DEAR BOB: My elderly dad lives in his home alone. He refuses to sell although he owns the $700,000 house free and clear. He could live like a king in a luxury rental apartment, but he refuses to move. The house needs repairs, especially a new roof. His banker suggests a home equity loan. But I question whether that is a smart idea because he has a very limited income from Social Security, stock dividends, and a small pension. He usually listens to me so what should I recommend? –Kathy R.
DEAR KATHY: The banker wants to “sell” a home equity loan because he gets a commission, whereas the local bank probably doesn’t make senior-citizen reverse mortgages. Did the banker even mention that alternative? I bet not.
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Your dad is “house rich but cash poor.” A reverse mortgage can provide him with the money needed for a new roof and other expenses he might have.
He will have the choice of a lump sum, lifetime monthly income, a credit line (except in Texas), or any combination. Most seniors choose the credit line and use the available funds as they need them, such as for a new roof, new car or a world cruise.
The big advantage of a reverse mortgage is no repayment is required as long as your father lives in his home. But a home equity loan requires monthly payments.
Because your dad has limited monthly income, adding a monthly payment for a home equity loan to his burden might not be wise. More 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.
HOW MUCH TAX IS OWED ON INHERITED HOUSE SALE?
DEAR BOB: My siblings and I inherited our mother’s house. We recently sold it through a Realtor. It was in poor repair. What is the proper procedure to arrive at the fair market value of the house to correctly compute our capital gain for filing taxes this coming April? –Chuck W.
DEAR CHUCK: When you and your siblings inherited that house, your adjusted cost basis was stepped up to market value on the date of your mother’s death. If you sold it within a few months after your mother’s death, chances are the sales price and your stepped-up basis are the same.
The result will be no capital gain tax if you didn’t sell it for more than the stepped-up basis on the date of your mother’s death.
Your Realtor can give you a written market-value opinion letter stating her expert opinion of the home’s value when your mother died. Unless you and your siblings held title to the house a long time after the death, you probably owe little or no capital gain tax. For full details, please consult your tax adviser.
VERY LITTLE MARKET FOR HALF OF A VACATION PROPERTY
DEAR BOB: Is there a market for partial interests, in this case a 50 percent undivided interest in a vacation home? –Sarah G.
DEAR SARAH: There is no organized market for partial property interests. Most real estate agents refuse to take a listing for a 50 percent interest in a property. Ask your friends and relatives if they want to buy a 50 percent interest. If somebody is interested, expect to sell at a huge discount from 50 percent of the fair market value for the entire property.
The new Robert Bruss special report, “When It’s Smart to Prepay or Refinance Your Mortgage,” 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).