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Columns: Tax Talk
George Saenz, CPA Expert: George Saenz, CPA
Tax Talk
Sale of property generates income for mom
Tax Talk

Managing sudden windfall

Dear Tax Talk,
My mother is disabled and receives a monthly disability check from the Social Security Administration. She receives no other income. In 2005 my mother lost her home to Hurricane Katrina. Recently, Harrah's Casino purchased the land on which the home used to be on for $240,000. My parents divorced 20-odd years ago but my father's name was still on the property. He agreed to accept $40,000 for the limited time he was actually there. My mother ended up getting $200,000. 

Will her disability check be affected in any way? What are the tax implications for her? And what can the money be invested in where she can collect a little interest each year? She is not interested in the stock market and does not want to risk losing any money.

My mother lives with my sister now and my sister carries her as a dependent. My sister is really her legal guardian as my mother does not have the mental capacity to handle her affairs. I hope you can help.
-- Adrienne

Dear Adrienne,
If your mother lived in the home for two of the last five years she can claim an exclusion on any gain she may have had from the sale to Harrah's Casino. As a single taxpayer she is eligible to exclude up to $250,000 in gain, which exceeds the amount she received so she won't owe any taxes on the sale of the home.

In determining if she lived in the home you can ignore short absences for medical reasons. If she doesn't meet the two-year rule there are other rules that apply to casualty losses that may allow her to defer any gain, but only if she reinvests in another home. Since this doesn't seem to be what you want, then see if she meets the residence requirements.

I don't believe Social Security disability benefits are affected by assets, but you should double-check with the agency. Social Security Publication 10029 explains disability benefits. Medicaid benefits may be affected by assets, however. You should check with your state agency for how your mom's assets may affect her eligibility.

If you don't want to invest in the stock market, your alternatives would be bank products, such as certificates of deposit, or U.S. government securities, such as savings bonds. On $200,000 in investments you can produce $8,000 to $10,000 annually in income for your mom.'s corrections policy-- Posted: June 14, 2007
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