QDEAR BOB: I heard that homeowners must now live in their homes at least five years, not just two years, to claim the $250,000 home sale capital gains tax exemption. Is this true? -- Minh H.

ADEAR MINH: No. To qualify for the principal residence sale tax exemption up to $250,000 (up to $500,000 for a married couple who both qualify), the home seller must have owned and occupied their home an aggregate 24 months of the 60 months before its sale. The 24-month occupancy time need not be continuous.

It is possible to buy your house or condo, live in it up to 24 months to qualify for the Internal Revenue Code 121 exemption, and sell it in the 25th month with up to $250,000 (or $500,000) tax-free capital gains.

The person who gave you the information was probably thinking about the big change made to IRC 121(10) for a principal residence acquired in a "like-kind" tax-deferred exchange under IRC 1031. For those homes obtained as rental properties in such an exchange, and later converted to a principal residence, the 24-month minimum occupancy time remains the same.

To qualify for the IRC 121 principal residence sale exemption, such a property must be owned at least 60 months before its sale. This change became effective for such sales after Oct. 22, 2004, but it only applies to homes acquired in tax-deferred exchanges.

DEAR BOB: I am 67 and my wife is 59. We plan to sell our business and our house to move to a less expensive area in Idaho. We are thinking about buying our new home for cash and investing the rest. We know your guideline: Don't pay more than 20 percent cash down payment. However, we really want to avoid mortgage payments. What should we do? -- Robert H.

DEAR ROBERT: I do not recommend putting all, or most of, your eggs in one basket. Suppose you and your wife don't enjoy the area or the house, but you have difficulty reselling your new home. Safer choices include leasing a house with an option to buy, or making a 20 percent down payment and obtaining an 80 percent mortgage. After a few years, if you are sure you want to stay, then pay off the mortgage.

DEAR BOB: How about writing an article about how to avoid capital gains tax on the sale of a principal residence when the profit exceeds the $250,000 or $500,000 exemption of Internal Revenue Code 121? -- Frederick B.

DEAR FREDERICK: You can avoid capital gain tax on the sale of your personal residence by moving out and renting it to tenants, who can be your buyers under a lease-option sale; to convert your home to rental status before sale; and then make a tax-deferred Internal Revenue Code 1031 exchange for an investment, rental or business property of equal or greater cost and equity.

Then you will have deferred your capital gain tax on the sale of your home and acquired an investment property. A popular choice today is to make a qualifying tax-deferred exchange into a tenant-in-common interest in a commercial property such as a shopping center, office building or apartment building. There are many tenant-in-common developers. A real estate agent or lawyer can probably make recommendations.

DEAR BOB: We are buying a new second home in North Carolina. We know our builder is financially stretched. There have been subcontractor liens filed and we know more are on the way. We are closing our purchase soon. My understanding is the liens will be paid at the settlement. Are we liable for any liens filed after the title transfer to us? What if our builder files bankruptcy? What about the builder's one-year home warranty? -- Brad M.

DEAR BRAD: Be sure you obtain the super-deluxe owner's title insurance policy at the closing settlement. Because you know the builder has financial trouble, you should hire a local real estate lawyer to study the owner's title insurance policy and other closing documents to be certain you are protected against all mechanics' liens and other possible problems.

As for the homebuilder's warranty, if the builder files Chapter 7 bankruptcy, that usually frees him of any warranty obligations. If possible, before the sale closes, ask him to purchase a 10-year home warranty policy from one of the major nationwide new home warranty insurance companies. Even if you have to pay the premium, it might be worthwhile.

DEAR BOB: I bought my house about six months ago and have listed it for sale because I want to buy a bigger house. Will I get taxed by the IRS, and how much will my mortgage lender tax me? Where can I find out exactly how much my fine will be? -- Juan P.

DEAR JUAN: I would be surprised if you have a net profit in your current home after owning it just six months. Usually, it takes at least two years of ownership to show a substantial net profit, after considering ownership and sales costs.

If you miraculously have a large sales profit, unless the home sale qualifies for one of the partial tax exemptions for principal residence sales in less than 24 months, if you sell within a few months after purchase you will pay ordinary tax rates on your profit.

