DEAR BOB: I am 63 and hope I can continue working until I am 70 when my Social Security benefits will nearly double. My $935,000 home needs about $30,000 in repairs. I had hoped to live on reverse-mortgage income until I retire, but the amount I would receive is so small I couldn’t afford the repairs. It seems I have no recourse but to sell my 50-year-old home. Any suggestions? –Helen W.
DEAR HELEN: Your real problem is you are too young and your life expectancy is too long to gain maximum benefits from a senior-citizen reverse mortgage. Because you didn’t mention any existing mortgage, I will presume there is none.
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Another possibility is to obtain a home equity credit line to pay for the $30,000 of repairs. But the big drawback is a home equity loan requires monthly payments whereas a reverse mortgage does not require any payments.
As you probably know, there are three nationwide reverse-mortgage lenders: FHA, Fannie Mae and Financial Freedom Plan. FHA and Fannie Mae are usually best for homes worth up to $500,000. Above that, Financial Freedom Plan often is the best alternative.
Please consult a reverse-mortgage representative who offers all three plans so you can compare them. You can find reputable reverse-mortgage originators at www.reversemortgage.org.
MUST HOMEOWNER OWN RESIDENCE FOR 60 MONTHS?
DEAR BOB: You often mention Internal Revenue Code 121. To qualify, you say the principal-residence owner must reside in the home at least 24 of the last 60 months before its sale. Does that mean I have to own my house at least 60 months before I qualify for the $250,000 exemption? Also, you say this tax break can be used every 24 months. How does that fit in with the 60 months? –John L.
DEAR JOHN: Internal Revenue Code 121 is very flexible. To qualify for the principal-residence-sale exemption up to $250,000 for a single owner, or up to $500,000 for a qualified married couple filing a joint tax return, the seller(s) must have owned and occupied their primary dwelling an aggregate 24 out of the last 60 months before the sale.
The 24 months need not be continuous. For example, you could live in your house for a year, rent it out for two years to tenants, and move back in for another 12 months to qualify.
There is no need to own the home for 60 months. You can qualify for this tax break if you bought your principal residence as recently as 24 months ago, providing you occupied it as your “main home” for those 24 months.
IRC 121 can be used over and over again, without limit, but not more frequently than once every 24 months. For full details, please consult your tax adviser.
IF YOU’RE NOT MARRIED TO CO-OWNER, JOINT TENANCY NOT RECOMMENDED
DEAR BOB: My daughter will be buying a house with her boyfriend (whom she does not plan to marry). How do you recommend they take title together? Is joint tenancy a good idea? –Kenneth R.
DEAR KENNETH R.: I’m sure your daughter has her reasons for buying a house with a guy she doesn’t plan to marry, but I can see endless complications, none of them advantageous.
I do not recommend they hold title as joint tenants with right of survivorship. That means if one of them dies, the survivor owns the entire property. Is that what they really want?
When two co-owners take title together, they usually hold title as tenants in common. Then, if one of the tenants in common dies, their ownership share passes according to the terms of their will.
But a big disadvantage of tenant-in-common ownership is if one co-owner wants to sell but the other doesn’t, one co-owner can bring a partition lawsuit to force a sale of the property.
Better yet, holding title in a partnership allows specifying terms that should be considered, such as a buy-out agreement, or what happens if one partner can’t pay his/her share of the mortgage payment and other expenses. Your daughter should consult a real estate attorney in the community where the property is located to discuss her title choices.
The new Robert Bruss special report, “2007 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Realty 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 delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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