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 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.
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