Mortgagor or mortgagee is easy to remember

Q. We've just bought our first house, and we got a mortgage on it. My husband and I have a disagreement maybe you can settle for us. He says we're now mortgagees and I say the right word is mortgagors. Do they mean different things?

A. My husband, who was a Realtor, gave me a quick way to remember: mOrtgagOr has two "O"s in it and so does bOrrOwer. MortgagEE has two "E"s in it, and so does lEndEr.

Grown-up explanation: the "or" and "er" words are for the person who does something. The employer employs people. The "ee" ending is for the person to whom something is done. The employee is employed.

You may think you "got" a mortgage, but what you really received was a loan. In return, you gave a mortgage, a document pledging your new home as security for the loan. You mortgaged your home; you did the mortgaging; you were the mortgagors. The lender received your mortgage and holds it; the lender is the mortgagee.

Q. My husband had three children from his first marriage, and when he died his will just says he left everything to them. The house had both our names on the deed. My lawyer says I own the house now and not to worry about it. I just want to know if this is true.

A. The answer may depend on the way your names are written on that deed, whether you were married at that time, the size of your husband's estate, the value of the house and possibly even more things I don't know, including what state you're in.

Your attorney does know all that, and you can trust his or her information.

Note: Someone wrote in recently asking how to calculate, for capital gains tax, the cost basis of a vacation home that was being sold completely furnished, including items like a flat-screen TV set that originally cost $2,500. I was pretty sure the personal property was handled separately from the real estate when it came to income taxes, but I took the question to my accountant and passed on his information. That brought comments from other readers:

• You wrote recently about someone who was selling a fully furnished summer home and wanted to know the cost basis for income tax purposes. I bought a fully furnished house two years ago. The lawyers agree that the furnishings were an entirely separate transaction subject to New York sales tax. It did not affect the basis for the real estate.

• I'm not sure why your accountant says the basis of that flat-screen TV is now $500 when it was bought for $2,500. The basis is still $2,500, but any sale below $2,500 is a nondeductible personal loss. Any sale above $2,500 triggers gain that should be reported.

This reader, a professor, also commented on another query. A mother had written in asking if there were any drawbacks to making her daughter co-owner of the mother's home. I listed several unpleasant possibilities. Might complications arise if daughter married, divorced, owed overdue income tax, was subject to judgments, filed bankruptcy, etc.?

And, I said, if daughter received half-ownership as a gift, she also received the mother's cost basis. If on the other hand the daughter waited to inherit the house, her cost basis would be "stepped up" to full market value of the property at the time of death. That's usually higher, with no taxable profit if daughter then sells the house for about that amount. That brought the following from the professor:

"There are likely two ways the daughter would get a stepped-up basis in her mom's house:

• If her mom continues to live in the home (rent-free) until death, then the full value of the home would be in her mom's estate for estate tax purposes (probably irrelevant except for very wealthy), but then the daughter would get a FMV basis for the whole home (likely a nice step-up).

• Property held as joint tenants with right of survivorship with a non-spouse is fully included in the donor/mom's estate unless the donee/daughter provided some consideration for her interest; full inclusion leads to the stepped-up basis.

For estate tax purposes, Rule 1 is IRC Section 2036(a)(1); Rule 2 is IRC Section 2040(a). In either case, the inherited-property basis rule of Section 1014 then applies."

Good grief! All I can say is I'm glad I passed the buck and suggested that before they do anything, mother and daughter discuss their plans with - a lawyer.

• 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.

© 2014, Creators Syndicate Inc.