QDEAR BOB: About six years ago, my widowed mother, then 68, thought she was dying, though her doctors couldn't find anything wrong. To avoid probate after she died, she deeded her house to me, her only child. Then Mom found a new doctor. He did some simple tests and found her thyroid gland wasn't working right. Now she has more energy than I do and wants to move from her house to an assisted-living center where several friends live. To do so, it will be necessary to sell "her" house. My tax adviser says that because the house was a gift to me, I took over Mom's $76,000 basis. The house is worth about $500,000. How can I avoid paying tax on this sale so Mom can get the money to move? -- Rick R.

ADEAR RICK: Your tax adviser appears to be correct. Deeding her house to you was a costly mistake for you. You received her low adjusted cost basis. Now, when you want to sell the house for your mother's benefit, there will be a large, taxable capital gain.

Because your mother is not on the title, she can't qualify for the Internal Revenue Code 121 principal residence sale $250,000 tax exemption. If your father was a co-owner of the house and your mother inherited his share, at his death she became entitled to a new "stepped-up basis" of market value. If that is the situation, be sure your tax adviser is using the stepped-up basis to adjust your cost basis. That might save you some money.

DEAR BOB: My wife and I have a revocable living trust. The title to our home is in it. When one of us dies, the trust becomes irrevocable. How will our living trust affect selling the home and the surviving spouse's right to take the Internal Revenue Code 121 $250,000 tax exemption? -- Darrell D.

DEAR DARRELL: Holding title to your principal residence in your revocable living trust has no effect on your IRC 121 tax exemption when the two of you, or the surviving spouse, decide to sell.

Your living trust is a beneficial way to hold title to your home and other real estate, as well as other assets. It does not affect your home-sale tax break.

When one of you dies, your living trust probably specifies that the surviving spouse owns the house. That spouse is then free to manage the house as before, such as refinancing or selling it.

The primary benefits of holding your home title in your living trust are that you avoid probate costs and delays when the principal trustor dies, provide for management by the successor trustee if the original trustor becomes incapacitated, and retain all the tax benefits of a homeowner.

DEAR BOB: To my surprise, my late uncle willed his house to me, but it isn't practical for my family. The house needs a little fixing up but has no mortgage, and market values are appreciating. Two real estate agents say they can sell the house for top dollar with only a 30-day listing. I'm thinking I should keep it as a rental for future market-value appreciation. On the other hand, I don't want to manage renters long-distance if there are maintenance issues. What would you do? -- Nickie H.

DEAR NICKIE: You would have little or no capital gain tax to pay if you sell now, because your adjusted cost basis is the market value of the house on the date your uncle died. Only if you sell the house for more than this stepped-up basis would there be any capital gain tax.

I rarely recommend long-distance rentals because of the drawbacks and the limited benefits. In your situation, I would take the tax-free inheritance and forget about the possible future market-value appreciation, or decline in value, and the long-distance management hassles.

DEAR BOB: I am a widow with a reverse mortgage on my house and I receive more income than I can spend. I set the excess aside for my grandchildren, who are teenagers. I enjoy my extra income, but what happens to my reverse mortgage balance when I die? Are my children responsible for selling the house and paying off the reverse mortgage balance? -- Gerta H.

DEAR GERTA: When you die or permanently move out of your home for more than 12 months, the reverse mortgage matures. Its principal and accrued interest come due. Your heirs can sell the house and use the proceeds to pay off the mortgage balance. The remaining equity is then distributed according to the terms of your will or, better yet, living trust.

If your heirs should wish to keep the house, they can refinance it to pay off the reverse mortgage balance.

DEAR BOB: We have owned our two-family house since June 7, 2001. We use half as our principal residence and half as a rental unit. If we sell before owning it five years, can we benefit from that Internal Revenue Code 121 $500,000 tax exemption? -- Rodica and Vasile F.

DEAR RODICA AND VASILE: Because you owned and occupied half of the property as your principal residence for more than 24 of the 60 months before sale, you qualify for up to $500,000 tax-free profit on your personal unit.

