DEAR BOB: How can I apply for an extension of that 18-month time limit for bying a replacement home so I can defer paying tax on the profit from the sale of my home? -- Daisy T. Suitland

DEAR DAISY: Under the "residence replacement rule," there are only two situations in which you can extend the 18-month deadline for buying a replacement for your principal residence and still qualify for tax deferral. The extensions are allowed only if you either.

1) Join the military service. You can delay buying your replacement residence up to four years after the sale of your old principal residence.

2) Have a new house built for you, with construction beginning within 18 months after the sale. In this case, you can take up to 24 months after the sale to complete the house and move in. Ask your tax adviser for details.

DEAR BOB: Is it true that if I convert my 12-unit apartment house into condominiums, my sale profits will be taxed as ordinary income instead of long-term capital gains at the lower tax rates? -- Nellie S. Washington.

DEAR NELLIE: Yes. When you put 12 condos on the market for sale, you become a real estate "dealer" selling inventory. Realty dealers are taxed on profits at ordinary income tax rates rather than at the lower long-term capital gains rates.

To avoid this unpleasant tax result, consider selling your building at a long-term capital gain profit to a professional condo converter. Such a converter probably will offer you 20 to 30 percent below what the condos will sell for. That difference represents the converter's profit for risk. You may be better off doing this than paying ordinary tax rates on your profits. See your tax adviser for details.

DEAR BOB: If I sell my apartment house on five-year lease option, with the buyer's rent applying to the purchase price, can I continue depreciating it while the master tenant pays me rent? -- Davis T. Washington.

DEAR DAVIS: Maybe. But an IRS auditor may conclude that your transaction is a sale rather than a rental, so you would lose the depreciation deduction and get an installment sale instead. Although a lease of at least 30 years with an option to buy is usually a sale, shorter-term lease options are a "gray area" for tax purposes. If it looks, acts and smells like a sale, it probably is a sale. See your tax adviser for details.

P.S.: Further lease-option details are in my report, "How Short- and Long-Term Lease Options Can Increase Your Realty Profits." sTo obtain your copy, send a $2 check payable to "Newspaperbooks" for Report 81111 to The Washington Post, P.O. Box 259, Norwood, N.J. 07648. DEAR BOB: I enjoyed your recent article about the many ways to get equity out of property already owned without having to sell it. But your last method confused me. You said it's possible when buying a property to offer as the down payment a second or third mortgage on property already owned. Please explain more. -- Rialto P., Upper Marlboro.

DEAR RIALTO: Gladly. Let's suppose you own a home worth $100,000 on which you have a $60,000 first mortgage. In other words, you have $40,000 idel equity that is doing you no good since it produces no return.

When you find another property you would like to own -- perhaps apartments, commercial property or a vacation condo -- rather than borrowing on an expensive second mortgage on your house to raise the down payment cash, you can offer the seller a $20,000 second mortgage on your home as the down payment. It's up to you to specify the interest rate, payments and other items you can afford.

The cosxt of creating such a second mortgage on your house is usually $10 or less for various fees. If the seller of the property you are acquiring is motivated, he will accept. Why? Because if he needs cash, after the sale he can sell your $20,000 second mortgage at a discount to yeild perhaps $15,000 cash. Or if he wants the monthly payment income, he'll keep that second mortgage.

Thousands of motivated sellers gladly will accept a "created" second mortgage as a down payment. But there are many more who will accept such an offer if it is sweetened with a little cash too. It's called "lemonading," mixing the sweet cash with the mortgage.

DEAR BOB: Last week my CPA took me to lunch. She said the only way to completely avoid tax on real estate sales profits is to defer them, such as with tax-deferred exchanges or by selling one residence and buying a more expensive one, and then dying. When I die, she said, all deferred taxes are forgiven by Uncle Sam. Is this true? -- Tottie P. Fairfax.

DEAR TOTTIE: Yes. Death is the ultimate tax shelter.