DEAR BOB: We live in a charming old home that, we think, was built in the 1920s or 1930s. The city can't find the original plans or building permit information on file. Our neighborhood location is superb, with wonderful schools our children love, so moving is out of the question. But ours is one of the few "unremodeled" houses.

We want to bring our house into the 21st century with a remodeled kitchen, updated bathrooms and a family room or den addition. One estimate, from a remodeling contractor highly recommended by a neighbor, is $85,000. Of course, we plan to talk with other contractors because this contractor is booked until August.

We bought our house about two years ago with a "no cost" 90 percent mortgage at 7.75 percent interest. We estimate $45,000 equity now. Other than our IRAs and 401(k)s, we don't have much financial reserves. What is the best way to finance our home improvements?--Cecilia G.

DEAR CECILIA: Millions of homeowners, like you, have decided to stay in their current residences and improve them. The home remodeling business is booming. It might be worth waiting for that popular remodeling contractor who is booked up for months because that is an excellent recommendation.

The easiest way to finance your home improvements is to temporarily use your existing unsecured credit lines, including credit cards, for a few months. Then, after the improvements are completed, your home will appraise higher than today and you can either refinance your mortgage or add a home equity loan to pay off the credit lines.

However, most of us don't have $85,000 or more of unused credit, so another alternative is to get a home-improvement loan after you have a firm written contract with a reputable remodeling contractor. Most banks and S&Ls are eager to make home-improvement loans to homeowners because such loans are profitable for the lender. Check with your credit union, too. Some progressive credit unions eagerly make home-improvement loans.

DEAR BOB: My wife and I own our house. The mortgage is in her name, but the deed is in both our names. Since my wife travels quite a bit for business, what would occur if something happened to her? How would I go about keeping the house? How would her name be removed from the deed? What if I wanted or needed to sell the house?--Bryant D.

DEAR BRYANT: Your question is on the minds of many home co-owners. If you and your wife hold title as joint tenants with right of survivorship, or tenancy by the entireties in the few states allowing it, the survivor can usually clear the title by filing a certified copy of the joint tenant co-owner's death certificate and an affidavit of survivorship.

If you and your wife hold title in a revocable living trust, as you should, the title is held by the living trust, which becomes irrevocable when one of the trustors dies. Since living trust assets need not go through probate, the survivor has no title problem.

However, if you hold title by another method, such as tenants in common, community property or partnership, probate proceedings are often required. Now is the time to consult an estate planning attorney to be certain there won't be title problems when you or your wife dies.

DEAR BOB: Several weeks ago you answered a question from a man who was moving to Europe with his wife for about two years. He wanted to know how to find a good property manager for their house while they're gone. I have written to you in the past about the National Association of Residential Property Managers.

We are a national organization of members specializing in managing houses, duplexes and fourplexes. The association can be reached at 1-800-782-3452 or at our World Wide Web site (www.narpm.org). Personally, I am a licensed real estate broker, in business more than 20 years, who only manages for a fee, as I do not also sell real estate. Our fees are typically 5 percent to 10 percent of gross rental income.--Enrico R.

DEAR ENRICO: I receive frequent questions about management of small residential properties and I will try harder to suggest owners interview members of your organization.

DEAR BOB: My wife and I, ages 73 and 64, bought our house many years ago. Fortunately, we chose a desirable location where home market values have escalated beyond our wildest dreams.

Our "happy problem" is, if we sell our home our net profit will be about $600,000. That is above our $500,000 home sale tax exemption. Is there any way to avoid paying tax on our $100,000 excess profit?

--Irv V.

DEAR IRV: As you know, Internal Revenue Code 121 provides a home-sale tax exemption of $250,000 per qualified owner. The simple requirement is the seller(s) must have owned and occupied the principal residence at least two of the five years before the sale.

Unless you want to get involved in a tax-deferred exchange, involving rental of your house before its sale and trading for another rental property of equal or greater market value, there is no way to avoid tax on your $100,000 excess home-sale profit. But the good news is the long-term 20 percent capital gain tax will only be about $20,000. For full details, consult your tax adviser.

DEAR BOB: My husband and I put our home into a life estate to ensure that our daughter will own it free and clear--no probate, no hassles--upon our deaths. She can simply have our names taken off the deed and have the home in her name only.

Suppose we change our minds and want to sell the house to buy two condominiums, one for our daughter and one for ourselves? Upkeep of the house is becoming a burden for her and us. What is the difference between a living trust and a revocable trust? What is the best way to avoid probate?--Beverly and Malcolm S.

DEAR BEVERLY AND MALCOLM: When you deeded your house to your daughter, subject to life estates for both of you, you relinquished control over that house. Your daughter owns it, subject to your lifetime rights. Legally, she is the "remander person."

It's too late to change your minds. She now owns your house. I hate to think of the tax complications if she gives it back to you to sell so you can buy two condos with the sales proceeds.

