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.
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.
Q. How could we (bother over 60) avoid paying capital gain taxes on sale of our home and 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 of up to a certain amount in profits? What about being forced to relocate after being unemployed?
What, approximately, will the tax be (if no other way we could shelter)? The rental was bought in 1991 for approximately $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? What exactly are the rules?
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 up to $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. There's no special tax break. The amount of tax depends on how you've reported the rental in previous years and on your tax bracket.
On the off chance you choose to move in to 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. This doesn't sound as if that would be practical for you.
Q. My husband and I purchased a 10-year-old foreclosed house two years ago from a bank. Since then we have had many issues with this house. 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 go ahead and try to sell it. (Houses in our area are selling in less than one month for much more than we paid for our house.) 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 heat or air conditioner is turned on high. Sound proofing is nonexistent; you can hear everything from almost every room in the main floor; 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.
So should we figure "buyer beware" is good enough? I hate to pass on a lemon of a house, but we are ready to give up on it.
A. Take the question to several local real estate brokers (a broker is someone with more experience than a licensed salesperson.) Agents are used to being called in for advice. Most will welcome a chance to meet you, see the house and try to sell their services. 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 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.
© 2012, Creators Syndicate Inc.