Bekmanis & Associates
Capital Gains Exemption
“Capital gains” are the profit made form the sale of a financial asset such as stock or real estate. The United States Internal Revenue Code provides for a tax exemption on capital gains from the sale of the principal residence. For those who are married and filing jointly, and who meet all the necessary criteria, the sale tax exemption may be up to $500,000; for single persons, up to $250,000.
To claim the exclusion, one must have:
Owned the home for at least two years (the ownership test), and Lived in the home as the main residence for at least two years (the use test). Not excluded the gain from the sale of another home during the two-year period ending on the date of the sale.
The IRS may permit certain exceptions to these criteria called “unforeseen circumstances,” such as job loss, divorce, or family medical emergency. Contact the IRS or your tax advisor for more information.
For seniors who have lost their spouse and did not remarry before the date of the sale, they are considered to have owned and lived in the property as their main home during any period when their spouse owned and lived in it as a main home.
The amount of the sale tax exemption may depend upon whether or not the residence is in a community property state such as Arizona, California, and Nevada, and several other states. Below is an example of how the capital gains exemption may be calculated.
How to Calculate Gain
Capital gains are based not on what was paid for the home, but on its adjusted cost basis:
1. Take the purchase price of the home: This is the sale price, not the amount of money actually contributed at closing.
2. Add adjustments:
Cost of purchase-including attorney fees, inspections, transfer fees, but not points paid on the mortgage.
Cost of sale-including inspections, attorney’s fee, real estate commission, and money spent to fix up the home prior to sale.
Cost of improvement-including room additions, deck, etc. Improvements do not include repairing or replacing something already existing, such as new furnace or roof.
3. The total is the adjusted cost basis.
4. Subtract this adjusted cost basis from the amount the home is sold for. This is the capital gain.
Many factors can affect capital gain. Visit www.irs.gov and contact your local County Tax Assessor or personal tax advisor for more information. Information deemed reliable but not guaranteed and is subject to change.
Property Tax Relief in California
The State of California provides property tax relief for seniors and disabled persons at all income levels. Veterans and/or their families may also receive property tax relief under state law.
Homeowner & Renter Assistance
Property Tax Assistance for Homeowners: This program allows a once-a-year payment from the State of California to lower-income homeowners based on part of the property taxes assessed and paid on their homes. The amount of money available varies per year. For example, for the 2005 claim year, the maximum amount of assistance that an eligible homeowner could receive is $472.60. The program is open to United States citizens or qualified non-citizens who are at least 62 years of age, blind or disabled, who owned a home and resided in it during the taxable period, and who met the income requirement as of the last day of the tax year.
Renter Assistance Program: This program allows a once-a-year payment from the State of California to lower-income renters based on part of the property taxes that they paid indirectly when they paid their rent. The program sets a property tax equivalent of $250.00; then any additional percentage of that amount varies by year. For example, for the tax year 2005, the maximum amount of assistance that a claimant could receive was $347.50. U.S. citizens and qualified non-citizens who are at least 62 years of age, blind or disabled, paid $50.00 or more per month for rent and met the income requirement during the taxable period are eligible for the program.
Tax Assistance for Disabled Veterans & Families of Veterans: The California Disabled Veterans Property Tax Exemption provides financial relief to disabled veterans or their surviving spouse. It provides an exemption on the first $100,000 of assessed value of the principal place of residence for all veterans and on the first $150,000 of assessed value for those disabled veterans earning less than $42,814 per year. Under an amendment to the law, which took effect on January 1,2006, the exemption will be adjusted each year beginning in tax year 2006 to account for rising home prices. The exemption is granted in lieu of any other real property exemption.
Propositions 60, 90 & 110 “Property Tax Reassessment”
Propositions 60, 90 and 110 are constitutional initiatives passed by California voters. They work together to provide assistance for senior citizen property taxpayers within the state.
Proposition 60 provides tax relief by preventing property reassessment when a senior citizens sells his or her existing residence and purchases or constructs a replacement residence worth the same or less than the original. The County Assessor uses the property’s base year valuation and transfers that factored base value of the original residence to the replacement residence. This may be done once during the senior’s lifetime.
Proposition 90 widened the law to allow each California county to decide if it will accept a property’s base value from another county. Participation in Proposition 90 is not mandatory and is subject to change, so it is important to contact the county before a replacement property is purchased. Counties participating in Proposition 90 as of June 15, 2005 are Alameda, Los Angeles, Orange, San Diego, San Mateo and Santa Clara.
Proposition 110 further expands the law by granting reassessment exemption to those who become severely and permanently disabled after filing for transfer of base year value. Under Proposition 110, the disabled person may transfer his or her base year value a second time.
