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Sale of primary home not likely to incur income tax

Q. My mother asked me to write to you with some questions. My parents recently sold their home in Colorado, which they'd lived in since 1975. Since 2014, they'd had a caretaker live in the house while they tried out life in Florida. Now they spend winters in Florida and summers in their cottage in New York.

In the spring of this year, they put the house in Colorado up for sale. The final closing was in July. The state retained 2 percent of the sale price for taxes.

Is there anything else they have to do as far as taxes are concerned? Is there some sort of form for tax exclusion for them since they are elderly? And if so, does this form have to be filed now, or can it be filed with their tax returns next spring? They just want to make sure they don't have to worry about owing any other taxes or fees. Could you help us?

A. It sounds as if your folks may not have anything to be concerned with regarding federal taxes. The house was evidently their main residence for at least two of the five years before the sale. That means that as a married couple filing joint taxes, they can profit up to $500,000 free of capital gains tax. Unless their gain is more than that, no report of the sale is necessary as far as the IRS is concerned. If they do receive a 1099 form on the sale, they can report it and claim the exclusion.

They've owned their home long enough to qualify for the Colorado home-sellers tax exclusion, which may or may not be enough to cover all their profit. Colorado withholds 2 percent from people moving out of state as a credit against whatever may be due on their final state tax return.

With more than one state involved, your folks should certainly retain a professional for help with their 2016 income tax returns. Who knows, they may even have a refund coming.

Q. Years ago, my husband bought our house using his VA mortgage. Now that the kids are grown, we'd like to get a smaller house. There isn't much left on our mortgage. He says that when we sell he'd like to put the cash in the bank and buy something with a small down payment. Can he get a GI mortgage again?

A. Yes. If the present VA mortgage is paid off when you sell, he can place another one, with little or even no down payment.

Q. My question is about the steps to take in order to change the names on a deed. My parents are deceased. My mom was the last to pass, and she did not have a will. However, her estate has been probated. I have six bothers, and I was advised not to put everyone's names on the deed. What should I do?

A. No matter how simple the estate, a lawyer should always be consulted when someone dies to see what, if anything, needs to be done.

Evidently, you're the person appointed to settle the estate, but it's not clear who advised against making all your brothers co-owners. If you're through with probate, you probably did have an attorney, and that's who should help with the deed. If no lawyer was involved, you should consult one now, to wind things up.

Q. My wife and I are both 56 years young, and we have never bought a home. My credit score is around 700. I'm on Supplemental Security Income (disability); my wife works. We don't know where to begin with this process.

We would like a two-bedroom home with a very low down payment, even if it's a fixer-upper. My health is not that great. We need a house to call our own. All I think about is being at peace surrounded by nature. I'd call that heaven.

A. Nice credit score. Make a list of neighborhoods that appeal to you, and then telephone the corresponding town hall or city hall to ask about any special mortgage programs available to first-time buyers.

Read the ads for those areas, and start visiting open houses. You'll meet the real estate brokers holding the showings, and many will be interested in your situation. Plus, you may well find the right agent to explore your finances and guide you through the home-buying process. Good luck!

• Contact Edith Lank on www.askedith.com, or 240 Hemingway Drive, Rochester NY 14620.

© 2016, Creators Syndicate

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