Financial Q&A: Readers' money questions answered

No tax advantages for senior citizens on home sales

Do you have information on the tax consequences of selling one's house after 27 years? Are there any special benefits for senior citizens?

E.O., via e-mail

A: Roy Frick, an income tax expert in Ocean City, Md., says there is no longer any difference for a senior selling a home from anyone else.

As long as either the individual or the married couple have lived in the house as their principal residence for two of the last five years, they can sell the house and be tax-free on the first $250,000 of gain for an individual or $500,000 for a married couple.

"Any gains in excess of those amounts are capital gains and taxed accordingly," says Mr. Frick.

I recently lost my job and am wondering what is the best way to use the $23,000 in my 401(k) to survive and continue to pay my $1670 a month mortgage? Currently, I have no other source of income.

S.S., via e-mail

A: In the absence of any emergency fund, Atlanta-based certified financial planner Vince Clanton thinks it may be preferable to leave the 401(k) alone and instead tap whatever sources of credit you have.

Here's why: A current year withdrawal from your 401(k) will be taxed in addition to your pre-layoff income for the year. Also, if you are under age 59-1/2, you'll be subject to a 10 percent penalty for early withdrawal from the 401(k).

"The combination of these two taxes will result in significantly less money being available to cover your expenses," says Mr. Clanton.

The good news is that the economy is strong and unemployment is low, so it may be a good time to make a change. If you envision an extended period of unemployment, you may want to consider putting your home on the market, as it takes time to complete a sale.

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