Tax Basis

Q: I've recently settled on a house. Are there things that I need to do now in order to minimize my capital gains taxes when I eventually sell my home?Wanda Fowler, NorthwoodA: Any profit from the sale of a home can add to your tax burden. You may reduce taxes by being aware of several guidelines.Be sure to keep a good record of improvements to both the inside and outside of your home. By saving receipts for all home and landscaping improvements, you will ensure that your home's tax basis is not understated nor your gain overstated.

Baltimore area ranks 58th in housing affordabilityBaltimore was the 58th market in housing affordability in a 1996 survey of 75 major metropolitan areas by E & Y Kenneth Leventhal Real Estate Group of Los Angeles. The region moved down one spot from 1995.The study compares what typical midlevel corporate employees are required to pay for "amenitized housing," a four-bedroom home or luxury two-bedroom rental apartment.Continuing a trend first observed last year, it is less expensive to own a home than to rent on an after-tax basis in 53 of the 75 markets studied.

Crestar Financial Corp. expects to complete its acquisition of Loyola Capital Corp. this weekend, a company spokesman said yesterday.Barry Koling, a Crestar spokesman, said that 28 Loyola branches would bear the Crestar name and accounts would be converted over the New Year's weekend.He said the roughly 260 Loyola employees who were targeted to lose their jobs have been terminated."I don't have the details; it's all been done," Mr. Koling said.Crestar plans to formally announce on Tuesday the deal's completion as well as a new management team.

Dear Mr. Gisriel: My question involves the one-time $125,000 capital gains tax exclusion that people age 55 or over can claim when they sell a home.Can I sell my house at age 53 years and six months, not buy another house, and then wait until I am 55 to exercise my one-time capital gains exclusion?Also, what are the rules if two individuals over 55 are contemplating getting married and both own homes?Ralph PitlerTowsonDear Mr. Pitler: Technically speaking, if neither you nor your spouse is at least 55 years old when you settle on the sale of your existing house, then you do not qualify for the IRS Section 121 one-time capital gains tax exemption that allows older homeowners to keep up to $125,000 of their resale profits tax free.

Question: My wife and I own four pieces of residential real estate. We have four children and would like to give each of them one of these properties. Is there some way we can make annual gifts of these at the rate of $20,000 per year?Answer: Yes. The strategy, among the hottest new estate-planning techniques these days, involves forming a family limited partnership with your children and granting to them every year through the partnership an interest in the property.But instead of granting your children an interest worth just $20,000 each year, estate planners note that you can justify a slightly larger gift.

Guess what many U.S. taxpayers haven't been doing as they listen intently to ongoing debate about proposed 1993 tax increases?They haven't been doing their tax returns for the 1992 tax year, that's what.Filings are running behind last year's pace. That's partly due to taxpayer expectations of smaller refunds thanks to withholding changes ordered by George Bush to stimulate consumer spending and partly due to pure procrastination.Four out of 10 U.S. taxpayers will file their returns in April, one-third of them the week before the deadline.

PRESIDENT Bush's proposal to eliminate the income tax that investors pay on dividends has generated speculation about winners and losers. At first, it seemed as if the winners would be dividend-paying stocks, especially preferred shares that pay high dividends. Among the potential losers, it seemed, would be tax-free municipal bonds that would face new competition from stocks and 401(k) investors who would still have to pay income tax on reinvested dividends once they took money out of the plan.

The ink is barely dry on the 1997 tax law, but creative accountants and tax lawyers already have spotted ways for homeowners -- and other real estate owners -- to reap benefits beyond what even Congress might have contemplated.Tops on the list: Call it the serial home-sale strategy.It could save some property owners hundreds of thousands of dollars over a period of years.The technique has potential applicability to homeowners who also own a second house or condo, a vacation house or any rental residential property.

Q. Your article about variable annuities with a lifetime income guarantee was interesting. Could you explain in more detail the differences between this benefit and annuitization? A. I wrote about a relatively new lifetime income benefit rider offered by several insurance companies that issue variable annuities. With this optional benefit, which comes at an extra cost, the annuity purchaser can choose to receive a minimum lifetime income regardless of how the annuity investments perform and without having to "annuitize," or give up access to principal.

Many investors share a hope: that Washington will someday allow them to put unlimited sums into tax-favored accounts. But for now, they are stuck with rules that limit annual contributions to $2,000 for IRAs and $10,000 for 401 (k)s. If only more could be put in! Imagine the gains that would be realized with no tax on profits for decade upon decade. Actually, you can do just as well in an ordinary, taxable account if you manage things right. In fact, you could do "better" in a taxable account, according to a study by PricewaterhouseCoopers LLP. That's because some of the tax-deferred accounts come with strings attached.