Q DEAR BOB: My wife and I are in a second marriage for each of us. We live in her house, which is in her name only. If we sell the house, would we be entitled to the $500,000 principal residence capital gains tax exclusion or $250,000? -- Frank F.

ADEAR FRANK: Internal Revenue Code 121 specifies that a husband and wife filing a joint income tax return in the year of their principal residence sale are entitled to exclude $500,000 in profit from the capital gains tax even if title is held in one spouse's name only. However, both spouses must meet the occupancy test, which requires an "aggregate" two out of the last five years principal residence occupancy. If you both meet this occupancy time test and file a joint tax return in the year of the sale, it appears you qualify for up to $500,000 tax-free principal residence sale capital gains.

DEAR BOB: In a recent article, you said you have bought and sold many properties for nothing down. I am disabled and live on a fixed income. My credit is good but conventional lenders won't help me. What kind of a lender did you use? -- Steven W.

DEAR STEVEN: "Nothing down" means no cash out of the property buyer's pocket, but it doesn't mean the seller won't receive cash. I've bought rental houses for nothing down where the sellers received 100 percent cash, but it wasn't cash out of my pocket.

One way to buy for nothing down is to purchase the property with its existing mortgage. Many existing home loans can be taken over by the buyer for a small assumption fee paid to the current lender, typically less than 1 percent. The balance of the sales price can be paid either by funds borrowed on your credit line or by the seller carrying back a second mortgage.

Another way to buy for nothing down is to obtain a new first mortgage for 75 percent of the sales price, and use your unsecured bank credit line for your cash down payment. The result is a nothing down purchase for you.

DEAR BOB: Years ago, my husband and I bought our home for about $160,000. It is in a wonderful neighborhood and has now appreciated to more than $1 million in market value. We both want to live in our home until we die, but we don't want to burden our heirs with the huge tax we would encounter if we sell now, even with the $500,000 principal residence exemption you often discuss. How can we avoid burdening our heirs with a big tax? -- Yvonne C.

DEAR YVONNE: Death is the ultimate tax shelter. Your heirs will receive your home with a new stepped-up market value on the date of the last co-owner's death. Meanwhile, when you or your husband die, the surviving spouse will receive a new stepped-up basis with no tax due. The reason is that property transferred upon death by one spouse to a surviving spouse is free of federal estate tax, regardless of the estate value.

However, when the second spouse dies, there might be federal estate tax payable by that spouse's estate.

The current federal estate tax exemption is $1.5 million for deaths in 2004 and 2005. The exemption increases to $2 million for deaths in 2006, 2007 and 2008. Decedents dying in 2009 will have a $3.5 million exemption. In 2010, the federal estate tax is fully repealed for deaths that year. But unless Congress acts, in 2011 the old $1 million federal estate tax exemption is reinstated. Ask your tax adviser for more details.

DEAR BOB: I belong to a sportsman's club of 37 members, but some of the members can't pay their dues. If I volunteer to pay the club's annual property tax of $1,925.58 per year, can I take title to the land after several years of making the payments? -- Robert B.

DEAR ROBERT: No. If that were the law, everyone would be volunteering to pay the property taxes on properties belonging to other people, hoping to eventually gain title. Each state has different laws as to when property goes to tax sales for unpaid realty taxes. Some states sell tax lien certificates to investors so the city or county gets its tax money immediately. If the property owner doesn't redeem within a specified number of years, the tax lien certificate owner gets the title.

In other states, such as California, the property taxes can go unpaid up to five years before the property is sold by the tax collector for unpaid taxes.

DEAR BOB: I am told that, by law, a landlord cannot refuse to rent to anyone who has the money to pay the rent. This leaves landlords wide open to tenants who pay the first month's rent but won't pay the next month's rent. In some states, it takes months to evict a non-paying tenant. Also, some tenants damage the premises and then demand their landlord make repairs. What can a landlord do about such bad tenants? -- Elmer P.

DEAR ELMER: Landlords do not have to rent to every applicant who has the first month's rent and a security deposit.

Although landlords cannot refuse to rent based on race, nationality, religion, color, handicap, family status, age and other specific reasons, landlords can and should discriminate based on the applicant's income, credit history and rental history.

However, landlords must treat all applicants equally. It is illegal discrimination, for example, to run credit reports only on applicants from one country but not others. After checking an applicant's income and credit history, I recommend phoning his two previous landlords to ask, "Would you rent to this tenant again?" Checking out rental applicants before they move in is the best way to prevent trouble.

DEAR BOB: My first husband and I bought a home in 1986 and sold it in 1989. Our buyers later sold the house to another buyer. This second buyer shows up on my credit report because he is constantly late with his payments on my old mortgage. The house even went into foreclosure, but the second buyer rescued it just before the foreclosure auction. Why am I still responsible for a mortgage on a house I no longer own? It is ruining my credit report. The mortgage company says I will continue to be responsible for this mortgage until it is either refinanced or a new buyer obtains a new mortgage. This is not fair. What can I do? -- Lori D.

DEAR LORI: It appears you sold that house in 1989 "subject to" its existing mortgage. That means you remain legally liable for the mortgage payments although you no longer own the house.

From your viewpoint, it would have been smarter for you to have required your buyer to formally assume that mortgage so you could obtain a release of mortgage liability from the lender. Because you didn't do that, it is too late now.

