Dear Edith: We are selling a house that belonged to my sister who died. She lived there for more than 40 years, and there's probably going to be a large profit. Can we get an income-tax break because it was her main residence? — L. G.
Answer: You can't use the home seller's tax break on the profit, but you won't need it anyhow. Whoever inherited that house got a new cost basis, valued at the time of death.
Seller Holding Mortgage
Dear Edith: Last year, I sold my home. A contract was drawn up by a lawyer, with a down payment made by the buyers and monthly payments to me. Do I have to declare the payments as income, or can I wait until the home is completely paid off? — V.
Answer: Your home was sold last year, and all you own now is a mortgage. Part of the down payment and the principal you receive each month represents profit. That amount, and all of the monthly interest you collect, will be subject to income tax, probably at different rates.
You should have been given a schedule listing each payment. And this is a good year for professional help with your tax return.
Dear Edith: My mother and I owned the house I grew up in together. We were joint tenants with right of survivorship. She died recently.
I never had the deed brought up to date. I am unable to locate the deed. Is it possible to obtain a copy of the deed? How do I go about it? How do I become full owner? — S. T.
Answer: If you had the right of survivorship, you became full owner automatically when your mother died. You didn't have to do anything about that.
You don't need the deed to prove your ownership, either. At any rate, that document should be in the public records office of the county where the property is located. If you want a copy, get in touch with the county clerk.
In the unlikely event that there is some problem, consult a lawyer, preferably in the county where the house is located.
Dear Edith: If we find a home with an outstanding mortgage and want to pay cash for the house, how is the mortgage payoff handled — prepayment, penalties, etc.? Can there be any financial benefits for us? — S. L.
Answer: When you buy a house for cash, the sellers usually turn it over free of mortgages and other financial claims (liens). How they manage the paperwork and whether they are charged prepayment penalties need not concern you.
An all-cash offer is attractive to most sellers, because it represents a prompt, trouble-free transaction. It's often worth some concession on selling price.
Giving to Kids
Dear Edith: I am 85, alert and in good health. I have a son and a daughter. My daughter-in-law who is in real estate thinks it would be to all our advantage to put the house in my son and daughter's name. She claims it will eliminate many thousands of dollars upon my demise.
Is there anything to be accomplished if I do this?
Right now, my real estate taxes are discounted due to my low income. — D. G.
Answer: If you put the house in your children's names, they'll pay full property taxes, more than you do.
Also, if they get the house as a gift, they'll someday have to pay tax on the profit when they sell, and that profit may be figured from your original cost for the house.
If, on the other hand, they wait to inherit the house, they'll have a stepped-up cost basis, the current value at the time of your death. They'd have little or no taxable profit when they sell. And with new laws, you can now leave a large estate with no estate tax due at all.
I can think of several other reasons why you should keep the house in your name. One is that if you want to sell someday, you can take advantage of that tax-free $250,000 home seller's profit.
Contact Edith Lank at www.askedith.com, at [email protected] or at 240 Hemingway Drive, Rochester NY 14620.