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Subject Author Date
Sale of Homestead questions TimDavis 06-22-2006
Posted by TimDavis on June 22, 2006, 8:58 pm
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 We live in Texas.
Our home is free & clear of all liens.
We are a married couple, and our ages are between 60 & 64.
Under Texas law (Texas homestead exemption) our home is
protected from just about anything, except back taxes.

We do not owe anything to anyone - not even credit cards.

We do not have a 401, an IRA - absolutely nothing in the way
of a formal retirement plan. We were both self employed,
and NEVER signed up for any retirement plan, etc. The sale
of our homestead was/is our retirement plan.

We plan to sell our home with 100% owner financing over many
years. The buyer will simply begin making monthly payments
of a large interest amount, and a tiny amount going to
principal. The monthly payments will continue after our
deaths, and will go to our children. The length of the loan
term is far in excess of our lifespan.

We understand that we will most likely have to pay taxes on
the interest, as it will most likely be considered ordinary
income. We are not sure if we will have to pay capital gains
on the principal part of each monthly payment. We are
guessing that in that the homestead will be under
$1,000,000.00 - there will not be any taxes whatsoever, but
... ?

So here is the questions:

1. We currently "have" a great deal of legal protection with
a Texas homestead. That is, it would be almost impossible
for us to lose the homestead to any civil legal action. So
the question is: Can the monthly P&I payments to us be
attached in any way, by any civil action? Assuming that we
pay all our taxes on time - is there any other thing to
worry about. Do we lose our protection when we sell on
time, and not reinvest in another homestead of comparable
value? We "do not" plan to purchase another home - we plan
to rent a condo, or?

2. Can we transfer the homestead into a trust of some type,
then let the trust sell the homestead on time and the trust
manages the money - giving 100% of the monthly payments to
us to live on, then later to our kids?

3. What should we do to INSURE that we will get the monthly
P&I payments - subject to only the failure to pay our taxes?

LOL - We want an OJ Simpson type of retirement plan:-)

THANKS!!!
Tim Davis

Please feel free to email me at:
timdavis3030@yahoo.com

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Stuart A. Bronstein on June 23, 2006, 3:10 am
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> So here is the questions:

I'm not a Texas lawyer. This seems more of a legal issue
than a tax one. I'll give you as much information I have,
knowing that Texas law is often screwy and could be
different from what I'm used to:

> 1. We currently "have" a great deal of legal protection with
> a Texas homestead. That is, it would be almost impossible
> for us to lose the homestead to any civil legal action. So
> the question is: Can the monthly P&I payments to us be
> attached in any way, by any civil action?

Yes. Once you no longer live in it, it's no longer your
homestead. There may be a period of time after the sale that
the proceeds are protected - time to allow you to put it
into another home. But my guess is that it's no longer than
one year.

> 2. Can we transfer the homestead into a trust of some type,
> then let the trust sell the homestead on time and the trust
> manages the money - giving 100% of the monthly payments to
> us to live on, then later to our kids?

You could, but it wouldn't give you any benefit to do that
other than as an easy way to pass it on to your kids when
you die.

> 3. What should we do to INSURE that we will get the monthly
> P&I payments - subject to only the failure to pay our taxes?

Make sure you have a mortgage securing the note. If the
buyers stop paying you'll have to foreclose and sell it
again.

> LOL - We want an OJ Simpson type of retirement plan:-)

Yeah, only Texas and Florida allow you to do that. But it
only works while you own the home.

Stu

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Phil Marti on June 23, 2006, 3:10 am
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> We are not sure if we will have to pay capital gains
> on the principal part of each monthly payment. We are
> guessing that in that the homestead will be under
> $1,000,000.00 - there will not be any taxes whatsoever, but

This is the only tax law question I saw, and there's not
enough information to answer it. You can exclude $500,000
of GAIN on the sale of your primary residence on a joint
return. For information about this exclusion and how to
calculate the gain, see IRS Publication 523.

For information about Texas homestead law, see a Texas
lawyer who knows it. Ditto for how to protect your interest
payments.

Information about how to hold your property and how to
structure the sale should come from your estate planning
lawyer.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Seth Breidbart on June 23, 2006, 10:18 pm
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> Our home is free & clear of all liens.
> Under Texas law (Texas homestead exemption) our home is
> protected from just about anything, except back taxes.
>
> We plan to sell our home with 100% owner financing over many
> years.
>
> We understand that we will most likely have to pay taxes on
> the interest, as it will most likely be considered ordinary
> income. We are not sure if we will have to pay capital gains
> on the principal part of each monthly payment. We are
> guessing that in that the homestead will be under
> $1,000,000.00 - there will not be any taxes whatsoever, but
> ... ?

The first $500,000 of _profit_ is exempt from federal income
tax.

> So here is the questions:
>
> 1. We currently "have" a great deal of legal protection with
> a Texas homestead. That is, it would be almost impossible
> for us to lose the homestead to any civil legal action. So
> the question is: Can the monthly P&I payments to us be
> attached in any way, by any civil action?

Yes. Once you sell the home, you no longer own a homestead,
you own a mortgage, which is a financial instrument.
Financial instruments can be attached.

> Do we lose our protection when we sell on
> time, and not reinvest in another homestead of comparable
> value?

I believe so.

> We "do not" plan to purchase another home - we plan
> to rent a condo, or?

Why the scare quotes?

> 2. Can we transfer the homestead into a trust of some type,
> then let the trust sell the homestead on time and the trust
> manages the money - giving 100% of the monthly payments to
> us to live on, then later to our kids?

Sure you can. It might have adverse consequences. What are
you trying to accomplish?

> 3. What should we do to INSURE that we will get the monthly
> P&I payments - subject to only the failure to pay our taxes?

You can't guarantee it.

You might start with liability insurance so the insurance
company would protect you from lawsuits (for most things).

> LOL - We want an OJ Simpson type of retirement plan:-)

It helps to have as much money as he did.

Seth

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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