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Q. Can you suggest the best way to minimize capital gains on the sale of my house? My husband and I bought a house in San Diego CA in 1975 for $65,000. My name was on the title. We made about $130,000 of improvements. He died in 1999, when the house was worth about $325,000 to $350,000. There were no changes done to remove my husband's name from the mortgage, title, etc., after his death. Now I am 75 years old and would like to sell the house and move to Texas. The value of the house is now around $600,000.

The mortgage is paid off. I took out a $90,000 home equity loan to assist in fixing it up for sale and provide me with rental money while the house is being shown for sale. I have not remarried. The house I hope to buy in Texas is $360,000. I have been told by a real estate agent that I should expect my taxes to be near $50,000! It seems like I will not be able to afford a house worth half of what the San Diego house is worth.

I only have Social Security to live on. I was told to just buy a cheaper house, but it doesn't seem right that I can't go into a house with about the same price as the one I am leaving. Any guidance would be greatly appreciated. --LW, by e-mail

A. You may have misunderstood your Realtor. As I see it, your tax liability on the sale of the house will be quite small, about $10,000. You can understand by walking through the figures with me.

First, the cost basis of the house is $195,000 ($65,000 purchase price plus $130,000 in improvements). So your share of the cost basis for the house is $97,500. Your husband's share was the same, but values are "stepped up" at death to the value at that time. The share you inherited from your husband has a cost basis of $162,500 to $175,000. As a consequence, the cost basis of the house when you sell it will be about $260,000. In addition, as a single-income tax filer, you have an exemption of $250,000.

So you can realize about $510,000 from the sale with no tax liability. You can also deduct the Realtor's commission and other costs immediately related to selling. On a $600,000 sale, that could be $36,000 plus fix-up expenses. So your taxable capital gain will be about $54,000 less the fix-up expenses. Your tax bill will probably be about $10,000, less if you spent much on the pre-sale fix-up. When all the paperwork is done and the home equity loan has been paid off, you will have about $464,000 in cash. You should have an accountant help you with this.

That's the good news.

If Social Security is your only source of cash income, buying a $360,000 house is a really bad idea. Remember, real estate taxes in Texas are a lot higher than real estate taxes in California. You're likely to pay about $7,200 in annual real estate taxes on a $360,000 house. Add utilities, insurance, and maintenance, and the annual cost of owning the house, without a mortgage, is likely to take every dime of your Social Security income. Of course, you'll still have $100,000 in cash left from the home sale, but it would have to cover ALL of your other expenses for the rest of your life.

Fortunately, you can duplicate your San Diego house for much less than $360,000. According to the National Association of Realtors, for instance, the median single family home resale price in San Diego was $579,800 at the end of 2006. That's 3.3 times the $175,200 median resale price of existing homes in Austin, the most expensive city in Texas. (Here are the median prices in other Texas cities: Houston, $148,600; Dallas, $144,300; San Antonio, $140,600; and El Paso, $131,800. And don't forget Amarillo at $108,300.)

The difference in housing prices tells you why it currently costs $2,669 to rent a 24-foot Budget truck to move from San Diego to Dallas but only $299 to rent the same truck to move from Dallas to San Diego--- lots of people are thinking what you're thinking. Empty moving trucks are piling up in Texas.

If it were my choice, I'd set a target price of about $150,000 for your house in Texas. That would leave you with a $300,000 investment fund plus your Social Security income to support your personal expenses, the new house--- and an occasional trip to La Jolla.

On the web:

Price a move at Budget National Association of Realtors Existing Home Sale Price Figures

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Personal finance writer Scott Burns is syndicated by Universal Press. His twice weekly column appears in newspapers from Boston to Seattle. He is the Chief Investment Strategist for AssetBuilder, Inc. Readers can register at www.scottburns.com. Questions/comments can be posted directly. They can also be sent, without registration, to scott@scottburns.com. Questions of general interest will be answered in future columns and on this blog.

Click on the "Archive" navigation to see other columns. All comments are welcomed and appreciated.

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@Emil

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The good folks at Yared have provided a installation instruction for ProjectLounge Lite here. It goes through the common install errors and editing your hosts file to allow projects to be created.
We also have to thank some translators for their efforts. We are testing a German and French version and should be able to roll that out when all the bugs have been resolved with the Globalize plugin.

