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Jewish World Review August 18, 1999 /6 Elul, 5759

Bruce Williams

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Econophone

Will I have to pay a capital gains tax?


http://www.jewishworldreview.com -- DEAR BRUCE: Two-and-a-half years ago, I bought a house using $40,000 of my personal savings as a down payment. I am going to be selling this house, and I may net over $45,000 after all the commissions, bank mortgages, etc. I am not planning on reinvesting this money. I realize that the capital gains tax has been amended, but to what amount has it been amended to? -- W.S., Eureka, Calif.

DEAR W.S.: Up to $250,000 in profit for singles or $500,000 for a couple if the home is a primary residence (not an income property) that has been occupied for over two years -- safely excluding everything that you may gain on this transaction.

DEAR BRUCE: In a recent column you mentioned that a brokerage account could earn a little over 5 percent on about $40,000. You also mentioned that one can earn 8 percent in interest and growth with little risk in the marketplace. What is a brokerage account, how does one get such an account, and what is the safety level? Is it the same as a mutual fund? -- S.P., via e-mail

DEAR S.P.: Money market mutual funds are operated by brokerage houses as parking places for money. There are dozens of such funds where the value of the share is $1, and they are currently offering interest in the range of 5 percent. While there may be instances of these funds going "belly up," I know of none -- most are covered by insurance. With regard to your second query, mutual funds might be one choice, and direct equity purchases might be a second. It is my view that an intelligent investor in today's world can do a great deal better with middle-of-the-road investments than an 8 percent return calculated by growth and dividends. If it were my money, and I wasn't spending it, I would rather have growth, which is tax-deferred, as opposed to a dividend, on which taxes must be paid.

DEAR BRUCE: My husband died 13 years ago. I have been receiving Social Security benefits for a daughter who will soon be 16. My benefits will be dropped, but she will continue to receive hers until she is 18. I work several part-time jobs and put in a lot of hours to make ends meet. I am afraid of losing my house when the benefits are dropped. I am 48 and I have 13 years before I can draw on my husband's Social Security. I did own an apartment house for 10 years, but when I sold it I ended up paying close to $10,000 in capital gains taxes. I don't ever want to make this costly mistake again. Can you help me? -- B.H., via e-mail.

DEAR B.H.: It seems to me that you are doing all the right stuff, but you just aren't earning enough money. I don't think that you made a mistake in selling the apartment house, because the capital gains would eventually have to be paid, whether it was then or later. Given the information that you have passed along, I cannot determine whether or not it was a good investment. Unfortunately, in the absence of a substantial amount of life insurance, which your husband apparently did not carry, his unexpected death left you in a hole that you'll have to claw your way out of. The only way I know to do that is to continue to work those part-time jobs and at the same time hone your skills to prepare yourself for higher-paid employment. These are not attractive answers, but they are the best I can come up with.



Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).

Up

08/16/99: Thinking about PMI
08/13/99: Short-term mutual funds a-OK
08/11/99: It's your job to shop around
08/10/99: Sometimes, roots need to be uprooted
08/09/99: 'Pre-approved' doesn't mean a thing
08/06/99: Only you can determine your investments
08/04/99: Bank IRA the lowest-risk option
08/03/99: Reverse mortgages good for the elderly
08/02/99: Get the survey BEFORE you buy the house!
07/28/99: Get a lawyer -- it's worth it!
07/27/99: If it ain't broke...

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