Unexpected landlord duties forced upon widow ownerHOUSE CALLS

Lease under late husband's name requires legal attention for resolution

Q: My husband passed away suddenly and I find myself in a landlord role that I know nothing about nor am interested in continuing. The house is owned by me and my late husband. What paperwork is required to place it in my name? Is a new lease required? The lease is in my late husband's name only. Are there any legal steps I need to take before placing the property for sale? --G.L.N.

A: A lease usually remains in effect when there's a change in ownership. But your situation is just complicated enough that you need professional help. Don't try to do these things on your own.

No matter how simple the estate, a lawyer should always be consulted when someone dies. Then plan on using a broker for the sale of the property, and a professional for your tax return.

Rental property sale

must be priced correctly

Q: What would I have to pay if I were to sell my rental property? I know there is the 6 percent brokers commission, and I would have to pay 15 percent capital gains tax (on what amount I am not sure). What else?

I am trying to figure out a selling price with enough profit to pay off the second loan on the house I live in. -- M.

A: You have two things wrong. First, you can't set your asking price by what you want to get out of the sale. Buyers don't care what you need to pay off on your second mortgage. They will compare your place with everything else on the market. To interest them, you must set your price after analyzing the competition. Real estate brokers can tell you what has sold recently in the neighborhood, so you'll have some idea of what buyers will pay.

Then, although real estate commissions do tend to be more or less the same, there is no standard fee. Rates are set by agreement between seller and broker. There are occasionally good reasons (price level, market conditions) why a particular transaction involves higher or lower rates.

Assuming you owned the place for at least one year, your capital gain (profit) will indeed be long-term, with a federal tax of 15 percent. Because it is a rental property, however, part of that gain is taxed at 25 percent, on recaptured depreciation. I hope that, as a landlord, you have been using your own accountant, and that's the person to explain it.

Home sold too

soon for tax break

Q: My parents recently sold their home. They lived there just 15 days short of two years. They paid $132,150 for it and sold it for $148,500. They have receipts for $8,000 spent on new windows and carpet. How much will they pay in capital gains tax? -- K.S.

A: If your parents had a big taxable gain, it would be absolutely inexcusable that they agreed to close two days before they could have qualified for up to $500,000 profit tax-free.

As it is, though, your folks' cost basis is $132,150 plus the $8,000 they spent on improvements, and possibly some legal costs of buying. They may also deduct from their sale price anything they paid in real estate commissions and legal costs of selling. They may have no taxable gain at all. If they do, the federal rate is no more than 15 percent; state tax is less.

Cost basis predicated

on home depreciation

Q: Nine years ago, when my mother-in-law could no longer stay in her two-family home, she signed it over to us. We have rented out both sides. We are thinking of selling. We are curious as to how we can arrive at a cost basis. Also, we have documented all improvements over the years. We have never used depreciation on our taxes. -- C.T.

A: When you received that property, you also took over your mother-in-law's cost basis. If she was claiming depreciation for the side she rented, her tax returns may indeed offer some clue. Otherwise the calculation can be complicated, depending on original purchase price, improvements she made, depreciation she claimed or could have claimed and possibly a change in basis when her husband died.

About the depreciation you never charged as a rental expense: There's bad news and good news. You must pay income tax, probably at 25 percent, on any part of your capital gain attributable to depreciation you could have claimed. The good news is that you'll be allowed to claim it all at once, as a catch-up, against rental income on the same tax return.

Sound complicated? You bet. In your shoes I'd just take every document I could find and dump it all on the desk of a good certified public accountant.

Edith Lank will personally respond to any questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.