DEAR BOB: My mother and father lived in their house for over 40 years. Dad died in 1987 and my elderly mom continues living in the home today. She recently applied for a low-income housing assistance program to replace the roof. When a title check was made, it shows title is still held in the names of both my mother and my late father. The government agency refused to pay for the new roof until my late father’s name is removed from the title. How can this be done? –Robert N.
DEAR ROBERT: You or your mother should consult a local probate attorney. If your father died without a living trust, which could have transferred title without probate, it might be necessary to open a probate court proceeding to transfer his title according to the terms of his will.
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If he didn’t leave a will, then his title transfers according to the state law of intestate succession, presumably to your mother. Depending on the circumstances, the local probate court can resolve this problem.
Your situation shows why it is so important to clear titles shortly after an owner dies. It is usually much easier and less expensive to do so immediately than to wait many years.
REINVESTING IN REPLACEMENT HOME WON’T AVOID TAX
DEAR BOB: My wife and I plan to sell our house where we have lived about 45 years. Our net profit will be around $700,000. We plan to “downsize,” take our $500,000 tax exemption, and buy a less expensive townhouse for around $250,000. Will this qualify for 100 percent tax avoidance? –Henry R.
DEAR HENRY: No. If you sell your principal residence, which you and your wife have owned and occupied at least 24 of the 60 months before its sale, Internal Revenue Code 121 says you qualify for up to $500,000 tax-free sales profits if you file a joint tax return.
However, you will owe long-term capital gains tax on the remaining $200,000 of your sales profit. Purchasing a replacement home, no matter what its purchase price, won’t help you avoid tax on that extra $200,000 profit. For full details, please consult your tax adviser.
NO NEED TO FILE FEDERAL ESTATE TAX RETURN FOR A SMALL ESTATE
DEAR BOB: In 2005 my mother died. Her total assets, including her rural house, were worth less than $200,000. Her will left everything to her sister. The probate court handled the distribution as a “small estate.” As estate executor, I was told I don’t have to file any federal estate tax return. Is this correct? –Jerome J.
DEAR JEROME: Yes. Because your mother’s total estate was well below the federal estate tax exemption of $1.5 million for 2005 ($2 million for deaths in 2006), no federal estate tax return needs be filed for your late mother.
However, as executor of her estate, if she had any taxable income in 2005, a 2005 income tax return must be filed. For full details, please consult your tax adviser.
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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