Tax professionals can help with complex inheritance issues

Q. I sold a house this year after the passing of my mother. She had been in assisted living and long-term care. For four years the housing bills were paid from her checking account, then I paid them. My husband and I spent a lot of time maintaining the house (grass cutting, snow removal, winterizing and cleaning). Is any of our "time" worth anything when we file our tax return? The house was deeded to me four years ago and I chose not to sell it until my mother passed.

A. When you received the house you also took over your mother's cost basis. Talk with a certified public accountant or an enrolled agent about what that basis might have been. It included not only original purchase price, but also money spent for permanent improvements over the years - the last new roof or new furnace, renovations, landscaping, just about anything except redecorating, repairs and maintenance. The IRS says you may estimate as best you can.

None of your maintenance work or bill paying counts. But your mother's cost basis may have changed (for the better) when your father died. Ask your tax professional about that.

Q. I want to sell my home to my neighbor's children who can't secure financing. I still owe on the house. Can I finance it for them and keep my mortgage, then pay it with the money I get from them, without causing problems with my own lender?

A. Probably not. If there's a change in ownership, you usually have to pay off your whole mortgage immediately.

Besides, it's risky signing the house over to someone whose income or credit is so poor they can't qualify for regular financing.

Perhaps what would suit you both would be a lease-option or land contract. Under either of those arrangements, they move in as tenants and buy on a sort of layaway plan. Meanwhile, you keep ownership so your mortgage doesn't have to be paid off. A real estate broker could explain and help negotiate an agreement that would fit your needs and theirs. Then your lawyer could draw up the necessary documents.

Q. Could you answer a question for me? If you prepay the principal on a mortgage, and run into a cash crunch, do you get any "credit" for the amount prepaid? That is, if you are unable to come up with the money for one month's payment, but had prepaid a substantial amount, would you still be in danger of foreclosure? Thinking of a situation where we have prepaid and then run out of cash to pay that month's mortgage payment scares me.

A. When you send in extra money to whittle down the debt, you're borrowing less from then on and you'll be saving on interest. But you must still make monthly payments until the whole debt is gone. That's what you promised when you signed the mortgage papers. If you missed any regular payments, you would be risking foreclosure.

It might be possible, instead of paying down the principal, to send in extra money as advance monthly payments. That would confuse both you and the lender's computer system. But if it could be done, you'd be free to skip a payment if you needed to. On the other hand, you wouldn't be accomplishing anything in the way of saving interest. It'd make more sense to stash extra money in a savings account until you needed to tap it.

Q. I am a mortgage broker, and I wanted to add Rural Housing Loans to your list of no-down-payment programs. In fact, they will do up to 102 percent financing depending upon the appraised value of the property.

It's a terrific opportunity to buy a new home. The areas approved for Rural Housing are, as the name suggests, rural areas. There may be exceptions, and buyers or Realtors need to check with their mortgage brokers. We have maps that target the specific areas that rural housing designates.

Although there are income guidelines, this is not a first-time homebuyer program. Using this program offers many other advantages to the buyer and I would suggest anyone reading your column who is looking to purchase a home in a rural area should call a mortgage broker for more information.

A. Thanks for reminding me about the fine program we used to call Farmer's Home. Although there are income limitations, they're based on the size of the family, and $73,000 for a family of four doesn't seem all that limiting.

Some information is available (for those who have the patience to follow several links) at rurdev.usd.gov/rhs.

• Edith Lank will personally respond to any questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.