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Consult tax professional after property sale

Q. My mother passed away in 2014. I inherited her home. I paid a lawyer to go through probate and get the home in my name. A few weeks ago, I sold the home. When I do my 2016 income tax return, am I liable for taxes on the sale of the home?

A. Your cost basis is the value of the home at the time of your mother's death, or up to six months after that. If the home has gone up a lot in value since 2014, and if it sold for more than your cost basis, you may have some taxable profit. You've had expenses of selling, though - some of which can be subtracted. I would strongly advise taking all the figures to a tax professional for help with your 2016 return.

Q. I thought we wouldn't owe any income tax on the sale of a property I inherited from my grandmother. It didn't sell for more than it was worth when she died. But the people who handled the closing have filed a Form 1099-S - Proceeds From Real Estate Transactions - and sent it to the IRS. Are we in trouble? What are we supposed to do now?

A. The IRS will look for a tax return to match the form received. It sounds as if there won't be any tax due, but the transaction must be accounted for. When you file your tax return next spring, you'll report the sale on Schedule D. It's possible you had some expenses of selling that could even create a capital loss.

Again, It's wise to have professional help with one's tax return for the year in which real estate is sold.

Q. My husband and his sister owned a mortgage-free home that we three have been living in since 2004. He has passed away without a will. I talked to an attorney to have my name put on the house and was told that my daughter's name would also have to go on one-quarter of the house. My daughter and her husband want to purchase their first home, probably through the Federal Housing Administration. Will she still be considered a first-time buyer if she already owns one-quarter of this house? The attorney I spoke to did not know.

A. Because your husband left no will, the state ruled on what would happen to his estate. Evidently, in your state his daughter is entitled to half his share of your home.

The FHA does not have any program specifically limited to first-time buyers.

Your daughter and her husband should be able to place a low-down-payment, FHA-insured mortgage on their own home if they are financially qualified. The only problem may be proving their ability to carry the cost of the mortgage. It's helpful that your home is mortgage-free. Just the same, though, your daughter would probably be considered potentially liable for its entire property tax and insurance bills, not just one-quarter.

Q. My husband is a Vietnam War veteran, and we bought this house years ago with his U.S. Department of Veterans Affairs mortgage. We would like to sell it and buy something smaller near our son's family. Is it possible to get another VA mortgage?

A. Your husband can start all over again with a VA-backed mortgage if the one on your present house is paid off or assumed by a buyer who uses his own VA eligibility.

Q. I understand that our monthly mortgage payment includes our property taxes, insurance and interest on the loan. But it's also my understanding that part of it goes toward reducing the amount we owe on our mortgage. If the amount we owe is decreasing, then we owe less interest. But we still have to pay the same amount every month. Shouldn't the payment go down a little every month?

A. Your monthly payment covers PITI: principal (the debt), interest, taxes and insurance. Your payment stays the same, but you're right; you owe a bit less interest every month. The way it works is it leaves a bit more each month to be credited toward reducing the principal.

When you owe the full amount at the start, there's a lot of interest due, and your debt goes down very slowly. At the end of the first year, you still owe almost the whole amount.

Years from now, though, when you don't owe so much, the interest portion of your payment becomes smaller and smaller. That means toward the end of your mortgage, larger and larger amounts are being used to pay off the loan more quickly.

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

© 2016, Creators Syndicate

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