DEAR BOB: For the last 24 years I have been living in my boyfriend’s house. We use our separate names. He treats me very well. We have two great grown kids together. But we are not married, nor do we want to be for several reasons. The house is held in his name. It has appreciated about $400,000 in market value since his purchase years ago. After he was forced to “retire” from his airline job last year, we decided to sell the house and move to a less expensive area where we can live very comfortably on our old-age, limited income. The obvious issue is when the house sells, will it qualify for a $250,000 or $500,000 income tax exemption? – Brenda H.
DEAR BRENDA: I think you already know the answer. To qualify for Internal Revenue Code 121, the principal residence sale tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return), the home must be owned and occupied at least 24 of the 60 months before its sale by the seller.
Purchase Bob Bruss reports online.
Because your name is not on the title and you are not married to the principal residence titleholder, only he can qualify for the IRC 121 $250,000 home-sale tax exemption. If you were married filing a joint tax return in the year of the home sale, even though your name is not on the title, the sale would qualify for up to $500,000 tax-free profits.
If he adds your name to the title, and if you both wait to sell the home for at least 24 additional months, then you can qualify for an extra $250,000 exemption ($500,000 total) since you already met the occupancy requirement. The ownership and occupancy tests need not be met at the same time. Please consult your tax adviser for full details.
SUCCESSFUL LANDLORD GAVE GREAT ADVICE TO A FRIEND
DEAR BOB: After 30 years as landlords of three single-family rental houses, we have learned by experience and religiously reading your articles. We recently advised a co-worker who is buying a new house to keep his old house as a rental. He is going to take our advice. Please recommend a book for him as a first-time landlord – Colleen D.
DEAR COLLEEN: You gave your friend superb advice to keep his old house as a rental. An excellent brand-new book for him is “Building Wealth One House at a Time” by John Schaub (McGraw-Hill, 2005).
This great new book will give your friend the guidance and direction he needs to succeed with rental houses. Schaub has been a real estate investor in single-family rental houses over 30 years. He shares his management advice in the new book, which is available in stock or by special order at local bookstores, public libraries and www.amazon.com.
ONLY ONE WAY TO AVOID TAX ON RENTAL PROPERTY SALE
DEAR BOB: I can I avoid capital gains taxes if I want to sell my rental property? – Chris S.
DEAR CHRIS: There is only one way to avoid tax on the sale of your rental property. It is an Internal Revenue Code 1031 tax-deferred exchange. More details are in my new special report, “How the New Tax-Deferred Exchange Rules Can Make You Very Wealthy,” now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download 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).
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