The rental half of the building would not qualify for this tax exemption. You will owe capital gains tax on your profit from the sale of the rental unit.

In other words, for tax purposes you are selling two properties -- your principal residence and your rental property. Consult a tax adviser for details.

DEAR BOB: I was shocked to find that my wife and I must now own our home for five years before we can sell it and qualify for that $500,000 tax exemption. We acquired our dream home as a rental property in an Internal Revenue Code 1031 tax-deferred exchange. It was rented to a tenant for about a year, and we moved in after she moved out. Our plan was to use it as our principal residence for two or three years and then sell it, using the $500,000 tax exemption. Now you say we must own it for five years?

-- Rohn Y.

DEAR ROHN: Congress changed the tax law for sales of principal residence that were acquired in an IRC 1031 tax-deferred exchange. To qualify for the $250,000 or $500,000 principal residence sale tax exemption, you need to occupy the home only 24 of the 60 months before its sale. But it must be owned at least five years to qualify for the Internal Revenue Code 121 exemptions. Your tax adviser has full details.

DEAR BOB: Is it legal to charge a homeowner a fee to cancel private mortgage insurance? I bought my house with a Wachovia Bank mortgage in 2003. It has since been taken over by Chase Home Finance. When I wrote them about canceling my PMI premium, I received a letter stating I had to pay $115 for the cost of a "broker's price opinion" to confirm my home has not declined in market value. Do I have to pay this fee? -- Alice R.

DEAR ALICE: From the copies of the paperwork you enclosed, it appears you have an advantageous home loan at 6.125 percent interest, which required PMI when it was originated two years ago.

You were wise to ask the lender to cancel the PMI premium if you now have at least 20 percent equity in the home. Although I can't tell from the loan statement how much you are paying for PMI, it should be worth $115 to you to get rid of it.

Homeowners who want to cancel their PMI usually must pay for an appraisal to determine their home's market value. An appraisal usually costs at least $300. You got a bargain from Chase, and you will be saving PMI fees.

DEAR BOB: Reserve balances for condo associations are a big problem, especially as condos become older and need more repairs. I was treasurer of a townhouse homeowner association that made a big mistake in the 1990s when we had a surplus: We reduced the monthly assessment. Then we had to go to the homeowners and ask for a substantial dues increase, which was approved only after much toil, bickering, anger and accusations. I suggest condo homeowner associations make a replacement study every few years to anticipate repairs -- and don't reduce assessments. -- Gerry G.

DEAR GERRY: You are correct. I own a condo as a second home, and the homeowner association's directors voted two or three years ago to increase our annual assessments by 5 percent to provide for increased replacement reserves.

Now, when we have an unexpected expense, such as a $26,000 elevator repair last year, we have plenty of reserves without the need for a special assessment.

If we ever have too much in reserve, I hope the directors will find some way to spend the surplus rather than reduce our monthly fees.

DEAR BOB: You recently had a letter about a handicapped renter whose service dog's barking was disturbing the other tenants, especially at night. Although I am not handicapped, my German shepherd's barking gave me fits, as I didn't want to disturb my neighbors. Then I bought a muzzle for the dog, which cost about $10. Now I simply show her the muzzle and say "quiet." She stops barking. The alternative is to leave the muzzle on for the night and she can whine, but not bark. -- Scott W.

DEAR SCOTT: Yours was the best letter of many I received about that problem. The landlord made a "reasonable accommodation" for the handicapped tenant although he didn't normally allow pets. But when the dog disturbed other residents, the landlord justifiably threatened eviction. Your solution of putting a muzzle on the dog, especially at night, should solve the problem.

DEAR BOB: When I bought my home three years ago, I had it inspected by a member of the American Society of Home Inspectors and negotiated with the seller about repairing the defects he discovered. But last week we pulled up the wall-to-wall carpet to install tile. We discovered an uneven concrete slab with large cracks. We had to replace the slab to lay the tile, and it apparently had been replaced before. I contacted our seller and she told me her seller had told her about the slab work, which she did not disclose to me. Do we have a case against her and her real estate broker for nondisclosure? -- Jim S.

