Wednesday’s need-to-know money news

Today’s top story: 7 Halloween headaches and how insurance can help. Also in the news: Your battle plan for buying a home with a VA loan, what college and student debt changes are likely after the election, and the best credit card for food delivery apps.

7 Halloween Headaches and How Insurance Can Help
What to do when you get tricked.

Your Battle Plan for Buying a Home With a VA Loan
Choose experienced professionals to guide you through the VA loan process, and bring some cash to the table, even if you don’t plan to make a down payment.

Trump vs. Biden: What College and Student Debt Changes Are Likely
What to expect from both candidates.

The Best Credit Cards for Food Delivery Apps
Finding tasty discounts.

Q&A: A look at property title

Dear Liz: You’ve mentioned that in community property states, a couple’s primary residence gets a full step-up in tax basis when one spouse dies. Does this require that the title to the property specify that it is community property? My husband and I purchased our home about 6 weeks before we were married, so we hold title as joint tenants with rights of survivorship. Should we get the title changed?

Answer: The answer is probably yes, said Mark Luscombe, principal analyst for Wolters Kluwer.

The title to your home does not have to specify that it is community property for it to be treated as community property, Luscome said. If you live in a community property state and are married, the property you acquire and the income you earn during the marriage are generally considered community property regardless of how you hold title. However, property acquired before the marriage would not generally be treated as community property, he said.

The title to your home does not have to specify that it is community property for it to be treated as community property, Luscome said. If you live in a community property state and are married, the property you acquire and the income you earn during the marriage are generally considered community property regardless of how you hold title. However, property acquired before the marriage would not generally be treated as community property, he said.

Each way of holding title has its advantages. Joint tenancy with right of survivorship avoids probate and offers protection from creditors. Community property offers the tax advantage you mentioned: The whole property gets a new basis for tax purposes at the first spouse’s death. That means all the appreciation that occurred before the first death is never taxed. In non-community property states, only the deceased partner’s half gets that new value. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an “opt-in” community property state.

Some community property states offer the best of both worlds by allowing real estate to be titled as community property with right of survivorship. Those states include Alaska, Arizona, California, Idaho, Nevada and Wisconsin, according to self-help site Nolo.

Q&A: What to consider when deciding whether to buy or rent a home

Dear Liz: I’m just turning 70 and am on my own for the first time in my life. In the last three years I took care of both my 100-year-old mother and my husband as their health failed. My daughter and son-in-law live in Colorado and are going to have a baby, and I plan on moving there in the near future.

I had originally planned to move into a senior living apartment complex. Then my children said I should buy a condo for the freedom, privacy and potential investment. They found a condo building under construction with units I could afford, plus a mortgage company willing to take me on and help with the down payment.

I’m torn about what to do. Because of both bad luck and bad decisions, currently I have only about $18,000 in savings. Between my pension and Social Security I make about $47,000 a year.

Do I invest in the condo and use up a good chunk of my savings? It’s on the second floor (the steps aren’t very steep, fortunately) and I’m strong and in good shape, but I’m also 70 and things can go south quickly. But, as the kids have said, I could live there for 10 years and make a good profit from the sale.

Or do I move into the senior living apartment and keep my savings but face regular increases in rent (thus “throwing my money away”)? The senior complex has amenities and activities and elevators but lots of people around all the time (thus sacrificing some privacy). Having a place of my own would be so wonderful, but I need to be smart about this decision.

Answer: Younger people often don’t understand about stairs. No, they’re not a big deal now, but even a few steps can become a huge barrier if you have mobility issues — and those issues become more likely the older you get. Having an elevator or a unit on the ground floor, preferably with a zero-step entry, is a good insurance policy against the vicissitudes of aging.

Besides, you aren’t necessarily throwing money away when you rent. You’re buying freedom. You don’t have to worry about paying for repairs and other unpredictable costs, and you can move more easily if your circumstances change. People are often advised to rent first when they move to a new area, just so they can get a better idea of the advantages and disadvantages of various neighborhoods before they commit. Renting also could give you a chance to build up your reserves so that if you do decide to buy, you won’t be quite so
house poor.

Having more people around isn’t necessarily a bad thing, either. You’re newly widowed, and moving to an area where you presumably don’t know many people. The senior complex could make it a lot easier to make friends. A good social network is essential to staying mentally and physically healthy as we age.

Wednesday’s need-to-know money news

Today’s top story: Are you saving money in the right place? Also in the news: Why it’s time to dump home buyer love letters, can you be denied life insurance for smoking weed, and 5 fresh kitchen backsplash ideas.

Are You Saving Money in the Right Place?
What to consider when you’re stashing your savings.

Why It’s Time to Dump Home Buyer Love Letters

Can You Be Denied Life Insurance for Smoking Weed?
You might have to shop around.

5 Fresh Kitchen Backsplash Ideas
A stylish and functional backsplash can breathe new life into your kitchen.

Beware high-risk homes that drive up insurance

When house hunting, the price of homeowners insurance probably isn’t top of mind. But homes with hidden risks can make getting coverage difficult, expensive or both. Learning how to identify them could save you a bundle.

This could be a particularly important concern for first-time homebuyers and those moving from cities to suburban or rural areas who may not be aware of common hazards, says Jennifer Naughton, risk consulting officer for North America for Chubb, an insurance company.

In my latest for the Associated Press, learn how to identify high-risk homes.

Q&A: Remodel the house or sell it?

