Q DEAR BOB: About four years ago, my wife and I bought a three-bedroom house for our son to occupy while he was attending college. He always had three or four tenants living in the house with him and paying rent. Although he was 18 at the time, it was a great learning experience for him to become a landlord. On top of the mortgage, insurance, property taxes and other expenses, he managed to clear $700 to $1,200 per month. Meanwhile, the house rose in market value by at least $150,000. We're almost sorry to see him graduate and move on to a job out of town as an accountant. Can we claim that $250,000 principal-residence-sale tax exemption even though title was in our names and we didn't occupy the house, but our son did? -- Ned W.

A DEAR NED: No. You lose out on the $250,000 principal-residence-sale tax exemption of Internal Revenue Code 121. Although your son met the 24-out-of-last-60-months-before-sale occupancy test, because his name was not on the home's title, you and your wife owe capital gains tax on the entire capital-gain profit on your investment property. Of course, you could make an IRC 1031 tax-deferred exchange for another investment property of equal or greater cost and equity, but that's another issue.

Why didn't you add your son's name to the title? Also, don't forget you also owe the special 25 percent federal tax rate on depreciation recapture for all the depreciation deductions you enjoyed. Consult a tax adviser for details.

DEAR BOB: I owned a two-unit residential building with my wife, who died recently. How can I have the title transferred into my name? My bookkeeper advises me to have the property appraised. Do I need an appraiser? -- Jimmie J.

DEAR JIMMIE: The first answer depends how you and your late wife held title. If you held title in joint tenancy with right of survivorship, or equivalent method, it's usually simple to transfer title to your name as the surviving co-owner. All that is usually required is to file a certified copy of your late wife's death certificate and an affidavit of survivorship with the local recorder of deeds.

However, if you and your late wife held title by another method, such as tenants in common, then a probate court proceeding is usually necessary to pass title according to her will.

You should hire a professional appraiser determine the current market value of the inherited property. The reason is you will receive a new partial or full stepped-up basis to market value on the date of your wife's death if you held title in joint tenancy or community property. However, if you held title as tenants in common or other method, then you only receive a partial stepped-up basis. Either way, the appraisal is important.

DEAR BOB: My sister and her husband own a free-and-clear home in Boise, Idaho, where they have never lived. Their daughter has been living in the house at least 10 years, and now they want to give the house to her. What is the best way to do this without any tax implications? If they deed the house to her, how long must she live in it before she can sell it without owing any tax? -- Harry D.

DEAR HARRY: When your relatives make a gift of that house to their daughter, she takes over the donor's presumably low adjusted-cost basis. They must file a federal gift tax return because their gift exceeds the $11,000 per donor per donee annual exemption. No federal gift tax will be due unless they have given away more than $1 million per donor in total lifetime non-exempt gifts. However, their gift amount is subtracted from their lifetime estate tax exemption, now $1.5 million if they die in 2005.

To claim the $250,000 principal-residence-sale exemption of Internal Revenue Code 121, their daughter will need to live in her home at least 24 of the 60 months before its sale. That means she can sell it as soon as 24 months after taking title to claim the $250,000 exemption. Consult a tax adviser for details.

DEAR BOB: I enjoyed the recent article where you fielded a question regarding retrospective real estate appraisals. You advised that it is difficult to find an appraiser who can value a property as of a past date, such as the date of inheritance for stepped-up basis purposes. I want to advise you and your readers that the Appraisal Institute has a directory of members who specialize in retrospective appraisals. There are at least 1,000 members performing this service nationwide. The Web site is www.appraisalinstitute.org/search.asp -- Bill Garber, government affairs director, Appraisal Institute, Chicago.

DEAR BILL: Thanks for the information about how to find a qualified appraiser to determine the past market value of a property. Past market value is especially important for inherited property where the heir needs to establish their new stepped-up basis of market value on the date of the decedent's death.

DEAR BOB: About five years ago, my wife and I gave our summer cabin to our daughter and son-in-law. They and their two children really enjoyed it. We used it whenever we wanted several times each summer. But about a year ago, they got a divorce. Now we have been told we are not welcome to use the cabin. The son-in-law recently remarried and he uses the cabin with his new wife. Our daughter occasionally uses the cabin with her two teenagers and their friends. Is there anything we can do to reclaim title to correct our big mistake? -- Ben C.

DEAR BEN: After you deeded the property to your daughter and son-in-law, you gave up all legal rights to that property. When circumstances change, there is no way to "undo" a deed.

Your situation shows why parents, even with the best intent, should be especially wary of giving away real estate to their adult offspring. Divorce happens.

