Expert: Dick Dennis - 3/20/2009

Question
Dear Mr. Dennis,

I'm on Social Security due to a disability (didn't qualify for SSDI due to "lack of quarters"). I will not be 55 for a couple of years yet. I'm trying not to shoot myself in the foot by getting information before I act.

If I sell my house and relocate, will the money gained from selling my house be taxed? If the house I buy costs less than my old house's sale price, is that amount taken off my social security payments?

If I make improvements to the new house, is THAT cost somehow exempt?

Also there is work that needs to be done on the house before it will be ready to sell. Can you suggest options to finance this? My credit rating isn't that great, and my income is about $850/month, all from Social Security.

Any information you can add would sure be appreciated.

If you are not the right person to ask, will you please suggest a specific expert? Thanks very much for your time!

Sincerely,
Andrea

Answer
Answering your questions one at a time, Andrea: If you have lived in your house two of the last five years (any two), and you have not had a capital gain of more than $250,000 or $500,000 if your are married and filing jointly, then you need not be concerned about paying any taxes on the sale of your house.

You can then take your money and move and buy anywhere you choose. No tax again. Forget about that old law that went out more than 10 years ago. Whatever house you buy has nothing to do with the house you sell.

Any improvements you make to the new house is added to the basis of the house and you are not going to address it until you sell that house and figure out what your basis is. Again, as long as you do not exceed $250,000 in capital gain, you have nothing to worry about.

If you have enough equity in your house, then a lender somewhere will be willing to help you with a loan using your house as security. If your credit is not that terrific, it only means that you will likely pay a higher interest rate. It's just that the lender might not like you paying them off in a comparative short length of time (when you sell the house) and may require a prepayment penalty.

I recommend you consult and talk with three mortgage brokers, and/or banks to find out how you can handle this matter. See which one will help you best. Or you can sell your house "as-is, where-is." But be prepared to sell it for less than you expected. I wish you well.

Dick Dennis
dixiedee13@aol.com