DEAR JIM: Probably not. The fact that the seller had the concrete slab under your house replaced did not have to be disclosed to you unless the seller knew it was defective. A professional home inspector didn't discover the problem; even you didn't find it until three years after the home purchase.

Proving that the seller knew of the defect and should pay for replacing the concrete slab would be extremely difficult.

DEAR BOB: I am considering selling my home and buying a home with my boyfriend. I have two children, as does he. Should we take title as joint tenants with right of survivorship or as tenants in common? We want to ensure that our children get their share of the home if either of us dies. -- Brenda C.

DEAR BRENDA: If you and your boyfriend take title as joint tenants with right of survivorship, when one of you dies, the survivor owns the entire property. Your written will, or his written will, has no effect on joint tenancy property. However, if you take title as tenants in common, each of you should have a will to convey title to your half upon death as you wish.

If you each want to leave your half of the house to your children, are you aware of the possible consequences? Suppose your tenant in common dies and his will leaves his half of the house to his children. Would you want to own the house with your late boyfriend's children?

If they were minors at the time of his death, that would create an additional problem. Worse, if they were over 18, as co-owner tenants in common with you they could bring a partition lawsuit to force the sale of the house. Consult a lawyer to discuss other options.

DEAR BOB: My wife and I are retired and own a Florida condo as well as a house "up north" where we lived for 36 years. We occupy each residence for about six months a year and consider both to be our primary homes. We are thinking about selling the condo because our children and grandchildren live near our old house. But the condo has greatly appreciated in value. Our profit would be about $400,000. Can we sell it in 2005 and then sell our other home in 2006 or 2007 and use that $500,000 tax break again?

-- George R.

DEAR GEORGE: You can use the $500,000-per-couple principal-residence tax exemption (up to $250,000 for a single person) every 24 months. I presume you and your wife owned and occupied your Florida condo at least 24 of the 60 months before its sale as your "main home."

That means you can sell the Florida condo first, claim up to $500,000 tax-free capital gains, and then sell your other home at least 24 months later for the same tax break if it qualifies as your principal residence. Consult a tax adviser for details.

DEAR BOB: About a year ago, I set up my revocable living trust. My attorney prepared a deed transferring my home into the trust. Somehow, that quit claim deed never got recorded. My attorney has passed away and his office is closed. What should I do? -- Adrian R.

DEAR ADRIAN: No problem. The quit claim deed from yourself to your living trust, whether it was not recorded or was improperly indexed, is known as a "wild document" or a wild quit claim deed. It is out of the chain of title for your home.

Just have a new quit claim deed prepared from yourself to yourself as trustee of your revocable living trust. Then be sure it is properly recorded. That's all it takes to transfer title for your home into your living trust. Consult a lawyer for details.

DEAR BOB: Does stepped-up basis apply to a husband or wife who dies and leaves his or her half of the home to the survivor? Or does it just apply to property inherited from a third party? -- Barbara V.

DEAR BARBARA: This important term applies to any real estate (or other asset) received by reason of death from a deceased property owner. If you receive your late spouse's share of a property, you are entitled to a new stepped-up basis for at least half of that property's market value.

Suppose you and your husband owned your home as joint tenants with right of survivorship. He died. As the surviving joint tenant, you automatically received his joint tenancy interest with a new stepped-up basis of market value on the date of his death. In community property states, a surviving joint tenant spouse may be entitled to receive a new stepped-up basis on the entire property value, not just half. Consult a tax adviser for details.

DEAR BOB: I am getting on in years and want to distribute my assets to my two children fairly. However, I am concerned that I might need medical care, and I don't want to depend on Medicaid or other welfare. Should I deed my real estate to my adult children now to avoid probate? -- Norma T.

DEAR NORMA: You might need to sell your properties to provide for your old age. Why give up control?

A better alternative is to create a revocable living trust and deed your properties and other major assets to the trust. You can then specify who is to receive the assets when you die. Meanwhile, you keep control to buy, sell or refinance.

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

(c) 2005, Inman News Service