ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, November 25, 1996 TAG: 9611260003
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: If one sells a piece of real estate and buys a like piece of real estate in a separate transaction but in the same tax year, must capital gains tax be paid on the first transaction?
Regarding estate tax, can one use the assessed value of property on the tax ticket to determine the value, or must an appraisal be obtained?
A: The answer to your first question is yes unless the transaction was structured to defer the capital gain.
J. Lee Osborne, an estate planning specialist with the Roanoke law firm of Carter, Brown & Osborne, said the rules are different if the property to which you refer is your primary residence. If you live in the home, you can defer recognition of the gain if you buy another home of the same or greater value within two years. And if you are 55 or older, you can exclude up to $125,000 of capital gain on the sale of your primary residence. You must have lived there for three of the last five years to claim the exclusion.
But Osborne said you cannot defer paying the capital gains tax on investment property unless you arrange for a like-kind exchange at the time of the property transfer. To accomplish this, a seller must identify the replacement property prior to closing of the first sale. The proceeds must be held in escrow by an independent agent, Osborne said, and then used to purchase the replacement property within a specific length of time.
Unless you took these specific steps at the time you sold and purchased your properties, Osborne said, you must pay capital gains tax on the property you sold.
For anyone else contemplating a like-kind exchange, Osborne suggested consulting a tax lawyer or a certified public accountant before taking any steps. He said the exchange must comply with a long list of rules.
In answer to your second question, Osborne said the only requirement is that fair market value must be obtained as of the date of death (or at a specific date six months later).
Osborne advises his clients not to rely on a tax assessment to determine value. He said an assessment is based on neighborhood values with some adjustments for the specific property, while an independent appraisal looks directly at the property.
In addition, he said, assessments are not always made at full value, depending on the practice in your community. It is to the heirs' advantage to show the full market value at the time of death because this becomes their tax basis when the property is sold. The higher the appraisal at the time of death, the lower the heirs' capital gains tax.
Must you hire an independent appraiser? The answer is no, Osborne said. Should you do so? Osborne advises his clients to take that course of action.
Guidelines for selling
stocks by administrator
Q: I have a number of stock and bond certificates that are to be sold after my death. What procedures must my administrator follow to cash these holdings?
A: Richard Wertz, a vice president at the Roanoke office of A.G. Edwards & Sons Inc., said your executor (if you have a will) or your administrator (if you die without a will) has to qualify before a court to handle your estate.
This person can then take control of your assets by using his qualification papers and an affidavit that he or she lives in Virginia. The administrator can transfer the stocks and bonds from your name into the name of the estate for sale or other disposition, or he can distribute the shares directly to the heirs.
Wertz said the job would be easier if you held the stocks and bonds through a brokerage account in your name. In such a case, your administrator would need only one copy of the papers to transfer everything at once.
If you hold separate certificates for each stock and bond, your administrator will have to have a copy of the papers for each and must get in touch individually with the transfer agent for each.
LENGTH: Medium: 75 lines KEYWORDS: 2DAby CNB