Dear Liz: Should we take out a home equity loan so we can do some improvements on our house and make it work better for us, or should we sell it and upgrade to a bigger house? We are not in a rush to move, so we are content to take our time to find the right new home at the right price. We are also considering staying and doing work on our current home. But we have a lot of equity and are wondering: Would it be smarter to cash that in? We both remember the housing crash and are very nervous about getting in over our heads.

Answer: People are spending a lot of time at home these days, and many are longing for a little extra space. Interest rates are low, which makes borrowing for improvements or a bigger home more affordable for many.

You’re smart to be cautious about taking on too much debt, though. Lenders are much more cautious than they were before the Great Recession of 2007 to 2009, but it’s still possible to borrow more than you can comfortably repay. Big mortgage payments could prevent you from saving for important goals such as retirement or your children’s college education.

If you like your current neighborhood, remodeling is often the more economical route. You spend roughly 10% of your home’s value when you sell it and buy another. Real estate commissions take a big chunk, as do moving costs. Bigger houses — whether through remodeling or moving — also can mean higher tax, insurance and utility bills. That’s not to say you should never upgrade, but you’re smart to consider all your options because the cost of exchanging homes is pretty high.

By the way, you aren’t really cashing in equity when you use it to buy another home or borrow against it to make improvements. Some people would say that’s “putting your equity to work,” but the idea that equity needs employment is what led many people to borrow excessively against their homes before the last recession. It’s perfectly fine, and often desirable, to have lots of equity just sitting around. That way, it’s there for you when you really need it. You can tap it in an emergency, for example, or to help fund your retirement.

Q&A: Death, taxes and home sales: How to handle the mixture

Dear Liz: My wife and I bought our house 61 years ago in Southern California. The wife passed away seven years ago, and I became the sole owner. If I should die owning the house, I know my daughter will inherit and her tax basis will be the value of the house on that date. But if I sell the house, I’m not sure what my basis will be. Do I pick up the 50% of what the house was worth on the day my wife died and add to that the 50% of the original purchase price that would be mine? Or is my basis the original price of the house?

Answer: In most states, only your wife’s half of the home would get a new value for tax purposes at her death. In community property states such as California, though, both her half and yours get this step up in tax basis.

Tax basis determines how much taxable profit there might be when property and other assets are sold. For those who aren’t sure how tax basis works, a simplified example might help.

Let’s say Raul and Ramona bought their home for $40,000 in 1959. In 2013, when Ramona died, the home was worth $800,000. Today, it’s worth $1 million.

At her death, Ramona’s half of the home got a new tax basis. Instead of $20,000 (half of the purchase price), her half of the home now has a tax basis of $400,000 (half of its $800,000 value at the time).

In most states, Raul would keep the $20,000 tax basis on his half, so his combined basis in the home would be $420,000. If he should sell the home for $1 million, the profit for tax purposes would be $580,000.

In California and other community property states, the entire house gets a step up in basis to $800,000 when Ramona dies. If Raul sells the house for $1 million, the profit (or capital gain, in tax parlance) would be $200,000.

Of course, there would be no tax owed on this home sale, since Raul can exempt up to $250,000 of home sale profits. Raul could use Ramona’s home sale exclusion, and avoid tax on up to $500,000 of home sale profit, if he sells the home within two years of her death.

If Raul keeps the home until his death, on the other hand, it will get a further step up in tax basis equal to whatever the home’s fair market value is at the time (let’s say $1.2 million). If the daughter sells it for that amount, no capital gain tax would be owed.

Wednesday’s need-to-know money news

Today’s top story: Should students gamble on an Income Share Agreement? Also in the news: How to make a debt-free switch to cashless payments, 4 home insurance pitfalls to avoid during hurricane season, and see how much home you can afford with the 30/30/30 rule.

Should Students Gamble on an Income Share Agreement?
An ISA can be a risk for students seeking college funding. But during an economic downturn, it might be worth it.

How to Make a Debt-Free Switch to Cashless Payments
Changing how we pay during the pandemic.

4 home insurance pitfalls to avoid during hurricane season
Don’t be skimpy.

See How Much Home You Can Afford With the 30/30/30 Rule
Existing home sale prices are increasing.

Tuesday’s need-to-know money news

Today’s top story: How to adjust your school supplies budget for the online classroom. Also in the news: 5 things to do with all that money you haven’t been spending the past few months, is moving now the best financial move for Millennials, and how COVID-19 may impact applying for financial aid.

How to adjust your school supplies budget for the online classroom
A different setting requires different supplies.

5 things to do with all that money you haven’t been spending the past few months
Don’t let that extra money just sit there.

Millennial Money: Is moving now your best financial move?
Reconsidering your living situation.

How COVID-19 May Impact Applying for Financial Aid
Your family’s financial situation may have changed.

Friday’s need-to-know money news

Today’s top story: How first-home shoppers can keep a cool head in a hot market. Also in the news: When debt relief does more harm than good, how to make a debt-free switch to cashless payments, and what to know before using buy now, pay later financing.

How First-Home Shoppers Can Keep a Cool Head in a Hot Market
Know what to expect, stick to your budget and priorities, and don’t let anxiety get the upper hand.

When Debt Relief Does More Harm Than Good
There are risks involved.

How to Make a Debt-Free Switch to Cashless Payments
Tracking your spending, using prepaid cards and setting low credit limits can help you avoid debt when you switch to using more digital payment methods.

What to Know Before Using Buy Now, Pay Later Financing
Look for high interest rates and fees.