Gains on a house after a divorceQ. I was divorced in 1990...

REAL ESTATE Q & A

February 07, 1993

Gains on a house after a divorce

Q. I was divorced in 1990 and took title to my home, which I had jointly owned with my wife. In 1992, two years after the divorce, I sold the house for $263,000. I paid $100,000 for the house [in 1975] and invested $50,000 in improvements over the next 17 years. The value of the home, as listed on our divorce papers, was $260,000. How much of a gain must be reported on my 1992 tax return?

A. The basis of property received in a divorce settlement is a continuation of original cost, increased by any capital improvements. Thus, in your situation, your basis will be $150,000, and you will be required to report a $113,000 gain from this sale ($263,000 selling price less $150,000 basis). Of course, if you are 55 or older, or if you replace your residence within two years, you may be able to eliminate or defer recognition of this gain. (Note: For divorces that occurred before 1985, different basis rules apply.)

Some refuse to list a home that is overpriced

Q. Why do people bother to list homes that are priced so much higher than their real value that they have no chance of selling?

A. That's a question many real estate brokers are now asking, and some are refusing to list homes that are unrealistically priced.

One Los Angeles-area Realtor leader recently sent a letter to sellers of his listed homes. It states that owners should review the pricing of their property. If it's more than 10 percent above a realistic market price, as determined by recent sales of comparable homes, they should either reduce the price or take it off the market.

Nancy Amorteguy, a branch sales manager for the Coldwell Banker residential brokerage office, agrees that many properties are overpriced. She says more research and seller education is needed.

"It's very hard to determine a property's current market value in today's market due to recent fluctuations in home values in different areas," she said. "But now prices are stabilizing, and we can pin down the value more precisely with recent comparables."

She also said that homes in good condition or those with special features (such as a room addition) do not usually sell for higher prices, but will help the property sell faster, she said.

Possibility of losing interest deduction

Q. Under the new administration, is there a possibility of losing our home mortgage interest deduction?

A. Richard Robinson, an expert on real estate-related tax subjects, observed: The home mortgage interest deduction is now under heavy attack. Look for a flat-out limitation on the amount of home mortgage interest that can be deducted each year."

Office in the house and capital gain

Q. I sold my house recently, and I have been using a portion as an office. How do I account for this in determining the capital gain?

A. If part of the home was used as an office, the tax rules concerning the sale of your main home are a little different from the regular rules. "If a home office deduction is claimed in the year of sale, the gain on the part of the home used as a home office is subject to tax in the year of sale and cannot be be postponed," said Stuart Becker, a New York certified public accountant. "This means that an allocation must be made for the part of the home used for business."

Mr. Becker also said: "An amount equal to that portion of the selling price allocated to the nonbusiness part of the home must be reinvested in a new home in order to postpone the gain allocated to that portion. And in determining the gain on the business portion, the cost basis of the home allocated to the home office must be reduced by any depreciation deductions taken." Of course, if you are not entitled to a home office deduction in the year of sale, no allocations are required.

Copley News Service/

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