A living trust is revocable at any time before the trustor, or creator of the trust, becomes incompetent or dies. In other words, a living trust is a revocable trust. Living trusts or joint tenancy with right of survivorship are the best ways to avoid probate costs and delays. Consult a tax adviser and lawyer for more information.

DEAR BOB: My wife and I bought our future retirement home in 1985. We rented it to tenants for six years and deducted depreciation on our income tax returns each year. Since 1992, after I retired, we have lived in the house, now worth about $150,000.

Some time in the near future, we plan to sell the house and move to a condo or perhaps an assisted-living location. How do the six years of depreciation affect the tax on the sale of our house or any taxes on the appreciated market value?--Jim P.

DEAR JIM: Don't worry. Only depreciation deducted after May 7, 1997, on your principal residence, while it was rented or used for business purposes, is taxable upon sale at the special 25 percent "recapture" tax rate.

Since your depreciation was deducted well before 1997, it is not recaptured, which means taxed. To illustrate, suppose you paid $100,000 for the house and deducted $1,000 depreciation for each of the six years it was a rental property. That means your adjusted cost basis is $100,000 minus $6,000. That's $94,000 in this example. When you sell, subtract your adjusted cost basis from the net (or adjusted) sales price to determine if you have any taxable gain.

You said the house is now worth about $150,000. Since you and your wife have owned and lived in it for more than the required two years out of the past five years before sale, you can claim your entire $250,000 per qualified seller tax exemption and owe no tax on your profitable home sale since recapture doesn't affect your situation. For more details, consult a tax adviser.

DEAR BOB: Nearly 20 years ago my wife and I bought our home. After she died I became afflicted with many physical problems, especially severe arthritis. I am now over 80, in a wheelchair and in an assisted-living home. Last summer I decided to sell my house. You and many others would say I did everything wrong.

Instead of contacting three real estate agents, as you constantly recommend, I hired an auctioneer to sell my house. It was sold "as is" with little preparation to get it into good condition. The buyer is a well-known local real estate agent who buys and restores houses for resale.

He now is trying to sell my house at a large profit. Even though I did everything wrong, I had no bother. I thought you might like to know how costly it can be to sell the wrong way.--Henry J.

DEAR HENRY: Although you didn't maximize your home-sale profit, you sold without any hassle and probably received a reasonable sales price.

However, I do not recommend auctioning a house unless it is a distress situation or the local home resale market is extremely depressed. You probably could have received a much higher sales price if you fixed up the house for sale and listed with a professional realty agent on a 90-day listing.

DEAR BOB: I own a two-family duplex and have lived in one unit for 22 years while renting the other unit to tenants. Now I want to sell to take advantage of the $250,000 capital gains exemption for a single person.

Two accountants have given me conflicting advice. One says I must move into the rental unit and live there for two years to exclude the total gain. The other accountant says I have fulfilled the two out of past five years requirement, which pertains to the entire building, not just one unit.

Who is right? The profit won't be more than $250,000 on the entire building.--Barbara P.

DEAR BARBARA: I am shocked. Neither of those accountants is correct. For tax purposes, the sale of your duplex is the sale of two separate buildings. One sale is the rental portion. The other sale is your personal residence portion.

Your $250,000 principal residence sale exclusion of Internal Revenue 121 applies only to the profit from the sale of your "main home" portion of the duplex. But the profit on the sale of the rental unit will be taxable.

Other than by making a tax-deferred exchange of the rental part of the duplex, there is no way to make a completely tax-free sale of the entire building, which is part rental and part personal residence. When you sell, be sure to get an appraisal of the building to allocate the sales price between the two units. You should hire a new tax adviser because those accountants don't understand the tax code.

DEAR BOB: Recently, I took out a first mortgage on my house to consolidate my debts and pay my property taxes. My free-and-clear house was appraised at $152,000 in 1990; I don't know its market value today.

I needed $51,000, and the bank approved me for that amount but said private mortgage insurance (PMI) was required to cover my loan. The PMI brought the total to $56,000 for the loan amount plus the PMI premium. Since I have at least $94,000 equity left, do I need PMI? What are my options?--Scott Y.

DEAR SCOTT: Based on the information you supplied, your lender ripped you off. Unless home values have declined in your neighborhood, you don't need PMI on your loan since the loan-to-value ratio is an extremely low 33 percent.

PMI protects the lender if the borrower defaults on a mortgage with a high loan-to-value ratio, such as 90 percent or 95 percent. But your high PMI $5,000 prepaid premium is a total waste of your money. If you default, the house can easily be sold for at least the $51,000 balance to pay off the loan.

You should talk with your lender and demand PMI cancellation and a full refund of the $5,000 PMI premium. If you don't get prompt satisfaction, contact the bank's state or federal regulator. You might also want to contact the local district attorney because this looks like lender fraud.

DEAR BOB: For Christmas in 1989 we received a deed to 1 square foot of Alaska land from our daughter and her husband, who were then living in Alaska. The deed was notarized in Anchorage and recorded.

