Q DEAR BOB: I am writing for elderly friends who are selling the house where they lived for 20 years and now want to buy a smaller house. Their accountant advised them they will owe a huge tax, even after their $500,000 principal residence sale exemption. But I disagree, because they are buying a less expensive home. I've enclosed the numbers. Who is right? -- Ernst S.

A DEAR ERNST: The accountant is correct. The old "rollover residence replacement rule" of Internal Revenue Code 1034 no longer applies to home sellers buying replacement homes. That tax break was repealed in 1997.

The federal government presumes the $500,000 principal residence sale capital gains exemption for a married couple (up to $250,000 for a single home seller) of Internal Revenue Code 121 is enough. Of course, I am presuming your friends owned and occupied their primary home at least 24 of the past 60 months before its sale to qualify.

Although your friends will owe a capital gain tax because of their large capital gain, at the current 15 percent federal tax rate plus state tax, they are receiving a big profit that they can easily afford to pay.

DEAR BOB: In 2004, my mother died and I inherited her free-and-clear house. On the advice of mother's lawyer, I chose a real estate agent to sell the house, but first it had to be brought up to building-code standards. To my great relief, the agent went above the call of duty to help arrange the repairs. She earned every cent of her sales commission. The sale was all cash with the approval of my mother's lawyer. I just thought you should know there are some great agents out there -- Margaret M.

DEAR MARGARET: In the 31 years I've been writing this column, I think yours is the first letter I received complimenting an agent for outstanding service. Of course, there are thousands of other excellent agents who also deserve praise, but it is just human nature that I receive mostly letters about real estate problems.

DEAR BOB: In 1981, we bought our property, which consists of a house and three rentals, for $200,000. My husband died in 1997 and our lawyer had the property appraised then for $240,000. I was disappointed because I thought it was worth more. In 2003, I had a real estate agent evaluate the property and he said it was worth $450,000, but I was not ready to sell. In May 2005, a new agent wanted to do a "work up" on my property's value. She came up with a market value of $850,000, but she couldn't determine the correct 1997 stepped-up basis value when I inherited the property. Is there any way to do this? -- Margaret H.

DEAR MARGARET: A real estate agent can give you only her opinion of current market value, usually based on comparable nearby home sales prices, but not past market value. What you need is a professional appraiser who specializes in determining past market values, such as your property's market value on the date of your husband's death in 1997.

The best source for finding these specialist appraisers is on the Internet at www.appraisalinstitute.com. If you have difficulty finding such a local appraiser, give the Appraisal Institute a phone call at its Chicago headquarters for assistance.

DEAR BOB: About a year ago, we bought our five-year-old condo in a complex that is still run by the developer. We do have an official condo homeowners association and we have no control running our building despite paying monthly dues. There are never any condo owners' meetings or reports as to how our money is spent. The developer says we will become a condo homeowners association after 75 percent of the units are sold. Can we expect reports on where our money goes? -- Gary T.

DEAR GARY: The situation you describe is outrageous. Before you bought, you should have asked questions about the homeowners association and its reserves. You also should have asked for copies of the monthly meetings for the last six months.

If the developer still controls many units, he might never give up control of his complex. You and the other condo owners should consult a lawyer who specializes in condominium law.

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