DEAR BOB: I am fascinated with the topic of “stepped-up basis” to market value for inherited properties, which often comes up in your articles. Now I see why you constantly advise parents not to add their adult children to their home titles because doing so would deprive them of the new stepped-up basis. Two questions: (1) does stepped-up basis apply to properties held in a revocable living trust, and (2) is there a limit to the number of properties that can be inherited with a new stepped-up basis? –Marvin G.
DEAR MARVIN: (1) Stepped-up basis to market value on the date of the decedent’s death applies to inherited properties and other assets held in a revocable living trust.
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(2) There is no limit to the number of inherited properties where the heirs will receive a new stepped-up basis. For full details, please consult a tax adviser who is familiar with estate taxation.
CAN A PARTITION LAWSUIT APPLY TO JOINT-TENANCY PROPERTY?
DEAR BOB: I have learned so much from your educational articles. When I read about a partition lawsuit to force the sale of a property, I thought I would never need that information. But now I do. About six months ago my two brothers and I inherited some land from an uncle. Unknown to me, title was taken by the three of us in joint tenancy with right of survivorship. I thought we all agreed to sell the land. But now one brother refuses to sell. He thinks we should hold the land for five or 10 years. It is vacant and is not suitable for rental as farmland so we would have to pay the property tax each year. Can two of us bring a partition lawsuit to force the sale of this joint tenancy land? –Karen V.
DEAR KAREN: As far as I am aware, the law of every state allows a partition lawsuit to obtain a court order to force the sale of property held in joint tenancy with right of survivorship.
If for some reason the law of the state where the land is located does not allow a partition sale of joint-tenancy property, you and the brother who wants to sell can break up the joint tenancy by deeding your shares to yourselves as tenants in common. For full details, please consult a real estate attorney in the state where the land is located.
MORTGAGE RELIEF ON A “SHORT SALE” IS TAXABLE
DEAR BOB: Some time ago you explained a “short sale” means the mortgage lender agrees to accept as payment in full a sale for a home’s market value even if it is below the mortgage balance. That’s what we did in late 2006 to sell our house in Ohio. It was worth less than our mortgage balance and we had to move to obtain a job. The lender agreed to accept a short sale for $183,785 although our mortgage balance was about $210,000. However, we received an IRS Form 1099 from the lender showing we had taxable “debt relief” income of $26,215. Is this right? How can we be taxed on money we didn’t receive? –Ron D.
DEAR RON: As an alternative to foreclosure when a mortgage borrower stops making payments, some lenders will accept a “short sale” of the property for less than the mortgage balance. They realize it is better for the lender to accept a short sale than to go through a foreclosure sale and lose even more money.
However, the IRS says debt relief is taxable. That’s why your mortgage lender had to send you that 1099 form showing the exact amount of your taxable debt relief. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Everything You Need to Know About the Pros and Cons of Reverse Mortgages for Senior Citizen Homeowners,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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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