Misinformation clouds principal-residency rules
Tuesday, January 16, 2007
By Robert J. BrussInman News DEAR BOB: I want to sell my second or vacation home and avoid the profit tax. I was told if I sell and reinvest the profits in another home I could avoid the tax. But I have considered moving into my second or vacation home to establish it as my primary home so I can avoid the tax. Another friend told me I have to live there three years to qualify. Is that true? --Donald P.DEAR DONALD: You've been hanging out with a "bad crowd." They are giving you incorrect information. To qualify as your principal residence, you must own and occupy the home as your primary residence at least 24 of the last 60 months before its sale. Then you can qualify for up to $250,000 tax-free principal-residence-sale profits, thanks to Internal Revenue Code 121. A qualified married couple filing a joint tax return in the year of the sale can claim up to $500,000 tax-free capital gains.Buying a replacement residence has no effect on your IRC 121 benefits. Full details are available from your tax adviser.
DON'T COUNT ON YOUR INHERITANCE UNTIL THE TESTATOR DIESDEAR BOB: My father, age 85, owns and lives in a house in Las Vegas. I am the executor of his will. It says when he dies, all his property is to be divided between my sister, brother and myself. But now he is considering selling his house and buying a plot of land in New Mexico, adjoining my sister's property. He will bring in a mobile home to live in. If that occurs, what are my obligations concerning that property? Does my father need to rewrite his will? --Marsh R.DEAR MARSH: Until your father dies, his will has no effect. As executor of that will, you have no duties until he dies.He can do whatever he wishes with his assets. If his will leaves you and your siblings an asset he no longer owns at his death, namely the Las Vegas house, it's your tough luck. You inherit nothing.
If he moves and buys the New Mexico land and mobile home, you might then suggest he write a new will to distribute that property upon his death.STATE LAW PREVAILS OVER MORTGAGE TERMDEAR BOB: I own a house in a state where the law says there can be a mortgage prepayment penalty only during the first three years of the mortgage term. However, my mortgage from a major nationwide lender says I have a prepayment penalty for the first five years. Which is correct? --Emil T.DEAR EMIL: Presuming you are correct about the three-year limit on residential mortgages in the state where your home is located, that state law prevails over any conflicting term in the mortgage agreement.Because nationwide lenders do business in most states, their mortgage documentation doesn't always comply with state laws. If in doubt, have the situation reviewed by a local real estate attorney where the property is located.The new Robert Bruss special report, "When It's Smart to Prepay or Refinance Your Mortgage," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 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.Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula
