How can I get his name off the house and put my name on… #realestate #divorce

Image via Wikipedia

DEAR BENNY: My husband and I own a rental property that is paid off. We have been talking about separating, and my husband has said that I can keep the house. How can I get his name off the house and put my name on, or should we just sell it? I would like to continue to rent the property for a while longer because my daughter lives in it. –Virda

DEAR VIRDA: I assume that your daughter is paying you rent. If you think that the property will continue to be a good investment, it’s quite easy to have the property put exclusively into your name. Your husband just has to prepare a deed — usually called a “quitclaim deed” — conveying the property to you. In some states, it may be necessary for the two of you to convey back to you as sole owner.

If you are still married, then (depending on state law) you may not have to pay any recordation or transfer tax. The filing fee should be nominal.

But that’s the easy part. You also have to explore the tax consequences of such a transfer. According to the tax code (section 1041 to be exact), when your husband transfers the house to you there is no taxable gain. Thus, your husband will not have to pay any capital gains tax. However, you should consult your tax advisers to determine if this will trigger any gift-tax consequences.

When the house is transferred to you, (unless your husband is a nonresident alien) your husband’s tax basis becomes yours. What does this mean? Let’s say you initially paid $100,000 for the house. Each of your bases for tax purposes was $50,000. Now, when you become the sole owner of the property, your tax basis will be the full $100,000 (plus any improvements that have been made to the property over the years).

So please explore all legal and tax implications before making the transfer.

Related articles by Zemanta

• Is homeownership ‘over’? (inman.com)
• Obama’s ‘A list’ tax plans (money.cnn.com)

The value of the house on the date of death becomes the property’s new tax basis

DEAR BENNY: My parents’ house is paid off. The house is in my father’s name only; my mother has his power of attorney (and I have hers). My father is in a nursing home, recovering from a stroke, but we do not foresee him coming home (he’s 86); he’s wheelchair bound, and conversant, though with some short-term memory problems.

My father’s last will and testament leaves everything to my mother. Is there any reason to get my mother’s name added to the deed? If so, what are the legal steps one should follow to get it done? If it is done, I assume it should be joint tenants with rights of survivorship? –C.H.

DEAR C.H.: Normally, I don’t recommend putting children on title with the parents, as there can be taxable consequences. In your situation, however, I think your suggestion makes sense.

While we don’t like to think about death, it is inevitable. When both of your parents die, whoever inherits the house will get what is known as the “stepped-up” basis. That means for tax purposes, the value of the house on the date of death becomes the new tax basis of the property.

Currently, when your dad passes, you will have to probate his last will and testament. However, if your mother is added to title as “joint tenants with right of survivorship”, she will automatically own the house at that time, and probate will not be necessary.

Your mother should also have a will. In fact, in addition to a will, all of you should have a general durable power of attorney, a durable power of attorney for health, and a living will. Just make sure that your father is mentally competent at this time to prepare all of those documents.

An attorney can assist you with all of this.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

Foolish to buy property until your lawsuit is resolved…

DEAR BENNY: I have just found out that my neighbor’s septic tank leach line and leach pit is on my property. I was going to buy the property when it was recently up for sale, but I was not given the chance. I did file a lawsuit against the seller. The contract purchaser has not yet taken title to the property. Do I have a legal claim against not just the seller but the buyer if he does indeed go to closing and take possession of the property? I am hoping that after the buyer learns that there is a lawsuit on the property, he will back off and not buy it. What happens in a case like this? –Leo

DEAR LEO: You have filed a lawsuit that should put the title (escrow) company on notice. You or your attorney should contact both the title company as well as the buyer and advise them of the lawsuit. There is a concept in law called “lis pendens,” meaning that litigation is pending. Ask your attorney if he is able to file this lis pendens document in your case and have it recorded among the land records on your neighbor’s property. Clearly, the title (escrow) company will see that there is a pending lawsuit when it searches the title for the buyer.

The buyer would be foolish to buy the property until your lawsuit is resolved. I would also try to reach an amicable arrangement with the buyer. After all, if he does buy the property, he will be your next-door neighbor.

“unforeseen circumstances” allow loophole for cap gains exemption?

