Ask Liz Weston

Get smart with your money

Liz Weston

This week’s money news

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This week’s top story: Lousy customer service ‘designed for you to give up.’ In other news: What home shoppers need to know about the new buyer’s contracts, weekly mortgage rates tumble, and how to get your finances back on track for fall.

Biden Official: Lousy Customer Service ‘Designed For You to Give Up’
New government actions target “doom loop” customer service calls, fake reviews and subscription cancellations.

What Home Shoppers Need to Know About the New Buyer’s Contracts
Starting Aug. 17, home buyers will set their agents’ commissions and negotiate who will pay.

Weekly Mortgage Rates Tumble; Should You Refinance?
The rapid decrease is likely to set off a wave of refinancing.

How to Get Your Finances Back on Track for Fall
Reviewing spending and preparing for big expenses can help your budget recover from summertime.

Q&A: An update on the inheritor trying to stay below the poverty line

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Dear Liz: I have an update about a recent question in your column. A reader wrote that they had been low income but had recently inherited $175,000. You noted that Medicaid has strict asset limits. Actually, that is no longer the case in California, where Medicaid is known as Medi-Cal. I just received literature from it that says, “A new law means assets will not be counted during Medi-Cal renewals.”

Answer: Again, quite right! Some other states have increased asset limits for Medicaid, the government health program for the poor, but California is the first to remove asset limits entirely as of January 2024.

This column appears in different states, which can vary dramatically in their laws and policies. That’s why I constantly suggest getting personalized advice from attorneys, tax pros and financial planners. A column can dispense general education but can’t offer individualized advice tailored to the realities of where you live.

Q&A: He’s held stocks for decades. Should he sell before he dies?

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Dear Liz: My father-in-law, age 100, has more than $1 million in stocks and bonds purchased in the 1980s and 1990s. With the stock market so high, I have suggested that he might want to sell the investments, take the tax hit and consolidate into short-term certificates of deposit or similar. This would make it easier for his family to manage (in trust) upon his death. Does this make sense or do we leave it alone?

Answer: Selling now means your father-in-law would have to pay a substantial and perhaps unnecessary tax bill on the gains he’s incurred over the years. If he instead leaves those assets to his heirs at his death, most likely no tax would be owed on the gains.

There are some exceptions, such as if the investments are held in retirement accounts or an irrevocable trust. But investments held in revocable trusts, such as living trusts, should qualify for the favorable step-up in basis that would eliminate the taxable capital gain at his death.

Yes, there’s always a risk that the markets could drop — but they would have to drop pretty far to wipe out all his gains, assuming he’s got a reasonably diversified portfolio. A fee-only, fiduciary financial planner could review the portfolio and offer recommendations about any changes that might be needed, while a tax pro could discuss potential strategies for minimizing the tax bill.

Q&A: Closing the case on the couple moving into their rental property

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Dear Liz: You recently answered a question from a couple who wanted to move into their rental property, make it their primary residence and use the $500,000 home sale exclusion if they sold the property after living there for two years. You should have made it clearer that not all of the gains on the property would qualify for the exclusion.

Answer: Quite right. In 2008, Congress closed the loophole that allowed people to exclude all the gains when they turn rental property into their primary residence. So the couple would not be able to count the gain that occurred between 2009 and whenever they move in. They would, however, be allowed to include the gain from 1988, when they bought the property, through 2008, as well as any increase in value after they move in if they live in the house at least two years, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

In some parts of the country, there may not be enough gains from those two periods to qualify for the full $250,000-per-owner exclusion, especially after accounting for the depreciation recapture, which requires landlords to pay back the depreciation tax break when they sell a rental property.

In higher-cost areas, however, there still could be more than $500,000 of qualifying gains, Luscombe says.

This week’s money news

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This week’s top story: How to get cheap car insurance. In other news: 5 things to ponder before you pack, August mortgage rates could continue long decline, and Americans spending less time, more money on shopping.

How to Get Cheap Car Insurance
Insurance rates may be going up, but considering some simple steps could help you get cheap car insurance.

Moving in Retirement? 5 Things to Ponder Before You Pack
From available doctors to income tax rates, here’s what to think about before deciding to live elsewhere.

August Mortgage Rates Could Continue Long Decline
Mortgage rates are likely to keep falling in August because inflation is slowing down.

Data: Americans Spending Less Time, More Money on Shopping
New data from the Bureau of Labor Statistics reveals fewer people are shopping on any given day than they were 20 years ago, and those who do are spending less time on the task.

Q&A: I need new wheels. What’s the best way to pay for them?

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Dear Liz: Is it better to buy a car with saved money or finance the $25,000 needed? In my case I will have to sell stocks. Maybe this is a good time to do that since things look like they are taking a turn in the stock market.

Answer: Borrowing money can make sense when the asset you’re buying is likely to increase in value. For example, a mortgage could allow you to purchase a home that will appreciate over time, and a student loan could help increase your earning power.

Borrowing money makes less sense when you’re buying something that’s all but guaranteed to lose value, such as a car. Many people don’t have enough cash to pay for a reliable vehicle, of course, so financing is their best option. If you do have a choice, however, cash is best.

Selling stocks can help you raise cash, of course, but probably will incur a tax bill. Also, stocks are meant to be a long-term investment, and you really can’t time the market. Yes, your shares may decline, but they could also rise, and historically they have done so over time.

If you don’t have cash savings but do have stocks that aren’t earmarked for another cause, such as retirement, then you might consider selling enough stocks to pay for the car and the tax bill. For your next car, though, consider saving up for the purchase in a high-yield savings account.