Dear Liz: I am in my mid-80s and in declining health. I want to advise my beneficiaries about possible taxation on the sale of my home after I expire. I bought the place in 1995 for $152,000. It now has a market value of about $400,000. The issue is whether that gain is taxable upon the sale after my death. I also have a $57,000 long-term capital loss carry-forward in my income taxes, which is being written off at a rate of $3,000 each year.
Answer: The gain in your home’s value won’t be taxable at your death. Instead, the home will get what’s known as a “step up in basis.” That means its new value for tax purposes will be its market value when you die. So if it’s worth $400,000 when you die and your heirs sell it for $400,000, no capital gains taxes will be owed on the sale.
The news isn’t so good for your capital loss, however. Any unused carryover expires at your death and can’t be transferred to your estate.
As you know, capital losses — losses on investments or assets that you sell — can be used to offset capital gains and reduce your tax bill. If your losses exceed your gains, you can offset up to $3,000 of ordinary income each year. Any capital loss remaining after that can be used the next year in the same way: first to offset capital gains, then to offset up to $3,000 of ordinary income.
Often when taxpayers have such a loss, they’re encouraged to sell investments that have increased in value to help use up the loss faster, but you should talk to your tax pro and estate planning attorney to see if that makes sense in your case.
Auto dealers must abide by credit check limits
Dear Liz: I have loans and have paid my credit cards in full for over 30 years. My FICO score is 829. I don’t really care as I don’t plan to borrow in the future. I check my score and reports occasionally to check for a possible error or scam. Other than this, is there any reason at all that I should care?
I did notice a car dealership checked my score when recently I submitted a down payment check to order a car for which I would pay in full. I don’t believe they would refuse to sell me the car for cash if I had a lousy credit score, so they probably wanted some measure of reassurance about whether I have a lifestyle that could afford completing the deal.
Answer: You have many FICO scores, not just one, but if any one of them is 829, then the rest of them are probably pretty good, too.
Credit scores are used for more than borrowing decisions. In most states (but not California), insurance companies can use credit information to set premiums. Cellphone companies, landlords and utilities use them as well.
Car dealerships, however, aren’t supposed to pull your credit scores without your permission. That’s a violation of the federal Fair Credit Reporting Act.
If the dealership got your permission by telling you a credit check was necessary for a down payment (or an all-cash deal, for that matter), then it misled you.
To prevent money laundering, dealerships are required to ask for identification and a Social Security or Tax ID number from buyers who are purchasing a car for more than $10,000 in cash. That’s it.
But some dealers pretend the anti-terrorism Patriot Act requires them to check your credit when you pay cash, which is nonsense. Typically, dealerships run credit checks to see if they can make an extra buck by financing the deal. Those checks are coded as hard inquiries that can damage people’s credit scores. (That’s in contrast to what happens when you check your own credit, which creates “soft” inquiries that don’t affect scores.)
Your scores are high, so the credit check probably didn’t ding them much. But the dealership was accessing information about you that it didn’t need to have. Plus, the more outfits that have your credit information, the greater your risk of identity theft.
If you didn’t give your OK, you could file a Fair Credit Reporting Act lawsuit to collect up to $1,000 from the dealership. If you did give your permission, strongly consider withholding it the next time if you’re not interested in financing your vehicle.