DEAR BOB: In a recent article, a reader asked you what can be done when a home seller had to sell after less than 24 months’ occupancy during the last 60 months. You said if you lived in the house 18 months, for example, instead of the required 24 months, you could take 75 percent of the exemption. No Realtor I know is aware of this. Neither could I find any tax preparer who knew about this exception. And I cannot find this information in any IRS publication. Please tell me where I can find a legal, authoritative writing that will agree with your opinion. –Raymond L.
DEAR RAYMOND: I am shocked you couldn’t easily find information on this well-known tax break for qualified home sellers. However, only the best real estate agents will know about Internal Revenue Code 121(c) details so I am not surprised the agents you consulted were unaware of it.
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Every competent tax preparer should understand the partial exemption of IRC 121(c). However, to qualify there must be a valid reason for the home sale after less than 24 months of owner-occupancy.
The tax statute lists (1) health reasons, (2) job location change qualifying for the moving-cost tax deduction (the new job site must be 50 miles further from old home than was old job site), and (3) unforeseen circumstances, such as divorce, unemployment, multiple births from the same pregnancy, inability to pay the mortgage, etc.
IRS regulations spell out the details. The 2007 “CCH Master Tax Guide” and “J.K. Lasser’s Your Income Tax” have excellent explanations. It sounds like to you need to find a new tax adviser who keeps up-to-date.
CAN LIFE TENANT GIVE UP HIS LIFE ESTATE?
DEAR BOB: Never in a million years did I think I would have to write to you. I am a young 80-year-old. In 1991, my husband and I put our Massachusetts home into a life estate for our only son. We were the “remaindermen.” At the time, it seemed like a good thing to do. Now I want to sell that house. My son is willing to sign a quitclaim deed, but an attorney and tax man recommend keeping the property for Medicare reasons. Can my son sign a quitclaim deed to me so the property can be sold? –Margaret O.
DEAR MARGARET: Yes. Be thankful your son is willing to give up his life estate by signing a quitclaim deed to you. If he refused, the only way to sell the house would be subject to his life estate and there would be virtually zero potential buyers.
I have no clue why the attorney and tax man advised against the quitclaim deed. After your son renounces his life estate, you can sell the house, pay the capital gain tax, and enjoy your cash received.
Social Security Medicare is available to everyone 65 or older. Your personal assets are irrelevant. However, if you are receiving Medicaid state welfare, selling the house could have adverse consequences. I suggest you consult an attorney specializing in elder law if that is an issue for you.
NO RECOURSE IF NEIGHBOR TRIMMED BEAUTIFUL TREES
DEAR BOB: My neighbor had a row of beautiful tall trees on his side of our property boundary. They provided shade and privacy for my house and yard. He recently severely trimmed those tall trees, thus opening my yard to bright sun. Now my house heats up in the afternoons. The reason he trimmed the trees, he said, was they were so “messy.” Do I have any recourse against him for depriving me of shade and privacy? –Carla W.
DEAR CARLA: No. Because the trees are on your neighbor’s lot, he could do as he wished with his trees. The good thing, however, is they will probably grow back in a few years to gradually restore your shade and privacy.
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