Q. My husband and I have saved for 18 years. We now have a substantial retirement. He has been the primary earner; I have worked on and off part time. I have recently been ill with a potentially fatal disease and recovered, only to sustain a broken arm and nerve damage that rendered my dominant hand useless for about seven months. I am waiting for a settlement on that. He had a pre-stroke event last year.

So here is the dilemma: His habit is to save as much as possible, and I have gladly supported that fiscal behavior. But now I feel we need to spend money on ourselves and travel while we still can. He just can't agree with me, saying we need it for our retirement. I'm talking a few thousand for a Europe trip, or buying/renting a motor home and seeing the USA.

It's to the point that I'm threatening to go alone, or to ask for my half of our savings to manage myself. No more saying "someday we'll...." ---someday is now! Other than that, we are usually on the same page for most life issues. ---C. O., by email from Texas

A. Many people are constitutionally incapable of cutting themselves some slack or, for that matter, having a good time. It's not that they don't intend to never have a good time; it's just that it will be sometime in the future. It's never today, this week, or this year.

The best mechanism for dealing with this is to separate some amount of money from your regular retirement funds. Earmark that money as your "good-time fund." Agree that you will spend it on having a good time.

The hard part is getting on the same page about the amount of money you can earmark for this. It's a long heart-to-heart.

So here's a suggestion. Suppose you are 65. Suppose also that you decide that you will take 10 percent of your retirement assets and spend them over the next 10 years. If those assets earn 5 percent, that means each $10,000 you put aside will give you a good-time allowance of $1,273 a year. If you have, say, $500,000 in investment assets and earmark 10 percent to the good-time fund, you'll have a $50,000 fund that will generate $6,365 a year.

Your spouse may ask, "But what about the future?"

Your answer is simple: "We're taking care of the next ten years first. If we're poor in 10 years, we won't do it again. If we've still got plenty of money in 10 years, we'll create another good-times fund."

The basic task here is to find the amount of money your spouse thinks is necessary to keep invested and the amount that he can let go of. It's a matter of finding his comfort zone. Ask the questions smoothly and you'll be able to find some amount that works for him. The same exercise will be instructive for you--- find out how much money you could put into a good-times fund without feeling foolish or endangered. It's probably way more than your husband. But the "spread" may not be as big as you think.

Q. We own a house worth about $100,000. There is no mortgage on the house. We have been thinking about buying a new house in the $150,000 to $165,000 price range. We have $70,000 in the bank. Between us, my wife and I make $65,000 a year. We are debt-free. Should we put the proceeds from the sale of the first house on the balance owed on the second house and pay off the second house in two to three years? ---E.W., by email

A. Probably not. What you do depends your other income tax deductions. If you netted $90,000 from your current house, you would need to have $60,000 to $75,000 in mortgage debt. Unless your other itemized deductions (real estate taxes, charitable donations, state income tax, etc.) are substantial, there is a good chance there will be no income tax benefits from your borrowing--- remember, the standard deduction on a joint return is now $10,700. You only benefit when your itemized deductions exceed that amount.

If you are young, the best course is to borrow more and trust that inflation will reduce the value of what you have to pay back. If you are in late career, say age 50, you might consider a large 15-year mortgage. The shorter term will reduce the interest rate slightly, and you will enjoy the maximum tax benefits in your peak earning years. When you retire, the loan will be paid off and your income requirement will be lower. You'll also have the benefit of being able to invest some of your equity. If the new house costs $150,000 and is financed with an 80 percent mortgage, you'll only need about $30,000 of your $90,000 home equity. So you'll have $60,000 to add to your retirement savings.

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Personal finance writer Scott Burns is syndicated by Universal Press. His twice weekly column appears in newspapers from Boston to Seattle. He is the Chief Investment Strategist for AssetBuilder, Inc. Readers can register at www.scottburns.com. Questions/comments can be posted directly. They can also be sent, without registration, to scott@scottburns.com. Questions of general interest will be answered in future columns and on this blog.

Click on the "Archive" navigation to see other columns. All comments are welcomed and appreciated.