Even With a Foreclosure, You Have Options

DEAR GLORIA: Please don't rush to sell your home. The anniversary date of your spouse's death is irrelevant for tax purposes.

To qualify for the $500,000 principal-residence-sale tax exemption of Internal Revenue Code 121, presuming both spouses met the 24-out-of-last-60-months occupancy test, the principal residence must be sold within the same tax year as the spouse's death.

The reason you don't need to rush to sell your home is that, presuming you inherited your late husband's share of the residence, you will receive a new "stepped-up basis" as of the date of his death.

If the principal residence is in a common-law state, you will receive a 50 percent stepped-up basis to market value as of the date of death. However, if the house is in a community-property state, as the surviving spouse you will get a new 100 percent stepped-up basis so you will have little or no capital gains tax if you sell the home within a few years after your spouse's death. For details, consult a tax adviser.

DEAR BOB: We had our house on the market for almost four months with no offers. None of the houses in our price range have sold. Our house shows well, according to the local real estate agents. We are thinking of taking it off the market for a short period and then relisting it to start clean. How long should we keep it off the market? Should we use the same agent? She has been great but won't give us a straight answer on this. -- Jan L.

DEAR JAN: It used to be possible to start clean so your home would look to buyers and their agents like a new listing. However, most multiple listing service computers can now report how many days a house has been on the market in the past 12 months, both in its current and previous listings.

If you are satisfied with your agent's services, relist with her, but never for longer than 90 days at a time. However, if she wouldn't give you a straight answer, I suggest that you interview at least three other successful local agents to ask them why, in their opinions, your home didn't sell.

The obvious problem is it might be overpriced. But some sellers discover that their listing agent is the obstacle. Perhaps she is uncooperative or disliked by local agents. Maybe she makes your home difficult for other agents to show to their prospective buyers.

By interviewing other agents, you will get their comparative market analyses to show your home's current market value based on recent sales prices of comparable nearby homes, and the asking prices of similar neighborhood residences.

DEAR BOB: I am considering investing in rental property. Is each property considered an entity, eligible for the $25,000 annual tax loss deduction from ordinary income? Or is the loss limited to $25,000 for all of an investor's properties? -- Martin S.

DEAR MARTIN: Unless you or your spouse qualifies for unlimited annual investment property deductions as a "real estate professional" spending at least 750 hours per year on your real estate activities, you are limited to a $25,000 total annual loss deduction from all your investment properties against your ordinary taxable income.

However, unused losses (mostly from the noncash depreciation deduction for wear, tear and obsolescence) are "suspended" for use in future tax years, or when you sell a property you can use suspended losses to cut your taxable capital gain. For details, consult a tax adviser.