DEAR BOB: My best friend is a single mom who is trying to straighten out her financial life after a divorce. She has a great job, but her FICO credit score is about 615 and she has little money for a down payment on a condo or small house. She is wasting $1,600 per month rent on a tiny apartment in a bad area. A mortgage lender will give her a 100 percent mortgage if she can find a co-signer with good credit. That would me. My FICO score is 740. She has a bad temper, however, and I am worried she might lose her great job if she loses her temper at work. Do you think I should co-sign? -- Josie W.

DEAR JOSIE: If you co-sign on your best friend's mortgage, and if she loses her job and can't afford to make the mortgage payments, the lender expects you as co-signer to make the payments. If the mortgage falls into arrears, your high credit score will be ruined. Several times I've been asked to co-sign on various obligations for friends. With one exception, which turned out okay after I put extreme pressure on my friend to pay off the debt for which I co-signed, I refused to co-sign. Maybe it was selfish, but I refused to co-sign again and am glad because then I didn't get involved in my friends' problems.

DEAR BOB: I own a commercial building that a neighboring owner wants to buy for a parking lot. My problem is I would owe a huge capital gain tax. The buyer has put me in contact with a firm offering me a tax-deferred Internal Revenue Code 1031 exchange for a tenant-in-common (TIC) share in an upscale office building leased to major tenants with long-term leases. Is this a good deal? -- Jervis H.

DEAR JERVIS: I can't advise on a specific transaction, but TICs are extremely popular since the IRS approved them in Revenue Procedure 2002-22 for use in tax-deferred exchanges such as the situation you describe. TICs can be a great way to sell your investment or business property and make a tax-deferred exchange into a management-free property such as you describe. Consult a tax adviser for details.

DEAR BOB: On a recent visit to Las Vegas, my wife and I looked at a new condo high-rise now under construction. We enjoy visiting Las Vegas three or four times annually and have talked about retiring there because there is no state income tax. But the developer of the condo we are considering for purchase admits it has sold a lot of units to real estate speculators who are unlikely to ever move in. These investors will probably unload their condos shortly before they have to take title when construction is complete. My wife and I don't like the smell of this situation and are shocked the developer would sell to these speculators. But we really like the location, the price and the features of the condo complex. Would you buy? -- Kirk T.

DEAR KIRK: There should be a law against real estate speculators who hope to profit from tying up a property before construction without ever taking title or adding any market value. I shall never forget the first and only time I was called a real estate speculator. I purchased a run-down, nine-unit apartment building and immediately began adding value by renovating the hallways. My next project was to gradually renovate each apartment. One tenant, who had a low rent, said, "You're just a real estate speculator, aren't you?"

After that, I resolved to always add value to any property I acquired, rather than just hoping it might appreciate in market value, as speculators do. Many savvy developers, especially in South Florida and other high speculation areas, impose special requirements in purchase contracts to discourage speculators. Examples include requiring resale penalties within 18 months after purchase and prohibitions on rentals.

As for your situation where there are a large number of speculators, you might consider waiting to purchase until those speculators dump their condos on the market shortly before they have to perform and acquire title.

DEAR BOB: Thank you for your answer to another reader about limiting the number of rentals in a condominium building. I am on the board of directors of our condo homeowners association. We are confronting the situation of too many renters. Of our 44 units, we now have 19 rental units. Buyers are having trouble obtaining mortgages except at higher-than-market rates because we have so many rentals. The board hired a local condo attorney who drafted proposed conditions, covenants and restrictions (CC&R) amendment to abolish rentals. It must obtain approval by a majority of members, according to our rules. The attorney has billed us $3,700 so far. Don't you think this is excessive, although she attended several meetings to explain the amendment? -- Jose K.

DEAR JOSE: You got a bargain. I own a condo where we recently paid a condo attorney $5,000 to draft a similar amendment to our CC&Rs restricting rentals. We felt it was a worthwhile expenditure, especially after we got more than 90 percent approval.

However, we didn't let the rentals get out of control. As I recall, we had three or four rentals out of 63 units. The condo owners became concerned about the conduct of a few renters, plus the difficulty buyers were likely to encounter from mortgage lenders if we let the rental situation get out of control.

But we had to "grandfather" the few existing rental units or risk possible legal action by those owners.

DEAR BOB: I lent my son $45,000 for the down payment on his home. He has been deducting the interest he pays me on his income-tax returns. But his tax adviser says that is illegal because I didn't record my loan against his house. Is this true? -- George R.

