Homebuying Basics: Refinancing Your Mortgage

DEAR LOURDES: Who are "they"? I have never heard of an escrow for "maintenance." The two most common types of mortgage escrows are for property tax and for homeowners insurance payments.

Consult a lawyer to review the escrow agreement. If the $190 charge was for some type of tax, such as a civic special assessment for street paving, the escrow holder should have been notified and should have paid the additional charge from your escrow account.

Perhaps your lender is trying to get you to pay the extra fees for the lender's negligence failing to pay a special assessment tax. Lenders do this all too frequently, hoping you won't notice the extra late charges because of the lender's negligence.

DEAR BOB: What is the best way to hold title to my residence to avoid probate and also to get the step-up in cost basis? -- Steve L.

DEAR STEVE: I presume you mean you want your heir to receive the stepped-up basis to market value after you die.

The best way to hold title to real estate is usually in a revocable living trust. While you are alive you can buy, sell, refinance and manage your living-trust assets because you are the trustor, trustee and beneficiary. However, if you become incapacitated, such as with Alzheimer's disease or a severe stroke, or after you die, your successor trustee takes over and manages or distributes your living-trust assets as instructed in your living trust.

After you die, your living-trust assets are distributed without probate costs or delays, according to your living-trust instructions. Your heirs then receive a new stepped-up basis to market value on the date of your death.

DEAR BOB: Can I avoid capital-gains tax on the sale of my property by forming a limited-liability company? -- Daniel J.

DEAR DANIEL: No. The purpose of holding real estate title in a limited-liability company is not to avoid capital gains tax. You use such a company to avoid personal liability if someone is injured on your property.

If the property is your principal residence, you can avoid capital gains tax upon sale by use of the Internal Revenue Code 121 tax exemption up to $250,000 for a single person, or up to $500,000 for a married couple filing a joint tax return. To qualify, you must have owned and occupied your principal residence at least 24 of the last 60 months before its sale.

If the property is held for investment or for use in your trade or business, the only way to avoid capital gains tax is to make an Internal Revenue Code 1031 tax-deferred exchange for another "like kind" property of equal or greater cost and equity. Consult a tax adviser for details.

DEAR BOB: How can I get my half of the rental security deposit returned? I moved out but my ex-roommate chose to continue renting past the one-year lease expiration. -- Douglas R.