To qualify for a partial principal residence sale tax exemption under Internal Revenue Code 121 in less than 24 months, the sales purpose must be for health reasons, job location change qualifying for the moving cost tax deduction, or "unforeseeable reason" such as divorce, death in the family, etc.

Mortgage lenders don't tax, but they can impose stiff prepayment penalties in their loan documents. Study your mortgage papers. If they contain a prepayment penalty, that is your "tax." But the good news is a prepayment penalty is tax-deductible as itemized interest.

Although you won't owe any fines for selling your home quickly after purchase, consult a tax adviser to discuss the details of a "quick-flip" sale.

DEAR BOB: Can a couple with one spouse living in one house, and the other spouse living in another house, fulfill the tax requirements to claim the $125,000 tax write-off on both properties? -- Victor T.

DEAR VICTOR: There is no $125,000 home sale tax exemption.

Perhaps you are thinking of the $250,000 principal residence sale tax emption (up to $500,000 for a qualified married couple filing a joint tax return) of Internal Revenue Code 121.

If one spouse owns and occupies his or her principal residence for at least 24 of the 60 months before its sale, that spouse can qualify for up to $250,000 tax-free capital gains under IRC 121. The other spouse can also qualify for the same exemption on another principal residence owned and occupied by that spouse.

This situation often occurs when two single people sell their separate principal residences before or after getting married.

DEAR BOB: Is there a limit that a condo homeowner's association can raise the owner's monthly maintenance fees? -- Les B.

DEAR LES: The answer depends on the state law where your condo is located and also the condo association's by-laws, which might contain a limit. For example, I own a condo where the monthly fees can be raised up to 20 percent per year by our board of directors. Above that, the members must approve additional increases by a vote. Thankfully, that has never happened.

Many states also have laws on special assessment limitations. Consult a lawyer for details.

DEAR BOB: My father died two years ago. He left his house to my brother and me in his living trust. The house was valued at $450,000 at the time of his death. Today, it is worth $525,000. My brother and I are both older than 55, so we have that one-time limit on capital gains tax. What is the best way to minimize our tax when we sell this house? -- Bryan A.

DEAR BRYAN: There is no longer any "over-55" rule that applies to the sale of a home. The age of a home seller is irrelevant to any federal tax exemption. If you and or your brother are full-time occupants of the house as your principal residence for at least 24 of the 60 months before its sale, either or both of you can qualify for the Internal Revenue Code 121 tax exemption up to $250,000.

If the house is not the principal residence of either co-owner, when you sell it, the capital gain difference between the $450,000 "stepped-up basis" on the date of each and the net sales price will be taxed as a capital gain. Consult a tax adviser for details.

DEAR BOB: In early October we listed our house for sale. Following your frequent advice, we interviewed three successful local realty estate agents, checked their references and signed a 90-day listing with the agent we thought was best. We based the asking price on our agent's comparative market analysis form, as well as the comparisons the two other agents prepared. All the estimates were within $12,000. At first, there was lots of activity, with a broker's tour open house, multiple-listing service and newspaper advertising. But just four agents showed our house and only one was from another brokerage. When we didn't get any feedback from our listing agent, I phoned her only to learn she left on a two-week cruise without telling us. When she got back, she said another agent in her office was "covering" for her. Then she asked for a $25,000 price reduction. As our listing expires soon, do you think we should extend our listing for another 90 days with the same agent? -- Vernon R.

DEAR VERNON: November, December and January are the slowest home sales months in most communities. Buyer demand for homes is seasonal, but well-marketed homes sell, even in the off-season.

I am shocked that your listing agent left for two weeks without informing you she was planning her cruise at the time she obtained your listing. That information might have influenced which listing agent you selected.

The home sales market is changing and slowing down in many communities. Part of this change is seasonal. An unknown factor is the effect of slowly rising mortgage interest rates.

Unless your current listing agent has some redeeming factor, from your description it appears she has not done a superb job to get you to renew her listing.

If I were in your situation, I would be thankful I only signed a 90-day listing with a listing agent who wasn't truthful. I also would take the house off the market for at least two weeks after the listing expires and re-interview the other two agents, and possibly interview several more successful agents.

Ask each agent, "In your opinion, why hasn't my home sold?" You may be surprised at the answers. Perhaps the market has shifted and your home is overpriced. More surprising to many home sellers is they learn their listing agent is disliked by other local agents or is known as a difficult agent.

