real estate

Q&A: Sheltering home profits

December 12, 2016 By Liz Weston

Dear Liz: I understand that the profit realized on the sale of a home is not subject to tax, as long as that money is reinvested in another home. What if the couple divorces before or after the sale? If they split the profit from the sale and one or both put those funds into another house as single buyers, is each exempt from the tax? Does the fact that both are in their 70s have any effect on this matter?

Answer: Your information about home sale profits is about 20 years out of date. In 1997, Congress changed the law that once allowed people 55 and older to roll up to $125,000 of home sale profits into another home tax-free. That was a one-time tax break.

Now you can shelter up to $250,000 per person in home sale profits before owing any tax, and you can use the tax break repeatedly. You have to live in the home for at least two of the previous five years to qualify for the exemption.

Divorce can change your tax situation dramatically, and you don’t want to make decisions based on obsolete information. Please consult a tax professional to make sure you understand all of the implications of your split.

Q&A: What to consider when deciding how to bequeath your home

November 28, 2016 By Liz Weston

Dear Liz: I’m at 74-year-old retired woman living in a completely paid-off condo in California. I hold title in my name only. I would like to add my partner of 20 years and my married adult daughter to my home title so they will not have to go through probate if something happens to me. What would be the easiest way to do that? Someone told me a quick deed to each person giving them a third of the condo. I want it as joint tenancy so the condo would just go to the survivors. My parents always held title with my brother and myself. Do you see a problem with this?

Answer: The “quick deed” to which you refer is probably a quitclaim deed, which would transfer your entire interest in the property to someone else and possibly create gift tax issues. That’s not what you want.

Another option is a revocable transfer on death deed. Like many other states, California now offers this option so that real estate can bypass probate. You would retain ownership of the condo until you die, when it would pass to the people you designate.

But please think carefully before bequeathing a home to two people, especially two who aren’t related or married. What if your daughter needs to sell the house to raise cash and your partner doesn’t want to move? What if your partner needs to remodel the home as she ages but your daughter refuses to share in the costs? Would one have the wherewithal to buy out the other?

Another way to avoid probate would be to create a revocable living trust that allows your partner to live in the home until her death, said Los Angeles real estate attorney Burton Mitchell. The property then could be transferred to your daughter. It may not be the right solution, especially if your partner and daughter have similar life expectancies, but it’s one of many you should explore with an experienced estate planning attorney.

Wednesday’s need-to-know money news

September 21, 2016 By Liz Weston

retirement-savings3 Today’s top story: Tax breaks and loan options to pay for college. Also in the news: Why you should buy a home after school starts, how to refinance your student loans, and how to de-stress your retirement program.

Tax Breaks and Loan Options to Pay for College
Easing the burden.

4 Reasons to Buy a Home After School Starts
Less buyer demand.

How to Refinance Your Student Loans
Getting a better deal.

How to de-stress your retirement plan
Taking a deep breath.

Wednesday’s need-to-know money news

August 31, 2016 By Liz Weston

1381460521 Today’s top story: 7 ways to cover the cost of emergency home repairs. Also in the news: How to buy a home with a low down payment, breaking up with your credit card company, and 5 ways to save on Medicare.

7 Ways to Cover the Cost of Emergency Home Repairs
What to do when something goes kaput.

Beyond FHA Loans: How to Buy a Home With a Low Down Payment
Thinking outside the FHA box.

Are you using the wrong credit card?
Breaking up with your credit card company.

5 Ways to Save on Medicare
Mastering the Medicare maze.

Q&A: Getting a new mortgage after a foreclosure

August 22, 2016 By Liz Weston

Dear Liz: Is it true that we can’t refinance our home until seven years after a foreclosure? We lost a rental property six years ago. Our credit scores now are in the 740 range, and we are anxious to take advantage of lower rates since our mortgage rate is 5.75%. Other than the foreclosure, our credit is perfect.

Answer: As foreclosures surged, the agencies that buy most mortgages increased the amount of time troubled borrowers had to spend in the “penalty box” before being allowed another mortgage.

Fannie Mae and Freddie Mac still have a seven-year waiting period after foreclosures. But that has been shortened to three years when borrowers can prove “extenuating circumstances,” such as a prolonged job loss or big medical expenses. Waiting times for other negative events, such as bankruptcy or short sale, have been reduced to two years with extenuating circumstances. Otherwise, it’s four years.

There are other loan programs that are even more forgiving. For example, the FHA has a three-year waiting period that can be shortened to one year if borrowers participate in its “Back to Work” program, which requires they document a significant loss of household income, that their finances have fully recovered from the event and that they’ve completed housing counseling. The Veterans Administration, meanwhile, makes loans available one to two years after foreclosure.