DEAR BOB: My daughter and her husband owned a lot next to their home. In 2003 they said I could build a house on the property. I sold my former home and used all the proceeds to build a nice house. We went to a real estate attorney who suggested a life estate for me, with my daughter and her husband as remaindermen. I am 72 and in good health. But I like having my daughter close by as we help each other. Now she and her husband are getting a divorce. My house was finished in 2004. Now property taxes are three times as high as we estimated. How can I get out of this situation? –Alma B.
DEAR ALMA: I hate to say this about a fellow attorney, but he or she gave you very bad advice to pay cash for a new house that you don’t even own. Now all you have is an unmarketable life estate. When you die, your daughter and son-in-law will receive the full remainder interest in the house you built with your cash.
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Frankly, there isn’t much you can do. But the good news is you can’t be kicked out of your house unless you permanently move out, fail to pay the property taxes, or sign a quitclaim deed giving up your life estate. For more details, please consult a local real estate attorney.
HOW LONG DOES HOME SALE CAPITAL GAINS EXEMPTION LAST?
DEAR BOB: My husband and I own three houses, one of which is a rental. I live in one house because of my employment, and he lives in another in North Carolina. We were planning to sell the house I am currently occupying and I would move into the rental house. But with the local home sale market “soft,” I’m worried we won’t do well if we sell the house now where I currently reside. Would it be better to hold on to this house as a rental or would we lose that $250,000 capital gains tax exemption? –Claudia DeR.
DEAR CLAUDIA: If you have owned and occupied the house you currently occupy at least 24 of the last 60 months before its sale, you can qualify for up to $250,000 principal-residence-sale tax exemption of Internal Revenue Code 121.
That means you can move out of your current residence, presuming you owned and lived in it at least 24 months, and retain your $250,000 exemption while renting it up to 36 months. After that, you lose the exemption.
Because your husband lives in the North Carolina house as his principal residence, he can’t qualify for an additional $250,000 exemption on the sale of your current residence.
You could move into the rental house and then sell your current residence when you deem local market conditions are good within the next 36 months. Better yet, why not lease it with an option for the tenant to buy within 36 months?
However, please be aware the IRC 121 $250,000 exemption can only be used once every 24 months. For full details, please consult your tax adviser.
PROBATE IS REQUIRED TO TRANSFER TITLE TO DECEASED’S HOME
DEAR BOB: My mother died in 1998. She left her house, which is worth about $60,000, to my four brothers, two sisters and me. I am the youngest. No one has taken any action to secure this piece of our mother’s legacy. I have been named administrator of her estate. But it is very difficult to establish communication with each of my siblings. Some have moved away and can’t be located. Can I refinance this house to make repairs or to buy them out? Or can ownership be waived? What authority does a quitclaim deed give me? –Kenyatta C.
DEAR KENYATTA: Please consult a local probate attorney in the county where the house is located. If you were named “administrator” by the local probate court, I presume your mother left no written will.
Until the local probate court distributes title to the house to you and your siblings by the state law of intestate succession, no mortgage lender will make a loan to refinance the house for repairs or so you can buy your siblings out.
I hope somebody is paying the property taxes so the house won’t be forfeited at a property tax sale.
Yes, any heir can waive their inheritance to get out of a mess such as you describe. But that means if oil or gold is later discovered on the property (highly unlikely) you have no right to your share.
A quitclaim deed means you give up whatever ownership interest the grantor has in the property. If your siblings have no interest in their small inheritances in the property, you can ask them to sign quitclaim deeds to you. For more details, please consult a local probate attorney.
The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar in a Buyer’s Market,” 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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