By EDITH LANK
Q: My elderly mother owns her home and my brother wants to buy it and move in to take care of her. If he buys the home for $400,000, that money goes into my mother’s estate. When my mother passes away, would my brother then get back half of the $400,000? That seems like he’s actually getting the house for $200,000. — via askedith.com
A: When your mother dies, you and your brother each end up with $200,000 cash. Your brother also owns the house, but he had paid out $400,000 for it. Trust me, it’s fair.
We can try it another way. Your brother ends up with a $400,000 house and $200,000 cash. That’s $600,000 in all. But it cost him $400,000 of his own money to get there, so he really inherits just $200,000 — the same amount you do.
He’ll also have the satisfaction of knowing he’s cared for your mother.
What About the taxes
Q: How could we (both older than 60) avoid paying capital gains taxes on sale of our home and the sale of a rental property? We must sell both to buy a more expensive house in a different location because of a new job. Can we take a once-in-a-lifetime tax exemption ?
The rental was bought in 1991 for about $350,000, and we expect to sell for between $550,000 and $750,000. Also, I heard something about recaptured depreciation, so how much depreciation expense will it be reasonable to claim over 22 years rented? — email
A: On your main home, which I assume you’ve occupied for at least the past two years — that’s all it takes. You qualify. It no longer matters how old you are, and the tax break is no longer once-in-a-lifetime. You can sell and take as much as $500,000 profit free of capital gains tax. (The figure is $250,000 for a single home seller.)
On the rental property, I wonder if you’ve been trying to do without professional help on your tax returns. You could have been claiming depreciation as an expense for 22 years, saving on your tax bills when rates were higher. The IRS has “catch-up” forms that would let you claim it now, but then you’d have to recapture it on the sale anyhow. This is definitely something to be figured out by your own accountant.
At any rate, the unemployment and moving won’t help with taxes on the sale of the rental.
If you move into the rental property and eventually claim the home sellers’ tax break on that one, the requirement is for five years residence in converted rental property.
What to Disclose when selling
Q: My husband and I purchased a 10-year-old foreclosed house two years ago. Since then we have had many issues with it. My husband is a real handyman and has fixed almost everything. Some of the major issues are related to electrical, plumbing, poor vent work, etc.
We have decided to try to sell it. However, when it comes to disclosure, where do we draw the line? For instance, the venting system is messed up and we have to keep a close eye on our electric bill, as it will go sky high if the heat or air conditioner is turned on high. Sound-proofing is nonexistent; many of the doors are not squared; the floor is not level in the basement storage area; you have to use drain cleaner once per month in the upstairs bathtub or it will get backed up, etc.
I hate to pass on a crappy lemon of a house, but we are ready to give up on it. — J. O., via askedith.com
A: Take the question to several local real estate brokers. They will have advice about what should be disclosed, and whether any of the problems would make it difficult for a buyer to get a mortgage loan.
Edith Lank will respond personally to any question sent to www.askedith.com.