Proposition 60 & 90 Eligibility
The seller must be at least 55 at time of transfer. The spouse or co-owner does not have to be over 55, but must reside in the residence.
The replacement residence must be purchased or newly constructed within two years before or after the sale of the original residence.
The replacement residence must be equal to or lesser in market value than the original residence.
Proposition 60 and 90 tax exclusion is granted only once.
Other eligibility requirements apply. Contact the local County Tax Assessor’s office for more information.
To Apply for Tax Relief under Propositions 60, 90 or 110
Those who meet the eligibility requirements should contact the local County Assessor’s office for claim forms. Applicants must provide evidence of age and/or disability when they complete the claim form. The claim for relief must be filed within three years of the date a replacement dwelling is purchased or new construction of the replacement dwelling is completed.
Propositions 58 and 193 “Family Transfers”
Proposition 58 provides reassessment exclusion for a real property transfer between parent and child. Under the law, either the parent or the child may file a claim to exclude reassessment. The seller’s principal residence may be totally excluded from reassessment and need not be the principal residence of the person who acquires the property. In addition, up to $1,000,000 of other real property may also be excluded. Any child, adopted child, stepchild, or son or daughter-in-law can be eligible. For complete guidelines, eligibility requirements and claim forms, contact the local County Assessor.
Proposition 193 provides a similar assessment exclusion for real property transferred between grandparents and grandchild (or grandchildren) if the parents of the grandchild (or grandchildren) who would qualify for a Proposition 58 exclusion are deceased. The County Assessor can provide a complete list of guidelines and claim forms.
Information from the State of California Franchise Tax Board, California State Board of Equalization, Office of the California State Controller, Office of the Los Angeles County Assessor, and the Office of the Sacramento County Assessor.
Information deemed reliable but not guaranteed and is subject to change. For filing forms and more information, contact your local County Assessor or the California State Franchise Tax Board at www.ftb.ca.gov or (800) 868-4171.
Other Services for Seniors in California
The State of California provides a wide variety of services for senior citizens and works in conjunction with senior programs operated by the United States government.
Senior programs, services, centers, and activities are also provided by individual communities, churches, civic groups, retirement communities, and counties.
Among the many programs offered through the California Department of Aging are:
Adult Day Health Care (ADHC)
Alzheimer’s Day Care Resource Center (ADCRC)
Area Agencies on Aging Service Centers and Services
Brown Bag Program
Long-Term Care Ombudsman
Foster Grandparent Program
Health Insurance Counseling and Advocacy Program
Legal Assistance
Medication Management
Nutrition Services
Respite Program
Senior Community Service Employment Program
Senior Companion Program
Information gathered from the California Department of Aging. Information deemed reliable but not guaranteed and is subject to change.
For more information, visit the California Department of Aging at www.aging.state.ca.us or (800) 510-2020.
Estate Planning Strategies (Living Trusts)
What’s a consumer to do? It’s true that for some people, a living trust can be a useful and practical tool. But for others, it can be a waste of money and time. What is a living trust, anyway, and how does it differ from a will? Who should you trust when it comes to estate planning? And how can you tell which tools and strategies will work best for your particular circumstances?
The Federal Trade Commission, the government agency that works to prevent fraud, deception, and unfair business practices in the marketplace, says that it helps to learn the terms that are used in this aspect of financial planning before you begin conversations about it.
Probate is a legal process that usually involves filing a deceased person’s will with the local probate court, taking an inventory and getting appraisals of the deceased’s property, paying all legal debts, and eventually distributing the remaining assets and property. This process can be costly and time-consuming. Most states have simplified probate for estates below a certain amount, but that amount varies among states. If an estate meets the state’s requirements for “expedited” or “unsupervised” probate, the process is faster and less costly.
A trust is a legal arrangement where one person (the “grantor”) gives control of his property to a trust, which is administered by a “trustee” for the “beneficiary’s” benefit. The grantor, trustee and beneficiary may be the same person. The grantor names a successor trustee in the event of incapacitation or death, as well as successor beneficiaries.
A living trust, created while you’re alive, lets you control the distribution of your estate. You transfer ownership of your property and your assets into the trust. You can serve as the trustee or you can select a person or an institution to be the trustee. If you’re the trustee, you will have to name a successor trustee to distribute the assets at your death.
What is the advantage of a living trust? Properly drafted and executed, it can avoid probate because the trust owns the assets, not the deceased. Only property in the deceased’s name must go through probate. The downside? Poorly drawn or unfunded trusts can cost you money and endanger your best intentions.
A will is a legal document that dictates how to distribute your property after your death. If you don’t have a will, you die intestate, and the law of your state determines what happens to your estate and your minor children. The probate court governs this process.
A living trust is different from a living will. A living will expresses your wishes about being kept alive if you’re terminally ill or seriously injured.
