On money

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published April 15, 2001

The use, not the size, of property determines taxability

Q. My wife and I own two adjoining pieces of property. We acquired one as a gift in 1946 and purchased the other in 1966. Our home is built on the purchased lot, which is 150 feet by 200 feet. The gift lot, which is 250 feet by 415 feet, is woods. We consider the whole property our home and yard, but we are worried about how it will be treated for tax purposes when we sell. Will we be able to exclude up to $500,000 in gain when we sell the entire property? I have gotten different answers from different people.

A. The tax law is not specific about how big a yard can be. Size alone is not going to disqualify you, nor is the fact that you acquired the land at two different times. What matters is how you use the property. If you were using the adjoining lot to produce income, perhaps by renting it or by growing Christmas trees for sale, it clearly would not be considered part of your principal residence.

Your situation is a bit ambiguous because people have different ideas about whether "woods" are a proper yard. Because the property is undeveloped, has not been used for any other purpose and adjoins your home, I think you are on solid ground claiming that it is part of your yard. If you wanted to reinforce your position in case of an audit, you could mow the adjoining lot occasionally or plant a few flowers.

Q. I had shares of Florida Progress Corp. that I exchanged for shares of CP&L, now Progress Energy. The information I received from Florida Progress is that I will have to pay capital gains tax for the gain I made in the exchange. I have had other mergers over the years on which I did not have to pay taxes. Why do I in this case?

A. With 65 percent of the payment in cash, this transaction did not qualify as a tax-free exchange of shares. The two companies negotiated the terms and agreed that a mostly-cash transaction was best.

"We were interested in limiting dilution of our share price," Progress Energy spokesman Keith Poston said. "With more cash we felt like we could pay the $54 a share. If we had structured it more in stock, we likely would have offered less."

This may not be any consolation, but there really are worse things in life than paying capital gains tax. There probably are a few investors out there who would be glad to trade places with you.

Q. I have some credit cards for companies that are no longer in business, such as JByrons. How can I ensure that accounts for credit cards such as this have been closed? I cannot find a phone number for some of these.

A. The main reason to check on this is to make sure your credit report accurately reflects your available credit and outstanding debt. If you are unable to contact the card issuer, the best thing to do is to get a copy of your credit report from one or more credit reporting agencies.

Whenever I have checked my own report, I have found old accounts listed as still open. Once, I found a home equity line of credit I opened years ago with Barnett Bank listed twice -- once under Barnett and again under NationsBank, which acquired Barnett. It appeared as though they were two separate credit lines rather than one.

If defunct accounts appear on your report, call the credit bureau and dispute the information.

"We will attempt to contact the company and if it does not respond, it will be deleted from the report," said Rod Griffin, a spokesman for Experian, one of the three major credit bureaus.

The numbers to call are Experian, (888) 397-3742; Equifax, (800) 685-1111; and TransUnion, 800-916-8800. You probably will have to pay for a report unless you recently were denied credit, employment or insurance as a result of information in your report.

Online money map

What's the real interest rate on that mortgage when you take closing costs into consideration? That's one of the questions the calculators at Investorama (http://www.investorama.com) can answer. You also can get an illustration of the awesome power of compounding by finding out how much you would have today if your parents had invested $100 in blue chip stocks back in the year you born.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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