Idle Equity? A Reverse Mortgage Could Be the Answer.

DEAR BOB: My boyfriend and I want to buy a piece of land where we might wish to someday build a retirement home. We both live in a house my boyfriend owns. I want to buy half the house from him, which would give him cash to buy the land. Will a bank extend me a mortgage for half a house? I have excellent credit and the house is now worth triple what my boyfriend bought it for some years ago. -- Lily R.

DEAR LILY: No institutional lender will make a mortgage loan secured by half a house. You and your boyfriend must be co-owners holding title. Then a mortgage lender can make a loan secured by the house and signed by both co-owners. Work with an experienced mortgage broker to see if it is possible to accomplish what you and your boyfriend want so you can buy that land together.

DEAR BOB: My wife and I own three properties. We rent two and live in the other. I am 68 and she is 61. Can we obtain a reverse mortgage on our home while owning two rental properties? -- Robert U.

DEAR ROBERT: The two rental properties are irrelevant. The reverse mortgage is secured by your primary residence only. If you wish, you can own 100 rental properties and still obtain a reverse mortgage.

However, you have a slight problem. Your wife is not old enough to obtain a reverse mortgage on your principal residence. She must be at least 62 to qualify.

This problem can be solved by waiting until she becomes 62 before obtaining a reverse mortgage, or, if she is willing, she can remove her name from the title to the home so you can qualify for a reverse mortgage.

This might be a better alternative because at age 68 you can qualify for a larger reverse mortgage than if you wait until she becomes 62. When two co-owners qualify for a reverse mortgage, the entitlement is based on the age of the younger applicant.

DEAR BOB: Twenty years ago my husband's parents put their home into the names of my husband and his brother. The parents died a few years ago. The house has been vacant since. My husband's brother has decided to buy out my husband's half of the house based on an appraisal. That is acceptable to my husband. For tax purposes, can my husband treat this transaction as a monetary gift with no tax consequences rather than a taxable sale? -- Cathy J.

DEAR CATHY: No. The brother is buying out your husband's half interest in the house. That is not a tax-free gift but rather a taxable sale on which your husband will owe capital gains tax.

Because your husband received a gift of a 50 percent interest in the house 20 years ago, he took over half the probably low adjusted cost basis of his parents. The tax result will likely be a large capital gains tax.

This situation is another example why it is usually better to inherit property and receive a stepped-up basis than to receive a before-death gift. Your husband should consult a tax adviser.

DEAR BOB: My daughter and I own a house as joint tenants. She has lived in the house for the last two years. I have never lived there. We plan to sell it and expect a net profit around $100,000. Can the entire profit be allocated to her so it will be exempt from capital gains tax? -- Arnie C.