There is nothing you can do to force the second buyer to make his mortgage payments on time to stop ruining your credit. He must make the mortgage payments or lose his house by foreclosure, but because his name is not on the mortgage, he has no incentive to pay on time, other than to avoid late fees.

Sorry, there is nothing you can do. But your situation provides a warning to other home sellers to insist their buyers assume the old mortgage rather than allowing a "subject to" sale, as you did.

DEAR BOB: Our living trust provides that when we die, our daughter will receive our real estate and other assets. Will her spouse have any rights to her inheritance? -- Al S.

DEAR AL: I notice your letter is postmarked from California. If your daughter lives in California, when she inherits your real estate and other assets, the inheritance is her separate property and her spouse has no legal rights in it. Therefore, his creditors cannot put a lien on it.

The law is the same in most states, but your daughter should check with a lawyer in the state where she lives to be sure.

DEAR BOB: I am a senior citizen, 74, and need extra income. My accountant and a mortgage lender advise me against a reverse mortgage. Instead, they suggest a home equity line of credit (HELOC) at the prime rate of interest. There are no closing costs. I have been approved for a HELOC up to $100,000, which will enable me to pay off my $57,000 mortgage. My condo is worth at least $225,000. The problem with a reverse mortgage is that the closing costs seem so high. But I realize I will owe no monthly payments on a reverse mortgage. Which would you take? -- Mrs. M.E.

DEAR MRS. M.E.: The big drawback of such a line of credit is you will have to make monthly payments. If you need extra income, I can't understand why you would take such a line of credit, which requires you to make monthly payments.

Have you talked with several reverse mortgage representatives? do so to compare the FHA, Fannie Mae and Financial Freedom Plan reverse mortgages.

Yes, the up-front reverse mortgage fees seem high. But each reverse mortgage lender must prepare a total annual loan cost chart for your situation.

If you only live a year or two, your interest cost is high. However, because you are relatively young, you have at least a 10-year life expectancy, thus reducing the TALC considerably. Also, the reverse mortgage costs don't come out of your pocket, but out of your home equity.

To find reputable local reverse mortgage lenders, go on the Internet to www.reversemortgage.org for lenders in your area. You will need a lump sum to pay off your $57,000 existing home loan, but then you can select a credit line, lump sum, or lifetime monthly payments for the balance of your entitlement.

DEAR BOB: About 30 years ago, our neighbor planted a hedge for privacy. He didn't have a survey made, but he says he planted the hedge well within his side of the property line. About 10 years ago, he installed a chain link fence with a gate allowing an exit onto our property. The fence is about three feet from the hedge in our direction. About five years ago, I got tired of looking at that fence so I planted a flower garden about four feet from the fence on our property. Now the neighbor says my flowers are planted on his property because he planted his hedge far inside his property line. In the event one of us sells our home, what are the consequences? -- Bonnie B.

DEAR BONNIE: Hedge, fences and even trees don't establish property lines. Only a professional survey can determine where the true boundary is with your neighbor's lot.

If you are on speaking terms with your neighbor, why not suggest you jointly hire a professional surveyor and split the cost of determining the correct boundary line?

Even if the neighbor isn't willing to pay half the survey cost, since this seems to be bothering you, I suggest you obtain a survey now so you will know for sure where the exact boundary is located.

DEAR BOB: Five years ago my mother-in-law bought a house with one of her daughters. The intent was that she would leave the home to the daughter for taking care of her through retirement. But two months after the transaction, the daughter moved out and will not sign a quit claim. The house is almost paid off now and the mother is thinking of selling it and buying a condo. But the daughter's name is still listed first on the title and the mortgage note. What can my mother-in-law do to get her house back? -- Tim T.

DEAR TIM: This situation is a classic example why I repeatedly advise parents not to add their adult children to their real estate titles. The moral of your mother-in-law's circumstance is "Good kids sometimes go bad."

There is no legal method of which I am aware for your mother-in-law to force the daughter to sign a quit claim deed.

However, either co-owner can sue the other co-owner in a partition lawsuit to force the sale of the property with the sales proceeds divided between the co-owners. For details, your mother-in-law should consult a lawyer.

DEAR BOB: I am trying to help my 24-year old daughter buy her own house. I didn't want to give her the 20 percent down payment needed to get her own mortgage, so my husband and I got a home equity loan for the full price of a condo for her. She will repay us each month. Will we be better off taking depreciation on our income tax returns because our names are on the condo title? But this isn't helping our daughter establish a history of good credit payments. What do you advise? -- Dottie L.

DEAR DOTTIE: If you hold title to the condo and rent it to your daughter, then you must report the rental income received on Schedule E of your federal income tax returns. That is the same place you can deduct expenses such as mortgage interest secured by the condo, property taxes, condo fees and repairs. You can also deduct depreciation, a non-cash deduction, if you charge fair market rent.

Unless your daughter holds title to the condo and is obligated to pay a mortgage, which is secured by the condo, she won't be building any equity in the condo.

After your daughter is settled in the condo, she can shop around to see if she can obtain a mortgage in her name so that she can buy the condo from you. She might be able to get a 100 percent mortgage, with private mortgage insurance, if she has good credit. Or, if she can qualify for only an 80 percent mortgage, then you could carry back a 20 percent second mortgage so she can build her own credit.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.

(c) 2004, Inman News Service