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Letter to the editor

Tax benefit applies only to those on title

By Benny Kass, Special to the Times
Published November 17, 2007

Q: Can my partner and I, an unmarried couple, take advantage of the up-to-$500,000 exclusion of gain on the sale of our house? We file separate tax returns, and the house is currently titled in my name only.

A: To take advantage of the up-to-$250,000 exclusion of gain, there are three requirements: 1 you must own the house for at least two years; (2) you must have lived in the house as your principal residence for two of the last five years (residency need not be continuous); and (3) during the two-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

In your case, you are the sole owner of the property, and thus only you can take the exclusion.

However, if you put your partner on the title, and the two of you then live in the property for two years, if you both meet the three tests, you can both exclude up to $250,000 on your respective income tax returns.

If you decide to go the route of putting your partner on the title, discuss the tax ramifications with your tax advisor.

Open probate case

Q: My father-in-law died a couple of years ago. For various emotional and financial reasons, my husband and I are only now trying to take over the house. It needs a lot of work, but we can't apply for any assistance until the house is in our name. How should we go about getting that done? My husband and I live there now.

A: The first thing is to confirm that the real estate taxes and mortgage obligations have been paid. Next, hire an attorney who has experience with probate.

Generally, when a person dies, his or her property will automatically be vested (go into title) into the personal representative ("PR," also called "executor" in some states). However, until a probate case is opened, there is no PR. When you open the probate estate, the court will appoint the PR. If your father-in-law had a last will and testament, that document will most likely name the PR that your father has selected. If there is no will, the court will have to decide who will be appointed. Unless there are disputes among the family, in which case the court will appoint an outsider (usually a local attorney knowledgeable about probate law), the court will appoint a family member.

Once the PR is on board, title to the property will be in his or her name. Usually, the PR must put creditors on notice of the death, so as to give them the opportunity to file claims against the estate. Typically this is done by advertising a number of times in a local paper of general circulation. After a period of time (six months in the District of Columbia, where I practice law), creditors can no longer file claims against the estate.

Once the creditors have been paid off, the PR can convey the house to you and your husband. However, if your father-in-law had debts that exceeded his assets, the house may have to be sold to satisfy those debts. In this case, you and your husband can, of course, purchase the property from the PR by coming up with enough money to satisfy the debts of the estate.

Obviously, this is very general. Your probate attorney will guide you through the process. But it is important to act quickly; you have already waited too long.

E-mail Benny Kass at benny@inman.com.

[Last modified November 16, 2007, 12:38:16]