We have never received a property tax bill and don't know if we have squatters on our land or if we have a delinquent property tax bill. I am writing this letter just for fun, wondering if we should do anything?--Gerald F.

DEAR GERALD: I think you have a virtually worthless piece of paper. Even if oil or other minerals are discovered under your property, not much can be done with 1 square foot of land.

You might want to frame that deed, as it can be a great conversation starter. I have a similar deed to Hong Kong land in my office that I'd be glad to sell you really cheap. Those gimmick deeds are primarily souvenirs; they certainly aren't real estate investments.

DEAR BOB: About 32 years ago we bought a one-half-acre lot in a Poconos vacation area. Years later, the developers sold out to the homeowners association. We paid property taxes and association dues until two years ago, when a test showed our lot wasn't buildable.

We paid more than $10,000 to maintain a lot that is worth nothing. I've tried to work with the manager of the homeowner's association to let him know we aren't going to pay the dues or taxes on this worthless lot. The association has submitted our names to several collection agencies, resulting in our receiving five collection letters, along with nasty phone calls and threats that our excellent credit rating would be ruined.

We hired a real estate attorney. Through him, we offered to deed the land to the homeowner's association, but they refused to accept it. The association continues to demand more money. What should we do?--Olwen H.

DEAR OLWEN: Unfortunately, there is no simple solution. One alternative is to offer to deed your lot to one of the adjoining lot owners. They might be happy to receive it and take over your tax and dues obligations.

Unfortunately, the homeowner's association has discovered that impairing your credit is a powerful threat to get you to pay the taxes and association dues. If that should happen, you can pressure the credit bureaus to remove any negative credit remarks because you didn't apply for credit from the homeowners association and you were defrauded by the developer who sold you an unbuildable lot.

If you receive any more collection agency phone calls, tell the collector to stop contacting you. Any further contacts after your request can result in damages against the collection agency. Tell the homeowner's association to foreclose on the dues lien and to take your property by foreclosure. Of course, that's the last thing the association wants. The association wants the dues money, not your property.

DEAR BOB: I recently signed a contract to sell my property, but my buyer's broker was not able to provide us with a copy for our records. We closed the sale without seeing the sales contract. Should we have asked for a copy of the sales contract and title transfer for our records?--Maria P.

DEAR MARIA: Yes. Your licensed real estate agent should have provided you with a copy of the sales contract at the time you signed it, especially after you requested it. You also should have been given a copy of the closing settlement papers, including a copy of the deed you signed.

You should immediately take aggressive steps to receive copies of all applicable documents for your records. If your buyer's agent, who has a fiduciary duty to you, refuses to promptly obtain copies of these important papers for you, report the matter to the state real estate commissioner for license discipline.

Something seems seriously wrong with your transaction. Much of the blame goes to you for not insisting on receiving copies of all real estate documents at the time you signed. But your buyer's agent also shares the blame for not looking out for your interests.

After you obtain copies of all the documents you signed, read them. I wouldn't be surprised if there was fraud involved because it is not normal to hide sales contracts from property sellers. For further details, consult a local real estate attorney.

DEAR BOB: Our son has been living with us since college. He has saved enough money for a home down payment, but he will need about $200,000 to buy the house he wants. My wife and I are in a position to lend him the $200,000 at zero interest for a few years.

If we write our son a "gift letter," which says the $200,000 is a gift that doesn't have to be repaid, will this be sufficient if we should have an IRS audit?--Ray E.

DEAR RAY: Which is it? A $200,000 gift or a loan? If it is to be a $200,000 gift, you and your wife must file an IRS gift tax report because you will exceed your annual $10,000 per donee tax-free gift limits. However, no gift tax will be due unless either of you has exceeded your $675,000 lifetime combined federal estate and gift tax exemption.

If you are lending your son $200,000 and expect to be repaid, with or without interest, you should have your son sign a promissory note, and either a mortgage or deed of trust should be recorded against the house he buys as your security for repayment.

DEAR BOB: If I do an Internal Revenue Code 1031 tax-deferred exchange, does the new property I acquire in the trade have to be equal or more in equity to the old property? For example, I paid $165,000 for the house, it is worth $240,000, and I have about $107,000 equity. To avoid paying capital gain tax on my profit, what must the new property be worth?--Jane I.

DEAR JANE: Remember that all properties in a tax-deferred exchange must be "like kind." That means held for investment or use in a trade or business. Your personal residence cannot be involved in a tax-deferred exchange.

For the "up-trader" to avoid capital gain tax, you must exchange equal or up in both market value and debt. If you wind up owing less on the acquired property than you owed on the old property, you will be taxed on the "boot" received such as cash or mortgage debt relief.

In your situation, that means the acquired property must cost at least $240,000 and you must owe at least $133,000, $240,000 minus $107,000, against it.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128.{copy} 2000, Tribune Media Services Inc.