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Transfer Is Exempt to Some Degree

Q. My mother and I jointly owned some acreage for more than 20 years. Upon her death, I inherited her portion of the property and filed the necessary paperwork with the county noting the change in ownership. However, the land has been reassessed for property tax purposes. Isn’t a transfer between parent and child excluded from reassessment in California? --M.K.

A. You’re right, property transfers between parent and child are, to some degree, exempt from reappraisal for property tax purposes, and your tax bill should not increase because you now hold your mother’s portion of that acreage. The law, which has been in effect since 1988, says transfers of a principal residence between parent and child are completely exempt from reappraisal for property tax purposes. The exemption also applies to transfers of up to $1 million worth of other real estate between parent and child.

However, in order to get this exclusion, you must file for it. Go back to your county assessor’s office and ask for a Prop. 58 exemption. Complete the necessary paperwork, and you should get the exemption.

How Long in Residence to Be Principal Home?

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Q. About 10 years ago, I converted my house into a rental and began deducting depreciation and other expenses associated with the venture. Now I want to move back into the house as my principal residence. How long must I live there to consider it my principal residence? Also, how do I handle the depreciation I took when the house was a rental? --J.P.

A. There is no hard-and-fast rule dictating how long you must live in your home to consider it your principal residence again. Many experts believe it should be at least one year. However, if you are over age 55 and you want to use your one-time exclusion of $125,000 in profits from the home sale, you must live in the house at least three of the five years preceding the sale.

Any amount you have depreciated your property should be deducted from your tax basis in the house. This has the effect of increasing your potential tax bite, but since you have already had the advantage of the depreciation, you are not being made to suffer unfairly. And by invoking the $125,000 exclusion, you can avoid taxes on at least that amount.

Double-Check When Paying Different Bills

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Q. Last month when paying my bills by check I inadvertently mixed two bills, sending a department store my newspaper payment and sending the newspaper my department store payment. Both the paper and the department store put the checks through for payment and they were cleared. The result was that the department store said I had failed to pay off my bill entirely and the newspaper said I had overpaid on my account. Even though I was responsible for the initial error, is either of the companies or my bank liable for the error? --T.S.K.

A. The error is yours, but you’re not alone. The department store and newspaper should not have processed the checks. Your bank should not have cleared them. However, in the end, if there is any penalty to be paid, such as a late payment charge, it is likely that you alone will be the one forced to step up to the plate.

Why? The banks say that since the check clearing process has been completely automated, there is virtually no chance to catch errors such as the one you describe. The merchants say they processed what you sent. If they had caught the errors and returned the checks, it is likely that you would have been hit with a late payment anyway.

As it stands, be grateful that your error didn’t blemish your credit record. You are probably wise to simply settle up the accounts the way they were credited.

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Who Is Responsible for Supplemental Tax Bill?

Q. My property taxes and insurance are paid through an impound account administered by the company to which I pay my mortgage.Last month I received a notice from them saying that my account was about $120 below where it should be based on their projected estimates of my property tax obligations. They said they would increase my monthly payment by $10 to cover this gap. I agreed. Now I have gotten a supplemental property tax bill directly from the county tax collector for about $260. Should I pay it, or is that the responsibility of my lender since it handles my impound account?--V.U.

A. Your best bet to contact your lender immediately and try to sort through all this. Based on the information you have provided, it is impossible to determine whether the increased impound amount covers this supplemental tax bill. Clearly you do not want the same tax bill to be paid twice--once by you directly and once by your lender. But neither do you want the bill to go unpaid and incur the inevitable penalties and hassle.

Since your mortgage holder is responsible for paying your property taxes, you should let them know of the supplemental bill and ask them how to proceed from this point. It is their obligation to pay the bill, and if you need to deposit additional funds into your impound account to cover the extra bill, you will surely be told of your obligation.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Or send electronic mail to carla.lazzareschi@latimes.com


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