Time to bite the bullet and get rid of the house

Q: We purchased our home 15 years ago for $450,000 and have no mortgage. My husband has chronic medical problems, is unable to work in any capacity and is on Medicare, so we've gone from two incomes to one. Medical bills ate up most of my savings, but I currently have $95,000 in the bank and no debts.

The last five years I have not had the money to keep the house up. It needs a new roof, appliances, paint, landscaping and redone wood floors. Do I sell it at a huge loss? I'd hope to get $400,000, but it may be closer to $375,000. That's the only asset I have, and I feel like selling it would be losing my retirement fund.

Should I borrow the money to fix up my home and try to get top dollar for it? I also have to figure out where to live if my home sells. Can you give me some guidance? — T. C., askedith.com

A: You're clearly house-poor. Would you buy the place today? No? Then it's time to sell. Human nature makes people hang on — to falling a stock or a house like yours — because it's painful to acknowledge a loss. But you're stuck with a place that's too expensive to maintain and doesn't suit your changed circumstances.

I am not in favor of investing any more than necessary in a house that's going on the market, but I haven't seen the condition of your home, I don't know your neighborhood, and I'm not familiar with your real estate market. Local real estate brokers can weigh all those factors. They'll give you free advice about what needs doing and what can be ignored. Call three or four different companies, invite them over, and get their opinions. An initial visit won't obligate you.

You'll be able to relax when you're in more modest housing. It's time to bite the bullet, cut your losses, face facts, stop throwing good money after bad, etc.

If It's Free It Isn't An Appraisal

Q: Your article suggesting a consumer need only ask a broker to give an oral estimate for free and that's all that is needed for financial planning is absurd and misguiding your audience. So you think brokers should give away services? The reader asked about financial planning and you suggested they call a broker for a BPO? A guesstimate?

A professional appraisal is a cost well worth it. That you portended to know what is legally required is also alarming. I would be happy to discuss this [telephone number included]. — R. L.

A: I appreciate the comments from a qualified appraiser. I'm well aware that "if it's free, it isn't an appraisal."

If you go back and re-read the item, though, I think you'll find I never used the word "free." I did suggest, for estate-planning purposes, that a simpler service than an elaborate full appraisal should be enough.

It's challenging to write a column that appears in many different states, and appraiser regulations vary. But in the situation they were asking about, those homeowners did not need an elaborate full appraisal. A 1-page broker's opinion of value (BOV) would serve their needs just fine. And for that matter, yes, so would an experienced local broker's guesstimate. Whether there's a charge for the service would be up to the provider.

Stepped-Up Basis

Q: Our mother died last December. We cleaned out the house over the winter, and now it is up for sale. When it sells, how does that affect our income tax returns next April? My brother says it isn't just what our parents paid for the house in 1960; we can add what the new furnace and air conditioning cost and even a new roof. We can't find any bills or receipts so are we allowed to guess about those things? — A.

A: When the house is sold, the gain —the profit — is taxable. If you and your brother are the only heirs, you'd split the gain and each declare half of it as income. That's the bad news.

The good news is that you're more likely to have a loss than a taxable gain. Here's why:

It's true that your parents' cost basis for the property was increased when they made permanent improvements. But you don't need to be concerned about their basis. When they died, the property was estimated for estate purposes at its current value. That figure —or its value within six months after your mother's death —is your new "stepped-up" cost basis.

By the time you subtract from that figure your costs of selling, you'll probably end up with a loss.

Edith Lank will respond personally to any question sent to www.askedith.com or to 240 Hemingway Drive, Rochester NY 14620.