Question: We are putting our house on the market next month. Our agent recommends we do some painting and minor repairs before the house is shown. She says we'll get the money back in taxes. How does this work?

Answer: It really doesn't work at all. It may pay off anyway because a fresh coat of paint probably will make the house more readily salable and perhaps even get you a little better price. But don't count on recouping any of the expense on your tax return.

If you don't replace your home with another residence and therefore report the gain on Schedule D of your tax return, you can't include fixing-up costs as an expense of sale.

Such costs can be included to reduce the amount of gain if you buy a replacement residence that qualifies for deferral of tax on the gain.

But if you are deferring the tax liability, you won't realize any cash savings on your taxes until the transaction in which you sell your last residence and render a final accounting to the IRS.

And if you are 55 or over at the time of that last sale, you will be able to exclude up to $100,000 of gain entirely. So unless your accumulated gain is greater than $100,000, there will be no final tax liability, and the tax reduction for fixing up expenses will be lost.

To qualify for even this limited and questionable tax advantage, the work must be performed within 90 days before you sign the contract to sell (and paid for within 30 days after the sale).

That 90-day limitation could be a problem, particularly with today's high mortgage interest rates and depressed real estate market.

Note that the 90-day period dates back from the date of the sales contract, not the date you put the house on the market.

So if you have the place fixed up just before listing the property for sale, but then it takes more than 90 days to find a buyer and reach a satisfactory contract, you can't count the expense anyway.

Q: Following the suggestions in your recent series of articles on retirement, my wife and I have decided that I'm carrying more life insurance than I need. How do I go about canceling the surplus coverage?

A: If the insurance you intend to terminate is a term policy, you can simply inform the company that you intend to drop the coverage at the next renewal date.

If that date is a long way off and you don't want to wait, most companies will permit an earlier cancellation with a partial (but probably not pro rata) refund. Contact the carrier or local agent and ask.

A whole-life policy that has been in force for a while offers three termination options. These are spelled out, along with a table of guaranteed values for each option, in the policy itself.

You can receive a payment equal to the "cash or loan value" -- no strings attached. Then you are free to spend or invest the cash as you wish. (In your case, this is probably the preferred choice.)

The second option is the issuance of a paid-up policy for an amount of coverage that is less than the face amount of the original policy. This new coverage will continue for life with no further payment of premiums.

The face amount of the new policy will depend on how long the old policy has been in force. It will be roughly equivalent to the amount of insurance you could buy at your present age with a single premium equal to the present cash value of the old policy.

Finally, you can be issued a paid-up policy at the same level of coverage as the present policy but for a specified number of years, depending on your age and life expectancy.

With this third option, there are also no additional premium payments; but at the expiration of the specified term the policy will lapse with no cash refund.

You can obtain whichever option you select by sending the policy to the issuing company with an acompanying letter requesting the action you have decided on.

However, I recommend you consult the company's agent first. He may have standard company forms which will simplify the paper work for you. More important: Since the policy terminology and tables can be confusing, he can check your calculations to be sure you have come up with the correct numbers.