I try to hold the “see a lawyer” response down to once a week, but this week’s response could probably be “consult a CPA.”
Q: My mother-in-law sold her house in 2016. The house was built in 1955 for $60,000. The house sold for $169,000. There were approximately $75,000 worth of improvements and upgrades done over the years. When the house sold, her takeaway was $129,000 after the Realtor commission, the payoff of a home equity loan and the closing costs. The proceeds from sale of house were put into a trust for which my husband is beneficiary. She passed away in 2017. Do we have a tax liability as the beneficiary of the $129,000?
A: I don’t know what that trust was like. I don’t know the size of your mother-in-law’s estate. I don’t know whether she qualified for the homesellers exemption on that sale. I don’t know how she reported it in her 2016 tax returns.
But in any event, I’m pretty sure you don’t have any tax liability.
Confused about VA
Q: I am paying a Veterans Affairs loan on a house I bought in 2015. When I had my will and trust done, I was informed that my son (who lives with me) could continue making the payments without me transferring the title to him.
I would prefer to sign the house over to him so he would have the advantage of the lower interest rate on the loan. I am 87 and in good health. He and another son have power of attorney, and the other son has no problem with the house staying in this manner, as he has his own home.
I thought you had suggested something in this way in an article I saw several months ago. Do you have any suggestions? I would appreciate any information regarding this issue.
A: If you were to give the house to your son, he could take over the VA loan just as it is, assuming his income and credit qualify. He would also take over your cost basis for the property.
If he were to wait to inherit the house, the mortgage could remain with it, even if he doesn’t qualify. As an heir, he would receive a new — probably higher — cost basis for the house according to the home’s value at the time of your death or soon thereafter. That might make a difference in capital gains tax were he to ever sell the property.
In any event, if and when he takes title to the house, the mortgage can remain with it, and the interest rate won’t change.
Q: I have a question about a reverse mortgage. My husband and I are both in our early 70s and are planning on selling our four-bedroom home. We would like to buy a one-story townhouse, as stairs have become increasingly difficult for my husband. It has been suggested that we consider a reverse mortgage for our new home.
I would appreciate your thoughts on the positives and negatives of a reverse mortgage.
A: For some seniors, a reverse mortgage is a fine resource. You will have to figure out for yourselves whether it’s appropriate.
With a reverse mortgage, homeowners don’t make monthly mortgage payments. Instead, they receive monthly checks from a converted portion of the home’s equity. There’s no magic involved: A gradual debt (with interest) builds up against the property, but it doesn’t have to be repaid if either spouse remains in the house. This plan started as help for seniors who needed more income but didn’t want to sell their paid-up homes.
Beyond showing that they can manage property taxes and insurance, homeowners don’t need to prove income or credit because the debt needn’t be repaid until the house is sold someday.
Instead of receiving monthly checks, homeowners can choose to receive a lump sum, set up a line of credit or — as in your case — use a reverse mortgage to buy a new home.
The money you receive is not taxable because it’ll be repaid some day. The borrower must be at least 62 years old; a spouse or partner could be younger.
Over the years, the Federal Housing Administration has gotten rid of expensive scams and reduced the fees and interest rates on reverse mortgages. You would pay for FHA insurance so that if the eventual sale of the house were to not bring enough to cover the accumulated debt, the shortfall will be covered. Or if your kids wanted to keep the property, they could buy it at a small discount.
Contact Edith Lank at www.askedith.com, at email@example.com or at 240 Hemingway Drive, Rochester NY 14620.