Getting the most out of owning two homes

Q I'm a real estate broker. A client of mine, who is single and around age 40, owns two houses. She is trying to decide which of two houses she should rent, or sell. House A was purchased in 1994 for $295,000. She lived there until June 1999. I believe it would rent for $2,400 a month, and sell for $400,000. House B was bought in 1999 for $515,000. It should rent for $4,000 a month, and sell for around $600,000. My client moved into it in June, 1999, and moved out in January, 2000. Also, what can be used as write-offs for tax deductions, i.e., air-conditioning installation, etc.?

N.S., Washington

A Gary Schatsky, an attorney and fee-only financial planner in New York, offers three ways to analyze this situation:

1. Rent: The rents are roughly comparable, based on the value of each house. So it's probably not a big factor in your decision.

2. Future value: Which house do you believe will appreciate the most in the next 10 years? Keep that house.

3. Capital-gains tax exclusion: This is the key factor. Since your client is single and lived in house A as a primary residence for at least two years out of the last five, she can exclude up to $250,000 in capital gains. If a principal residence is held for less than two years, the amount of the exclusion is pro-rated. Thus, your scenario suggests that house A should be sold, Mr. Schatsky says.

For deductions, you can add major improvements, such as air conditioning, to your cost basis. But that would not be a factor in house A, since the total gain will likely be less than $250,000.

Finally, Schatsky says, be sure your client talks to her tax adviser before selling.

Q What is the dollar-amount rule regarding charitable donations? I would like to donate items of value of around $400 to a favorite charity. I use the "long form" in filing.

M.S., New York.

A According to the IRS, when items are worth more than $250, you must get a receipt from the charity showing the date of the contributions, and whether you received anything of value in return.

Q My bank has assigned different interest rates to my savings bonds, which were purchased over several years. Don't all savings bonds earn the same interest rate?

B.R., Scotch Plains, N.J.

ANo. That is a major misconception, according to Daniel Pederson, author of "US Savings Bonds." Each bond has a unique interest rate, determined by the bond's issue date.

QI have a 15-year-old cousin who is interested in investing, including mutual funds. What materials would you recommend that would enhance his knowledge and interest?

L.J., Detroit

A "Start with our Web site," says Michelle Smith, managing director of the Mutual Fund Education Alliance, in Kansas City, Mo. (www.mfea.com)

The site has loads of information and is free and downloadable. Click on the "learn" button. You can also link to "Vanguard University," a free site offered by the Vanguard Group. Or link to the Monetta fund site, which has an "express" site for children.

If your cousin does not have a home computer, you can always go to a nearby library, Ms. Smith says. Also, some public schools offer "free computer" nights.

Finally, one helpful (and short) general-interest book is "The Only Investment Guide You'll Ever Need," by Andrew Tobias. It discusses stocks and bonds, as well as mutual funds. Many libraries have it.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 2000. The Christian Science Publishing Society

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