: Presuming your dad leaves his house to you in his will or his living trust, you will then receive it with a new stepped-up adjusted cost basis of its market value on the date of his death. For full details, please consult your tax adviser.
The new Robert Bruss special report, “Probate Property Profit Secrets Revealed,” 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 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).