DEAR BOB: I own two houses in trust. One is in West Virginia. When my husband moved out of that house, he signed the papers to transfer title to me. I now live there for several months each year, but it is not my permanent residence. I cannot claim a homestead exemption there because I claim a Florida homestead. Can I use the tax-free $250,000 exemption on the West Virginia house if I lived there 24 months during the past five years? –Elinor T.
DEAR ELINOR: I presume by holding title “in trust,” you mean in a revocable living trust. If title to the residences is held in any other type of trust, such as an irrevocable trust, you are not eligible for the principal residence sale tax benefits of Internal Revenue Code 121.
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For the sale of the West Virginia house to qualify for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 if your spouse also qualifies and you file a joint tax return), you must have owned and occupied it as your principal residence an “aggregate” 24 of the 60 months before its sale. The 24 months need not be continuous.
However, it must truly be your principal residence during your 24-month occupancy time. If audited by the Internal Revenue Service, you must be able to prove principal residence indications such as a local bank account, car registration, driver’s license, voter registration, employment, and filing income tax returns from that address.
From your description, especially since you have a Florida homestead, it sounds like the West Virginia house doesn’t qualify for IRC 121 principal residence sale tax savings benefits. For more details, please consult your tax adviser.
CAN CONDO DIRECTORS HOLD AN INQUISITION OF NEW BUYERS?
DEAR BOB: I recently purchased a condominium. I received the condo association documents, along with an application to fill out. I was shocked as I own two other condos and was never asked to fill out any application to purchase a condo. This is not a cooperative apartment. I feel some of the questions are intrusive, such as what is or was your last occupation, household income, and your net worth? Then it is up to the condo board of directors to accept or deny my application. I presented my financial data to the mortgage company, but I do not feel this is the business of the condo board who are my future neighbors. Shouldn’t the real estate agent have warned me about this? –Shirley B.
DEAR SHIRLEY: Yes, the real estate agent should have clearly shown on the MLS (multiple listing service) information that buyers are subject to approval by the condo association board of directors.
Like you, I have never encountered a situation like this. But I have heard there are a few condo associations that hold such inquisitions of new condo buyers.
Frankly, I wouldn’t want to buy a condo in that complex because it could make the condo very difficult to resell in the future.
A major reason why cooperative apartments can be so hard to sell, and why they sell for less than comparable condominiums, is most co-op purchases are subject to approval by the board of directors, which doesn’t have to give any reason for rejecting a buyer applicant.
MUST HEIR WAIT TO TAKE TITLE UNTIL PROBATE IS COMPLETED?
DEAR BOB: I am inheriting my late mother’s home. It is currently in probate. Is it best to wait for probate to finish to take title? Are there any tax consequences to taking title before or after probate is completed? –Lorraine T.
DEAR LORRAINE: You can’t receive marketable title until the Probate Court approves the title transfer to you. If there are income or estate taxes to be paid for the decedent, those taxes must be paid by the estate before estate assets can be distributed to the heirs.
However, the probate estate need not be closed before property titles can be transferred. Title to the home can be transferred to you by the Probate Court although the estate might remain open for further proceedings on other estate matters. Some estates remain open for many years.
Now you know why I recommend property owners transfer title to their revocable living trusts so, after their demise, the assets can be promptly distributed without probate costs and delays. Presumably your mother died without a living trust or a will so probate proceedings were required. For full details, please consult a probate attorney.
The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 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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