DEAR BOB: We own two homes: one in Virginia and one in Washington state. My husband works in Vancouver, Canada, which is why we bought a home just across the border in Washington. He is a resident of Washington and I am a Virginia resident. We have a commuter marriage. When we sell the Virginia house, can we still claim the $500,000 tax exemption even though I am the only one who lives in it most of the time? –Eileen McA.
DEAR EILEEN: No. To claim up to $500,000 tax-free, principal-residence-sale profits, thanks to Internal Revenue Code 121, both husband and wife must each occupy the primary home at least 24 of the last 60 months before its sale.
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If your husband doesn’t meet the 24-month occupancy test and is a resident of Washington state, it appears he does not qualify so you will be limited to your $250,000 exemption when selling the Virginia home. For full details, please consult your tax adviser.
WHAT IF CONDO OWNER IS UNHAPPY WITH MANAGEMENT?
DEAR BOB: Thank you for your recent suggestion that I and others in our gated community become more involved with the homeowners association, as we are unhappy with the lack of enforcement of the deed restrictions. What can we do to protect our investment? It is basically the younger people who want to park their cars, boats and travel trailers anywhere on the property. Those of us who are older and in the minority cannot get the board of directors to enforce the restrictions. The gates are broken and they won’t even repair them because they don’t want to have a special assessment. –Mary S.
DEAR MARY: It sounds like you are not happy living in that community. If I were in your situation and observed the complex maintenance and rule enforcement declining, I would consider selling. Another alternative is to sue the association to enforce the CC&Rs (covenants, conditions and restrictions), but you would probably be better off moving to a better community.
THERE REALLY IS NO “SHORT SALE” BENEFIT
DEAR BOB: What is the benefit to a homeowner of a “short sale”? Our mortgage lender has already recorded a notice of default and threatens a foreclosure sale. –Steve B.
DEAR STEVE: The slight benefit of a short sale of the home, for less than the mortgage balance owed, is to avoid having a foreclosure sale on your credit reports. However, your credit is already probably pretty bad if the lender recorded a notice of default and is threatening a foreclosure sale.
A big disadvantage of a short sale for the borrower is the lender is required to send the borrower an IRS Form 1099 showing the amount of taxable debt relief.
For example, suppose you owe $200,000 on your mortgage and the lender agrees to a short sale of the home for $180,000. The lender’s 1099 sent to you will show $20,000 taxable income to you. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Everything Home Sellers and Their Realty Agents Need to Know About the $250,000 Tax Exemption Rules,” 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).