Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 12, 2006.
DEAR BOB: Can I sell my house, plus my rental house, and buy one house for my children and me to live in a better neighborhood without having to pay capital gain tax? –Amelia A.
DEAR AMELIA: Thanks to Internal Revenue Code 121, if you have owned and occupied your principal residence at least 24 of the 60 months before its sale, you can sell it and claim up to $250,000 tax-free capital gains (up to $500,000 if your spouse also meets the 24-month occupancy test and you file a joint tax return in the year of home sale).
Purchase Bob Bruss reports online.
However, the only way to defer capital gain tax on the sale of your rental house, and to avoid the dreaded 25 percent “recapture tax” on depreciation you have deducted, is to make an Internal Revenue Code 1031 tax-deferred exchange for another “like kind” rental or investment property of equal or greater cost and equity. For full details, please consult your tax adviser.
WILL SON BE TAXED ON THE SALE OF PARENT’S HOME?
DEAR BOB: My mother, 88, wants to sell her home so she can move to an assisted-living residence where several of her friends live. I am 100 percent in favor of the move so someone will be watching out for her and I can stop worrying about her. But my problem is that my name was placed on her title, upon the advice of her lawyer and tax adviser, about 10 years ago. The reason was because I paid her property taxes and mortgage payments. By being on the title, I could deduct the interest and taxes paid. When she sells her house, will I be taxed on part of her profit (about $175,000)? –Jonathan H.
DEAR JONATHAN: Congratulations on being a “good son” and looking out for your elderly mother by helping her with the household expenses.
You can simply sign a quitclaim deed to get your name off the title to her home before the sale. Your tax adviser might suggest filing a federal gift tax return, although no gift tax will be due if your lifetime non-exempt gifts are less than $1 million.
READER SAYS DO-IT-YOURSELF SELLERS ARE NOT “GREEDY”
DEAR BOB: I usually agree with 95 percent of your excellent advice. However, I strongly disagree with your recent item where you said a home buyer might have to pay his or her buyer’s agent if a home is purchased from a “greedy” do-it-yourself home seller who refuses to pay the agent half of the customary sales commission. Home sellers have the right to sell their homes alone without having to pay a sales commission. Why don’t you mention the “greedy agents” who charge a 6 or 7 percent sales commission just for filling in a few blanks on a sales contract? –Zygmont C.
DEAR ZYGMONT: Most “for sale by owner” (FSBO) house and condo sellers are only too happy to pay a sales agent who produces an acceptable buyer 50 percent of the customary sales commission, usually 3 percent of the sales price.
However, some “greedy sellers” don’t understand the benefits of having a buyer’s agent represent the buyer. Those buyers’ agents do double-duty of guiding the FSBO sale to a successful completion. Yet, some FSBO sellers stubbornly refuse to pay the buyer’s agent even half of a normal commission, so then the buyer might become obligated to pay his or her buyer’s agent.
As for your comment about “greedy agents” who charge 6 percent or 7 percent sales commissions, are you aware how sales commissions are split among sales agents and their brokerages?
Usually, the listing agent and the buyer’s agent receive half of the gross sales commission. Then half of that portion of the commission goes to the brokerage. Of course, the exact split of the sales commission depends on each agent’s agreement with their brokerage.
The result is what seems to you like a huge sales commission is split four ways and the agents really aren’t as “greedy” as you might think.
The new Robert Bruss special report, “2006 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, 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.
(For more information on Bob Bruss publications, visit his
Real Estate Center).