DEAR GEORGE: Yes. You made an unsecured $45,000 personal loan to your son. I'm sure you trust him that he will pay the loan as agreed.

However, for your son to deduct the interest he is paying you on his income-tax returns as an itemized deduction, your loan must be secured by a recorded mortgage or deed of trust against his title.

This is simple to correct. A mortgage or deed of trust needs to be prepared to secure your promissory note. Then it must be recorded against your son's property title so he can claim the tax-deductible interest he pays you. Consult a tax adviser for details.

DEAR BOB: Can my husband and I obtain an equity loan on our four-unit apartment property and will the interest be tax-deductible? We want to use the money to improve the property. Our community bank, where we have banked at least 10 years, refused our request although we have great credit and keep substantial deposits -- Kim W.

DEAR KIM: If you have great credit and have kept substantial deposits for more than 10 years, your bank should roll out the red carpet for you. If not, find another bank.

Presuming you have adequate equity in your small apartment building, you should have no trouble obtaining a second mortgage to pay for improvements. When you obtain an equity loan, known as a second mortgage, on your apartments the interest becomes tax deductible as an ordinary and necessary business expense. Consult a tax adviser for details.

DEAR BOB: We recently sold our Massachusetts home and plan to use that $500,000 principal-residence-sale tax exemption. How soon can we use that tax break again if we decide to sell our Florida home? -- John R.

DEAR JOHN: Presuming your Florida home has now become your principal residence, you must wait to again use the Internal Revenue Code 121 tax exemption until at least 24 months after your prior principal-residence sale.

DEAR BOB: I was divorced three years ago. My husband got the house. My lawyer said my ex-husband had to refinance to get my name off the mortgage. We do not speak to each other. But his mortgage information is still listed on my credit reports. Can he sell the house if my name is still listed as a part owner? If he dies, can he bequeath the house to someone else? -- Barbara V.

DEAR BARBARA: Unless your name was removed from the house title as part of the divorce agreement, you still co-own that house.

As for the mortgage, as a co-signer your name remains on the mortgage until your ex-husband either refinances or sells the property. However, if your name is still on the title, your signature is required to convey marketable title.

At this point, you can't force your ex-husband to either refinance the mortgage or sell the house.

DEAR BOB: In 1990 my partner and I put our investments and the house we owned into our revocable living trust, primarily to avoid probate when one of us died. When he died two years ago, there was no problem with the investments so I had his name removed from the brokerage accounts and joint bank account. But his name remains on the title to the house. I am told by the recorder of deeds office that I need to hire a lawyer or a title company to clear the title. Do I need to go to this expense? -- Gerald W.

DEAR GERALD: There shouldn't be any extraordinary expense if you are named in the revocable living trust as the successor trustee. You should be able to convey the title into your name alone as the property owner unless there was something unusual about the living trust.

You should clear the title of your late co-owner's name as soon as possible. There are so many reasons that I can't list them all. Then you can create your own living trust to specify who you want to receive the realty title after you die. Or, you might decide to sell the property and you will then need to have the title in your name alone.

There is no reason to wait to clear the title of your late partner's name.

DEAR BOB: I stupidly signed a six-month buyer's agent contract with a buyer's agent I met at a free seminar at the community center. At first, I liked her because she seemed sincere. But when I didn't make offers on any of the houses she showed me, she became hostile and unfriendly. However, I kept phoning her to ask about houses I saw advertised in the newspaper. When I asked why she didn't call me about these new listings, she had various excuses. I later learned this buyer's agent wasn't showing me houses listed by discount brokers at 5 percent or 4 percent commissions. Is this legal? -- Sarah H.

DEAR SARAH: Your buyer's agent should have shown, or at least discussed, all available local listings that meet your criteria.

Unfortunately, some buyer agents neglect to show their client buyers the listings where the agent will receive a low share of the sales commission.

If your agent wasn't showing you all suitable listings, or at least mentioning them, you probably have sound legal grounds for terminating your buyer's agency contract for lack of due diligence by the agent.

DEAR BOB: I am involved in a revocable living trust. Our parents are dead. There are four brothers and one sister. We each get 20 percent of the living trust assets. My sister is in charge of the trust. Mom died three years ago, but my sister won't give us an accounting. What are our rights? -- David M.

DEAR DAVID: As a beneficiary of the living trust created by your parents, you have a legal right to an accounting for the living-trust assets. The best way to enforce your legal rights is to hire a local lawyer. If you and your four brothers split the cost, it should be worthwhile to obtain a complete accounting for living trust assets.

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) 2005, Inman News Service