Don't Be Afraid to Use 'Bargaining Power'

To qualify for the Internal Revenue Code 121 principal-residence-sale exemption up to $250,000 (up to $500,000 for a qualified married couple), you must then occupy it at least 24 out of the last 60 months before its sale. There is no need to own the property 60 months unless it was acquired in an IRC 1031 exchange.

However, when you sell the property converted from a rental into your personal residence, the amount of depreciation you deducted after May 1997 will be taxed at the special 25 percent federal depreciation recapture tax rate. Consult a tax adviser for details.

DEAR BOB: Can I invest the funds in my individual retirement account in real estate? -- Tim H.

DEAR TIM: You can acquire investment real estate with funds in your IRA, as long as it is a self-directed IRA. However, you cannot use such funds to acquire your personal residence.

DEAR BOB: I own farm acreage in South Carolina, and it is now in coastal Bermuda grass. I obtained this property from my parents' estate. If I sell it for $10,000 per acre for the 15 acres, what will be my capital gains tax? -- Rau D.

DEAR RAU: Your adjusted cost basis is the fair market value of the property on the date you inherited the property. If you don't know this vital valuation, hire a professional appraiser to establish your "stepped-up basis" of market value on the date of the death.

Your taxable capital gain will be the difference between your stepped-up basis and your adjusted sales price (gross sales price minus sales costs). The capital gains tax will be the current maximum federal capital gains tax of 15 percent, plus applicable state tax. Consult a tax adviser for details.

DEAR BOB: Do I need to get a state certificate or license to become a real estate investor? Where can I get the license? -- Myrna A.

DEAR MYRNA: You do not need a real estate license or certificate to be a real estate investor. Millions of real estate investors do not have any license or certificate. Unless you want to sell real estate full time to earn sales commissions as an agent for property sellers and buyers, it will be a handicap for you to have a state real estate sales license.

The reason is that if you are a licensee, as a buyer or seller you might create a fiduciary duty to the other party to the sales or lease transaction.

However, I highly recommend you take all the real estate courses at your local community college so you can learn the fundamentals of real estate investing. The tuition cost is low, but the value of the knowledge is high.

DEAR BOB: My father died in July 2005 in Louisville and left behind, as part of his estate, two houses valued at about $150,000 each. To properly dispose of and sell these houses, are the heirs -- three adult children -- required to file papers in the probate court in the county where the property is? -- James T.