On homes and real estate: Siblings may squabble over inherited land

Q. I (along with two brothers) have inherited property from my father (deceased in 1957). It was understood that my mother had the legal right to live on the property, though she did not the majority of the time. My older brother has lived there the past 45 years and built some buildings. Out of courtesy for my mother, nothing changed.

But now that she has been deceased for a year, the two brothers not living on the property would like to have our inheritance to do as we please. The older brother living on the property does not see any need to change the current arrangement. (We all share in the taxes.) What are our options?

A. Legally, you and your other brother have the right to get a court-ordered auction sale of the property and division of the proceeds. This is, of course, an unpleasant solution to the problem. It involves legal expenses, doesn’t usually yield full value at the sale, would effectively evict your brother and won’t do a lot for fraternal harmony.

The best solution is for the one who lives there to buy your shares. He’d ordinarily pay each of you one-third of market value. But because he’s made some improvements, it might be best to hire an appraiser to help you all arrive at a fair figure.

If his finances qualify, he could raise the purchase money with a bank mortgage. If not — but again, this can lead to family problems — the two of you could agree to collect your shares month by month, holding private mortgages. Or he could — should in fact — pay you rent, but I can see that leading to problems also.

Those are the only options I see, and of course a lot depends on what your relationships are like. Perhaps you could all benefit from a session with a mediator as well as an appraiser.

Let me know what happens; I’m interested.

Q. My house was put in my mother’s name when I bought it two years ago, as I had bad credit. I would really like to get it into my name somehow, but I’m sure my credit is still not good. I am worried about what will happen to the house if my mother passes.

A. Lenders do not call in a mortgage if a family member inherits a house. If you inherit it, you could keep the present loan. Of course, I don’t know what your mother’s will says, or if other family members might be involved. A lawyer could help your mother set things up as you both want.

Q. We have a rental property to sell. What is the current capital gains tax? And what is the current standard commission that an agent would be paid?

A. Second question first: There is no standard commission and none set by law. In any community, though, rates for full-service brokerage do tend to cluster around a certain figure, just as the price of a quart of milk seems to run about the same in different local stores. Mail I get from around the country sometimes mentions “this town’s usual 6 percent,” “normal 7 percent” or “average 5 percent.” Commissions are negotiable — if the broker agrees to negotiate. To fit different circumstances, property owner and agent do occasionally settle on something higher or lower than that brokerage’s customary charge for services.

As for the favorable capital gains tax on profit from your sale, let’s assume you’ve owned the property more than one year, so we’re talking about long-term rates. For a married couple filing jointly, here are the 2014 figures:

If you’re in the lowest tax brackets (ordinary income less than $73,800) you pay no tax on capital gains. With income between that and $226,850, your rate is 15 percent. Beyond that, you’d pay an extra 3.8 percent surtax, and couples with income higher than $457,600 will pay five percent more.

But when you’re dealing with rental property, it gets complicated. For years you’ve been gradually deducting the cost of the building (but not the land) as a depreciation expense. If you haven’t done that, you should have. When you sell, you must give back (recapture) that bookkeeping advantage. The amount of depreciation you’ve claimed — or could have claimed — is subtracted from your cost basis, making your taxable profit higher. If you’ve owned the property for many years, it may be fully depreciated, with almost your wholesale price subject to capital gains tax.

The fact that you’re writing to the column instead of contacting your own accountant gives me some concern. If you’ve been doing the taxes yourselves and not taking depreciation as an expense, it’s not too late to file amended returns for at least the past few years. If you don’t have a CPA, consult one now.

Ÿ Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

© 2013, Creators Syndicate Inc.