And, the FTC advises, proceed with caution. Because state laws and requirements vary, “cookie-cutter” approaches to estate planning aren’t always the most efficient way to handle your affairs.
To learn more about estate planning strategies, talk with an experienced estate planning attorney or financial advisor, and check out the following resources: AARP: Tel (800) 424-3410, website: www.aarp.org. The American Bar Association: Tel (312) 988-5522, website: www.abanet.org/publiced/publicpubs.html. Ask for a copy of Product Report: Wills & Living Trusts. Information deemed reliable but not guaranteed. Information found at www.ftc.gov. Contact your Local County Tax Assessor for more information.
Reverse Mortgages- Top 10 Things to Know
Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first. HUD’s Reverse Mortgage is a federally-insured private loan, and it’s a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more.
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD’s reverse mortgage provides these benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; owns the home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. It doesn’t matter if you didn’t buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.”
6. Can the lender take my home away if I outlive the loan?
No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more money you can borrow.
9. Should I use an estate planning service to find a reverse mortgage? (I’ve been contacted by a firm that will give me the name of a lender for a “small percentage” of the loan.)
HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
You have five options:
Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term- equal monthly payments for a fixed period of months selected.
Line of Credit- unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
Modified Tenure- combination of line of credit with monthly payments for as long as the borrower remains in the home.
Modified Term- combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
You can receive free information about reverse mortgages by calling AARP at 1-800-209-8085. Information taken from www.hud.gov and is deemed reliable but not guaranteed.
Fraud Prevention
As America’s senior population grows, so does the number of people who target seniors for financial abuse. Frauds perpetrated against seniors run the gamut from contests and prizes to predatory lending, charity scams, drug and Medicare scams.
Important Tips to Avoid Fraud
Shred bills, junk mail and all receipts before discarding.
Find a private place to record account codes and passwords. Don’t forget where you filed them!
If someone offers you a “now or never” opportunity, choose “never”.
Charities never require you to “act immediately”.
If an offer sounds too good to be true, it is.
Don’t be afraid to tell someone. If you are uncomfortable, the sooner you tell someone, the better.
Ask for information in writing.
If you receive a solicitation to support police or firefighters, contact your local police or fire department to find out what percentage, if any, of the donations they will receive.
Be very cautious after disasters. Check with the State charities regulator or Better Business Bureau before giving.
Most national charities can be verified at www.give.org which is the Better Business Bureau’s Wise Giving arm.
Medicare Fraud
Choose only government-approved Medicare drug discount cards. For a list of companies approved to issue the cards and more information about the program, see www.medicare.gov or call toll-free (800) 633-4227.
Discount cards are issued by private companies and not from the government. If a solicitation looks like an official government document or purports to be from a government agency, report it.
Companies who issue discount cards are allowed to advertise by mail, printed media, or on TV and radio, but cannot call, send emails or come to your home.
Report any suspected Medicare fraud to the Office of the Inspector General at HHSTips@oig.hhs.gov or (800) 447-8477
Counterfeit Drugs
There are more choices for buying prescription drugs these days, but that also means there are more con artists to defraud the unaware. Here are some ways to help save your money and/or your life:
Know your medications. Know the packaging, size, shape, color, taste, and side effects of the prescriptions you take and immediately contact your doctor if you notice anything different.
Check the pharmacy’s legitimacy. The National Association of Boards of Pharmacy (www.nabp.net) can give you information on legitimate drug sources in each state. Online licensed pharmacies must display the Verified Internet Pharmacy Practice Site (VIPPS) seal from the Association.
Act immediately. Report any suspected counterfeit drug to the pharmacist who sold it and also to the federal Food and Drug Administration at www.fda.gov/medwatch or (800) 332-1088. A doctor should immediately be consulted if the drug was used.
Prizes and Sweepstakes Scams
There’s no doubt we would all love to win a prize! Perhaps that is why prize and sweepstakes fraud continues to be rampant. Avoid becoming a victim by following these hints:
Do not pay to play. It is illegal for a company to suggest or require you to buy something or pay a fee in order to win or claim a prize.
You do not have to pay any money to a company for taxes on a prize you have won. Taxes will be deducted from your winnings or you will pay them directly to the appropriate government agency.
Get the details in writing.
Don’t be fooled by official-looking mail. Anyone with a printer can simulate official looking “urgent” documents. Look for a bulk mail postage mark- your clue that thousands of people received the same thing.
Be especially cautious with foreign sweepstakes.
Sales Calls
It is easy and free to sign up for the National “Do Not Call” registry- a way to protect you or a senior you care about from the harassment and danger of aggressive sales calls. Register online at www.donotcall.gov or call the Registry at (888) 382-1222.
