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Sale of Homestead questions

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: snipped-for-privacy@yahoo.com

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Reply to
TimDavis
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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:

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.

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.

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

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

Reply to
Stuart A. Bronstein

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

Reply to
Phil Marti

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

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.

I believe so.

Why the scare quotes?

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

You can't guarantee it.

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

It helps to have as much money as he did.

Seth

Reply to
Seth Breidbart

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