I live in the house that my sister left me when she died, but it remains in her estate. If I die while living here, the house would go to my great-nieces and -nephews. I'm planning to sell this summer. Because I've been paying taxes and upkeep on the house for the past 20 years, will I be able to get the homeowner tax break on the capital gain? —Donald Wilson, Philadelphia

In general, current law allows a homeowner to make up to $250,000 ($500,000 for a married couple) in profit on the sale of a primary residence without paying capital gains tax. The profit is determined by taking the sale price and subtracting the original purchase price plus the cost of any capital improvements. To be eligible for this tax break, you must meet IRS requirements for ownership and use of the home, says Andy Tilp, a certified financial planner and principal at Trillum Valley Financial Planning near Portland, Ore. For example, the house must be your primary residence, which is not a problem for you.

The trickier part for your case is ownership. Do you have exclusive title to the house? If so, and if you are not otherwise restricted by the estate, you should be able to take the tax break when you sell. (You can find the complete use and ownership requirements in IRS Publication 523.) If the title is still in your sister's estate or if someone else in the family holds it, you may not have the legal right to sell the house at all—and, in turn, you would not be eligible for the tax break.

Because every estate plan is unique, Tilp recommends you check with a trusted estate planning attorney to help determine what you can and can't do.

-- Walecia Konrad

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