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Buyers weigh impact of capital gains vs. inheritance tax

Ilyce Glink
Inman News

Q: My parents gave my sister and me their house four years ago for $1. I have found out that when she passes, and we sell the house, we will have to pay a capital gains tax on the sale. The state inheritance tax in Pennsylvania is 4.5 percent. Wouldn't we be better off re-titling the house back in my parents' name and paying the inheritance tax upon their death? They intend to live there till death.

A: As I've often written in my column, it's a lot better to pay inheritance tax than capital gains tax. Your parents, if they died today, could pass down $3.5 million each. So, if their home is worth less than that, you wouldn't pay any taxes at all.

Just remember, that any assets your parents own would have to be sold if they needed to go into a Medicaid nursing facility. There is a five-year lookback period for Medicaid. The transfer in your family took place four years ago, but could be unwound if a judge deemed that your parents were actively trying to shield their assets from Medicaid.

For an explanation of your legal options, please seek counsel from an estate or elder care attorney.

Q: My girlfriend and I have been living together for about five months and dating for about 18 months. I have saved up and used the money to buy a house. She is going to be living with me in the house. She has not put any money into the house, nor has she helped with the down payment or purchasing the new appliances. The mortgage is in my name, but she wants her name along with mine on the deed. What are the specific ramifications if we have a nasty breakup? Would there be any way to take her off if I did put her on it? Should I have her sign a quitclaim deed now just in case?

A: Please don't put your girlfriend who has not contributed to the equity of the property on the title. If you break up, it will cause you big problems. If you're buying the property, and putting your name on the mortgage, your name should be on the title.

If she is going to contribute to the property and its upkeep, and you're still not married, please have a real estate attorney craft a partnership deal that spells out who owns what, who put in what, and who is entitled to what in case you break up.

Q: Can a homeowner's association (HOA) make you pay all your dues, if late, within 30 days? If you don't pay, can it take you to court?

A: It's entirely possible that your HOA can demand that you pay back late dues within 30 days. But even if they file a lawsuit, the wheels of justice grind slowly. It's unlikely that you'll be evicted that quickly.

The real question is: Why haven't you paid your HOA bills? If you're trying to make a point about mismanagement, the only person you're hurting is yourself. Many HOAs have begun to report owners who have paid late to credit reporting bureaus, so paying late could mean you're damaging your credit history and score.

If you can't pay because you've lost your job or are being foreclosed upon, you should have a frank conversation with the president of the HOA to explain the situation. It may not go any easier, because if you tell them you're unable to pay, they may have to file a lawsuit in order to get in line in bankruptcy court.

Please talk to an attorney for more information about your situation.

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