Charities, nonprofit groups, political organizations and survey companies don’t have to use the national Do Not Call list, but most other companies must “scrub” their lists against the Do Not Call Registry. If a charity uses a professional fundraiser, they must honor your request not to call again.
If you have purchased something or made a payment within the previous 18 months, or asked about a product or service or submitted an application within the past three months, a company may call you. However, you have the right to tell them not to call you again, and they must honor your request.
Order forms, entry forms and other things you sign may have small print that allows the company to call you and bypass the Do Not Call Registry. You may withdraw your permission by saying “Do not call me again.”
Those who violate the Do Not Call regulations may be reported through the Do Not Call toll free number or website. Write down the name and dates of unwanted calls because you may also sue them in small claims court.
Predatory Lending
What is known as “predatory lending” covers a wide variety of abusive practices that take advantage of people who may be in financial difficulty. Predatory lenders frequently use high pressure sales pitches, confusing language, elaborate marketing programs and just plain lies to sell high-cost, high-fee loans.
Most often, these predatory lenders offer “subprime” loans, which is a term for loans which are available to individuals who do not qualify for prime rate loans and have a higher interest rate. Predatory lenders then tack on additional fees and requirements. Some of the tell-tale signs of predatory lending:
Excessive Fees such as points or other fees which are costs not directly reflected in the interest rate. Because they can be financed, these fees are relatively easy to disguise. On competitive loans, fees at 1% or lower are typical. On predatory loans, the fees may total 5% or more of the loan amount. Predatory lenders may also charge and finance unnecessary insurance or other products along with the loan. Prepayment Penalties are a common denominator of predatory loans, although many legitimate lenders may also charge a fee for early pay-off of the loan. Borrowers with subprime loans, however, have a strong incentive to refinance as soon as their credit improves, so up to 80% of subprime mortgages carry a prepayment penalty to prevent the borrower from getting a better rate with another lender. Flipping. An illegitimate lender may convince a borrower to refinance a loan that will generate a fee to the lender but no tangible benefit to the borrower. Flipping can increase the monthly payments and drain the borrower’s equity. Mandatory Arbitration. A predatory lender may include language in the contract that prevents the borrower from seeking legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms.
Many state government agencies, counties and cities in the Arizona, California and Nevada have predatory lending specialists or entire departments devoted to borrower safety. Seniors are urged to comparison shop, take time to understand the terms of the loan, get referrals only from trusted sources, and research the lender with the Better Business Bureau or your state’s banking, corporations or real estate department.
Information in this article was gathered from the U.S. Federal Trade Commission, www.stopseniorscams.org, the Better Business Bureau and the Federal Food and Drug Administration, Department of Health and Human Services.
Information deemed reliable but not guaranteed and is subject to change. For more information, refer to the websites listed in this article, or talk with your local district attorney’s office.
Physical Safety for Seniors
Preventing Burglary
Burglars don’t just take your property- they can also threaten your safety. To prevent becoming a victim of a burglary, follow these tips:
Trim trees and shrubs to eliminate hiding places for thieves.
Make sure the exterior of your home is well lit, especially where there are doors and windows. I
nstall outside lights equipped with motion detectors to deter burglars and alert others of potential criminal activity.
Use the locks! Make it difficult for an intruder to enter. Be certain locks are functioning properly and that all doors have deadbolts. Lock windows and secure them so they cannot be forced open, and don’t forget basement and attic windows.
Create and maintain safe and adequate escape routes from every room. Know how to get out fast.
Ask your local police, sheriff or constable’s office if they have the ability to review your security arrangements and provide ideas for increasing security.
When away from home, use timers on inside lamps and radios to create the impression of an occupied home.
When returning home, give the house a brief visual survey before entering. If anything looks suspicious, call 9-1-1 from another location.
Your answering machine message should not indicate that you live alone or that you might be away.
Form a neighborhood watch program and look out for one another.
Report suspicious activity to the police.
Many communities have free or low cost repairs for low-income seniors; check with local senior organizations for more information.
Fire Safety
Protect yourself and your home from fires with these helpful tips:
Test smoke detectors once a month to make sure they work. Replace smoke detector batteries once a year.
Keep a fire extinguisher on every floor in the house (and always keep one in the kitchen).
Plan and practice a home fire drill. Make a map showing the exits from every room.
Obtain an escape ladder for bedrooms located on the second floor or higher. Make sure windows can be opened easily from the inside if needed for escape.
Store flammable materials in a safe place.
Eliminate fire hazards in your home, e.g. oily rags, piles of paper, smoking in bed.
Trim brush away from the home as recommended by your local fire department.
Arizona, California and Nevada are prone to extreme fire danger in the summer and fall. If the fire department says it is time to evacuate, leave right away. Your possessions are not as important as your life.