Real Estate Mailbag

DEAR GERTA: When you die or permanently move out of your home for more than 12 months, the reverse mortgage matures. Its principal and accrued interest come due. Your heirs can sell the house and use the proceeds to pay off the mortgage balance. The remaining equity is then distributed according to the terms of your will or, better yet, living trust.

If your heirs should wish to keep the house, they can refinance it to pay off the reverse mortgage balance.

DEAR BOB: We have owned our two-family house since June 7, 2001. We use half as our principal residence and half as a rental unit. If we sell before owning it five years, can we benefit from that Internal Revenue Code 121 $500,000 tax exemption? -- Rodica and Vasile F.

DEAR RODICA AND VASILE: Because you owned and occupied half of the property as your principal residence for more than 24 of the 60 months before sale, you qualify for up to $500,000 tax-free profit on your personal unit.

The rental half of the building would not qualify for this tax exemption. You will owe capital gains tax on your profit from the sale of the rental unit.

In other words, for tax purposes you are selling two properties -- your principal residence and your rental property. Consult a tax adviser for details.

DEAR BOB: I was shocked to find that my wife and I must now own our home for five years before we can sell it and qualify for that $500,000 tax exemption. We acquired our dream home as a rental property in an Internal Revenue Code 1031 tax-deferred exchange. It was rented to a tenant for about a year, and we moved in after she moved out. Our plan was to use it as our principal residence for two or three years and then sell it, using the $500,000 tax exemption. Now you say we must own it for five years?

-- Rohn Y.

DEAR ROHN: Congress changed the tax law for sales of principal residence that were acquired in an IRC 1031 tax-deferred exchange. To qualify for the $250,000 or $500,000 principal residence sale tax exemption, you need to occupy the home only 24 of the 60 months before its sale. But it must be owned at least five years to qualify for the Internal Revenue Code 121 exemptions. Your tax adviser has full details.

DEAR BOB: Is it legal to charge a homeowner a fee to cancel private mortgage insurance? I bought my house with a Wachovia Bank mortgage in 2003. It has since been taken over by Chase Home Finance. When I wrote them about canceling my PMI premium, I received a letter stating I had to pay $115 for the cost of a "broker's price opinion" to confirm my home has not declined in market value. Do I have to pay this fee? -- Alice R.

DEAR ALICE: From the copies of the paperwork you enclosed, it appears you have an advantageous home loan at 6.125 percent interest, which required PMI when it was originated two years ago.

You were wise to ask the lender to cancel the PMI premium if you now have at least 20 percent equity in the home. Although I can't tell from the loan statement how much you are paying for PMI, it should be worth $115 to you to get rid of it.