Image via Wikipedia

DEAR BENNY: I was told by a prominent accountant that there is a loophole in the law that states that you can be exempt from paying capital gains (if you are in a home less than the two-year period) if there are “unforeseen circumstances” involved. Are you aware of this? Can you double check to make sure? This accountant is well trusted by a lot of businesspeople! At the time I was going through an “unforeseen” divorce. –Patricia

DEAR PATRICIA: In general, in order to take advantage of the up-to-$500,000 exclusion of gain ($250,000 if you file a separate tax return), you have to own and live in the house for two out of the five years before it is sold. However, the law does allow a partial exclusion under certain circumstances. There are three “safe harbors” (meaning that if you meet these tests the IRS will not challenge you): (1) change in employment; (2) health; and (3) unforeseen circumstances. In this third category, if you could not have anticipated an event before you purchased your house, you may also be able to claim a partial exclusion. While this is fact-specific — and in many cases you will have to get a special ruling from the IRS — there also are some safe harbors that the IRS will recognize. These include: an involuntary conversion of your house; natural or man made disasters resulting in a casualty to your home; divorce or legal separation; and multiple births resulting from the same pregnancy.

It would appear that you may qualify based on your divorce. The exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is two full years. If you are single — or do not file a joint tax return — change the $500,000 to $250,000.

Your accountant knows what he is talking about so you should ask him to do the calculations. However, I do not think he said that you can escape all capital gains tax.

Related articles by Zemanta

• NOT Divorcing Now! (perezhilton.com)
• Obama’s ‘A list’ tax plans (money.cnn.com)
• The GOP’s Plans for Your Retirement Accounts (usnews.com)

Don’t let the urgency of the Job Hunt make you fall into a scammer’s trap.

With 2 million layoffs recently, the employment websites are busier than ever. And it’s not just jobseekers who are making these sites so popular. Consumer-protection and law-enforcement groups and better-business bureaus are reporting that a whole new breed of scammers and “phishers” are also logging on to get your personal information to steal your identity.

If you, or someone you know, are using the Internet to get a new job, protect yourself. Never supply Social Security numbers or bank account numbers over the phone or on your resume. Also, be wary of “work-at-home” or business opportunities which cost money or fees upfront for supplies, background checks, and other phony charges. The Wall Street Journal reported recently that many of these scam opportunities involve “medical billing, rebate processing, and mystery shopping.” The Federal Trade Commission says some of these “jobs” are even illegal, and you could be held responsible. Finally, watch out for phony executive-search firms and recruiters. Capitalizing on desperate jobseekers, these scammers have reportedly charged thousands of dollars for positions that never existed.

Finding a job in today’s economy can be hard, but be persistent, patient, and protect your identity. Don’t let the urgency of your situation lead you into a scammer’s trap.

Related articles by Zemanta

• Look Out For These Check Scams [Bad Check Scams] (consumerist.com)
• ConsumerMan: Fake check scams spread (msnbc.msn.com)
• How Not to Get Duped by Stimulus Scams (abcnews.go.com)

…I have been informed that I will be eligible for the $500,000 IRS tax exemption.

DEAR BENNY: There appears to be much confusion on the taxation liability of the funds on the sale of a house. I purchased a home for $300,000 in 2000 and will be selling it for $800,000 this year. I have lived in the property for the full duration and file joint tax returns with my wife. I have been informed that I will be eligible for the $500,000 tax exemption, and must pay taxes on the balance of the sale ($300,000) even though I will be purchasing a new home for $400,000. I was always under the impression that $500,000 was tax exempt (joint filing) against the profit and any further funds from the sale were tax exempt as long as I purchased another property for my primary residence of equal value or more. –Peter

DEAR PETER: Let me try to clear up any confusion you may have. If your home cost you $300,000 — ignoring any improvements you may have made over the years — and you sell it for $800,000, you will have made a profit of $500,000. The law states, very clearly, that if you have owned and lived in the house for at least two years out of the five years before it is sold, and if you are married and file a joint tax return with your spouse, you can exclude up to $500,000 — which in your case is all of that profit. (If you are single, the exclusion is limited to up to $250,000 of your profit.) Congress abolished the old “rollover” rule in the 1990s. That rule stated that you do not have to pay any capital gains tax if, within either two years before or after you sell one house, you buy another one whose value is equal to or greater than your former property. But that’s no longer the law. From your example, it appears that you will be able to exclude all of your profit and not pay any tax. There is one caveat, however. Let’s look at this example. In 1990, you bought your first house for $100,000. In 1995, you sold it for $300,000 and bought your present home for that same amount. In those days, you were eligible for the “rollover,” which meant that while you did not have to pay any tax on your $200,000 profit, the tax basis of your new house (which you bought for $300,000) is reduced by the amount of your profit. Thus, even though you paid $300,000 for your present home, your tax basis in our example is only $100,000 ($300,000 minus $200,000). So if you sell your house for $800,000, for tax purposes your profit will be $700,000 ($800,000 minus $100,000), and while the first $500,000 will be exempt from tax, you will have to pay tax on the additional $200,000 profit. Talk with a financial adviser about your specific situation.

 

 

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.