DEAR BOB: I am a single mom struggling to make ends meet. Fortunately, I bought my home in 1999 for $315,000. Today, it is worth close to $700,000. I am considering selling and moving to a smaller home in a less-expensive neighborhood, hoping to eliminate the mortgage payments. But I was recently dismayed to learn that because I am single I can only exclude $250,000 profit from capital gains taxes, while my friends who have husbands can exclude $500,000. Is there any way around this limitation? Can I add my son to the title when he turns 18? Would it be wiser to sell my home without making costly cosmetic upgrades such as new carpet and paint? –Cathy J.
DEAR CATHY: Sorry, without a spouse around the house, there is no easy way to increase your Internal Revenue Code 121 principal residence sale exemption from $250,000 to $500,000.
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But your son need not be 18 to add his name to your title. Minors can hold title; they just cannot convey title.
However, for him to qualify for an additional $250,000 home sale tax exemption, he must own and occupy the home as his principal residence at least 24 of the 60 months before its sale. If you add him to your title now, please be sure you don’t plan to sell the house before he becomes 18 when he can convey title.
If he is now 16 or 17 years old, and if he will be 18 or older when you plan to sell the home, you could add him to the title now so he can qualify in 24 months for the extra $250,000 principal residence sale tax exemption. Your tax adviser or real estate attorney can give you more details.
As for fixing up your home before sale with new carpet and fresh paint, those are two of the most inexpensive and profitable cosmetic improvements you can make. Although I advise against making major renovations before sale, such as kitchen remodeling, which usually doesn’t add much net market value, cosmetic improvements usually pay off handsomely.
WHAT PROOF DOES HOME SELLER NEED OF PRIMARY RESIDENCE?
DEAR BOB: What proof do I need to show a property was my primary residence for three of the last five years so I can take advantage of the $250,000 capital gain exemption when I want to sell it? –Rick H.
DEAR RICK: Just in case the Internal Revenue Service audits your tax return for the year of your principal residence sale, you should be prepared to prove you owned and occupied it at least 24 of the 60 months before its sale (not three of the last five years).
Excellent evidence includes paid utility bills in your name, voter registration, auto license registration, nearby employment, local bank accounts, driver’s license at the residence address, filing income tax returns from that address, and other indications of principal residence occupancy. For more details, please consult your tax adviser.
SHOULD HOME SELLERS VACATE BEFORE SELLING?
DEAR BOB: My husband insists our home will only sell if we vacate it. This would necessitate having two mortgages until our old home sells. What do Realtors advise? I think our house will show well. –Susan I.
DEAR SUSAN: Your listing agent can best answer this question. He or she can objectively advise if your home will sell for top dollar with your furnishings remaining, or if you should move all your “stuff” out.
If you have lots of old-fashioned furniture, or if the house looks cluttered, it is best to move out before putting your home on the market for sale. Or if the house has smells, such as from cooking, smoking, or pets, it’s best to move out and correct the problems before listing your home for sale.
A vacant house without furniture often makes the rooms look bigger, especially if they are freshly painted and have new wall-to-wall carpets or sparkling hardwood floors.
Your listing agent can advise if your home will sell easiest by having it professionally “staged” after you move out. Home buyers are notorious for their lack of imagination. Spending a few hundred, or even a few thousand, dollars on “staging” your home for sale can be a very profitable expense.
The new Robert Bruss special report, “Pros and Cons of Fast and Slow House Flipping for Big Profits,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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