DEAR BOB: Despite my best efforts to get my dad to prepare a will after he learned he had terminal cancer, he failed to do so. According to the lawyer, all his assets went to his widow. There are four adult children. My elder brother, a lawyer, then convinced our mother to add his name to her house title as a joint-tenant with right of survivorship. She is now declining and getting senile. After she dies, will our brother get the house, worth about $450,000, and we others get nothing? Mom has told us her will leaves everything to her four children equally. -- Jess C.

DEAR JESS: A written will has no effect on real estate held in joint-tenancy with right of survivorship. You and your siblings won't receive any interest in the house. If you can prove your brother used "unreasonable influence" on your mother to transfer the title to her home into joint-tenancy with him, it might be possible to persuade a court to undo that title transfer. However, you would need extremely strong evidence.

Perhaps your mother doesn't realize her will leaving her assets equally to all four children will have no effect on the joint-tenancy house title she holds with your brother. If she is capable of understanding, perhaps you and your siblings might want to have that conversation with her.

DEAR BOB: The home sales market in our town slowed in the past few months. Our home was listed in late July. Finally, in September a purchase offer materialized. It provided for a 10 percent cash down payment and an 80 percent first mortgage. We agreed to carry back a 10 percent second mortgage for five years. The sale closed on Sept. 30. The buyer's first payment on the second mortgage to us was due on Nov. 1, with a 15-day grace period. We have not received that payment. We moved out of town, so I can't go over and knock on the door. What should we do? -- Suzanna R.

DEAR SUZANNA: You have been patient and need to contact your home buyers immediately. Perhaps they don't have your new address, or another valid reason. Tell them you need the payment immediately, preferably sent by overnight delivery. Don't accept excuses. Even the major mortgage lenders have learned that quick action impresses new borrowers with the urgency of making mortgage payments on time.

Unless you receive your payment within a few days after demand, it's time to begin foreclosure. Depending on the location of the property, contact the title company or a local real estate lawyer to file and record the appropriate documents to start foreclosure. Usually, starting foreclosure is all it takes to get your past and future mortgage payments paid on time. But your home buyer is off to a bad start, so take action quickly.

DEAR BOB: Regarding the capital gain $250,000 exclusion on the sale of a primary residence under Internal Revenue Code 121, I am aware there is a partial exclusion if the seller doesn't quite meet the 24-month occupancy test. However, I have owned and lived in my home for several years, but my spouse has only lived here one year. Is his exclusion pro-rated? -- Mary DiG.

DEAR MARY: No. You, as the qualified owner-occupant spouse, get the full $250,000 principal residence sale exemption of IRC 121. However, if your spouse doesn't meet the 24-month minimum occupancy test, there is no provision in IRC 121 for a partial second exemption. To qualify for a full $250,000 exemption, your spouse must occupy the principal residence at least 24 months before its sale.

There is probably a good reason. If all a single homeowner had to do was get married and move his or her new spouse into the home to get another $250,000 exemption, or at least part of it, there would be a long line at the wedding chapel.

DEAR BOB: My husband and I won a binding arbitration award against our home builder, who had 30 days to pay us. It has now been 41 days and we have not heard anything about the money due to us. The award gives us money to have our home fixed and relieves the builder of liability for repairs. Whom do we contact to make the homebuilder pay us? -- Nancy B.

DEAR NANCY: Winning an arbitration award is just the start. Now you have to attempt to collect your award. Your lawyer can best advise you how to do that under the circumstances of your arbitration award. I wish I could give more specific advice, but you seem to have a homebuilder who isn't going to pay without a fight.

DEAR BOB: You have answered many questions about how to use the federal Internal Revenue Code 121 principal residence home sale tax exemption up to $250,000, up to $500,000 for a married couple filing a joint tax return. What about state income tax laws? Do they conform to the federal guidelines?

-- Richard P.

DEAR RICHARD: Many states conform their income tax laws to the federal tax code. For example, where I live in California, most of our income tax laws conform to the federal tax rules, with a few exceptions. Of course, the tax rates are much different. I noticed your e-mail is from Florida where there is no state income tax. However, if you own real estate in another state, you'll need to check with your tax adviser in that state for full details.

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