From the ArcaMax Publishing, Edith Lank Newsletter:
http://www.arcamax.com/news/edithlank/s-637419-503864
Edith: Are we required to pay 28 percent capital gains taxes on a
house we are selling?
The house was signed over to my wife and me in 2004 from my mother who
is in a nursing home. The tax laws are so confusing that I am having
trouble trying to decipher the answer. Please point me in the right
direction. -- D.P.W.
Answer: I'm assuming you don't live in the house. But did your mother
retain life tenancy? Has the place been rented out since 2004? Did
ownership change when your father died? All that might make a
difference.
My guess is that you will indeed owe capital gains tax on your profit
-- at less than 28 percent, by the way. That profit will be figured
from your mother's cost basis for the house. You could use help from a
CPA, enrolled agent or tax attorney.
----
SELLING TO DAUGHTER
Ms. Lank: We want to sell our previous residence to our daughter who
is currently living in it. We need to know the steps to complete this
ASAP. -- e-mail
Answer: How is your daughter going to pay for the property? If you
have an FHA or VA mortgage and she can qualify financially, she could
take it over. Otherwise, your loan, if you have one, must be paid off.
The lender that finds out there's been a change of ownership (through
her insurance policy if nowhere else) could declare your loan all due
and payable immediately.
If you have no mortgage, it gets easier. Unless she's paying you all
cash, though, or you're making her a gift or taking back a mortgage,
she'll need her own loan. To apply for one, she can contact a mortgage
broker.
Then you'll need a lawyer or a real estate broker to draw up a sales
agreement. You might want to hire a broker, perhaps by the hour, to
guide you through the rest of the procedure. Or you can contact
whoever usually handles closings in your area. Depending on local
custom, that might mean a real estate attorney, title company or
escrow company.
----
CAN'T FIND A TENANT
Ms. Lank: We have a property that we had hoped would be an investment,
but we have not been able to find a tenant. After nine months of it
being vacant, we are at a loss. The management company has not been
able to fill the house, and we're very frustrated with them. Do we
find another management company or do we just sell? -- e-mail
Answer: I don't know that real estate market. Maybe everything in town
is standing empty. But if other places are being rented, my guess is
that you've set the rent too high. After all, if you offered the place
for $10 a month, you'd have your pick of tenants. And somewhere
between $10 and what you're asking is the right level to attract
interest.
Is your management company paid by a percentage of the rent you'd
collect? If so, it's hard to think they aren't doing everything they
can to find a good tenant. I don't think changing to another company
would make much difference.
----
LEASE OPTION
Ms. Lank: I have a lease with the option to buy. I paid $3,500 for the
past nine months with $1,000 to be used as the down payment. It was
understood that if I didn't buy, I would get that money back. Now that
I am not able to purchase, she is not willing to give me the money
owed. What is my recourse? -- e-mail
Answer: I hope that understanding was in written form. At any rate,
small claims court is an inexpensive way to get a judge's opinion.
----
GIVING TO SON
Hi. My son lives in a condo I have owned (no mortgage) for many years.
He has been paying all costs involved. I'd like to transfer ownership
in the simplest and least costly way possible, but I am concerned
about tax consequences. Can we complete the transaction without having
to pay for an attorney's assistance? -- K.
Answer: Transferring ownership, particularly of property that is not
mortgaged, is a straightforward matter. A lawyer won't charge much for
the relatively simple paperwork. Doing it right in the first place can
head off problems in the future.
You may have to file a gift tax return, but unless the condo is worth
much more than a million dollars, there shouldn't be any actual tax to
pay. Your attorney can explain the way gift and estate taxes are
related.
========
Edith Lank will respond personally to any questions sent to her at
240 Hemingway Drive, Rochester, NY 14620 (please include a stamped
return envelope), or readers may e-mail her at ehlank@aol.com.