DEAR BOB: I bought my home 13 years ago. Ten years ago I was married, but I never added my husband’s name to the title. He died recently. I was told I have one year from his date of death to sell my house and get the $500,000 principal-residence-sale tax exemption. I will file a joint tax return for 2006 as we did every year since 1997. Can I claim the $500,000 exemption? –Nancy E.
DEAR NANCY: Did your husband die in 2006 or 2007? The answer makes a big tax difference for you.
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Because you never added your husband’s name to your home title, you inherited nothing from him since he didn’t own half of the house. Therefore, you didn’t receive the stepped-up-basis-to-market-value benefit when inheriting the property.
If your husband died in 2006, your entitlement to the $500,000 principal-residence-sale tax exemption of Internal Revenue Code 121 expired on Dec. 31, 2006. The person who said you have up to 12 months from the date of death to sell your home and claim up to $500,000 tax-free profits is mistaken.
Of course, if your husband died in 2007, then you have until the end of 2007 to sell your principal residence and claim up to $500,000 tax-free capital gains. That’s presuming you each occupied the principal residence 24 of the last 60 months although only your name was on the title. For full details, please consult your tax adviser.
CONFUSION ABOUT RENTAL AND INVESTMENT PROPERTY
DEAR BOB: In a recent article, you said that to qualify for an Internal Revenue Code 1031 both the property relinquished and the property acquired must be rental properties. But what about vacant land held for investment? Doesn’t that also qualify? –Claire B.
DEAR CLAIRE: Shame on me. IRC 1031 says qualifying properties must be held for investment or use in a trade or business. Rental property is considered a trade or business.
Yes, vacant land is held for investment. It clearly qualifies for an IRC 1031 tax-deferred exchange. Full details are available from your tax adviser.
MEDICAL ABSENCE EXCEPTION FOR RESIDENCE SALE EXEMPTION RULE
DEAR BOB: A widowed friend has owned and lived in her home more than five years until October 2005 when she suffered a severe stroke. She has been living in a nursing home since then. It is unlikely she will return to her home in the future. We understand Internal Revenue Code 121 allows a $250,000 capital gain exemption when a principal residence is sold if it was owned and occupied at least 24 of the last 60 months before its sale. Is there an exception for an owner who is disabled such as my friend or must her home be sold by October 2008 to take advantage of this tax exemption? –Gladys M.
DEAR GLADYS: There is an exception for a homeowner in your friend’s situation. She need only own and occupy her home 12 (instead of 24) months during the five years before the sale of her principal residence if she resides in a licensed care facility. It appears she qualifies for this exception. She or her conservator should consult a tax adviser for details.
The new Robert Bruss special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” 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.
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