Easing tax on home sale

Since our children are grown, my husband and I are thinking of selling our home and moving to an apartment. At this time, we prefer to rent rather than buy a condominium, so we cannot escape capital gains taxes by purchasing a new home. What is the tax rate on this capital gain and is there anything we can do to minimize it? --E.T.

The maximum tax rate on long-term capital gains is 20 percent, and there are things you can do to minimize it. First, consider the once-in-a-lifetime exclusion available to people over 55, says Joseph Kilbort, partner in charge of the Chicago office of Pannell, Kerr, Forster, an accounting firm. If you are over 55, you can exclude up to $125,000 in profits from the sale. If you are approaching 55, see if you can put off the sale until then. Or you may be able to put off the financial effects of the sale until you reach 55. A tax accountant can help you with this.

If you are under 55, you may be able to receive the income from the sale in installments, spreading the profits over several years. If you can afford it, you can do this by being both seller and banker, and receive the monthly mortgage payments directly from the new owner.

You might also be able to minimize profits through income averaging, in which a large change in income is spread over the previous five tax years. Filling in part of Schedule G will tell you if you're eligible.

Finally, Mr. Kilbort suggests, if you have any stocks or bonds that have decreased in value, you might be able to sell them at a loss that could offset part of your gain. He prefers that decisions like this, however, be made on the basis of personal investment policy, not tax consequences. So use this tactic only if the result fits in with your overall investment objectives.

If you would like a question considered for publication in this column, please send it to ''Moneywise,'' The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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