DEAR BOB: I began getting Social Security last February. Then in May this year I lost my job. A financial adviser suggests I take a reverse mortgage "lump sum" and invest it to supplement my Social Security income. I have no other income and no heirs. My home is worth about $400,000 with a $77, 000 mortgage at 4.25 percent interest, which adjusts by 2 percent next year. I love my home and want to stay here as long as possible. Do you think a reverse mortgage will work for me? --Loral C.

DEAR LORAL: Yes. But I am very worried that so-called financial adviser might have suggested you take a reverse mortgage lump sum so he can sell you an annuity or other investment to earn himself a large sales commission.

If you want to receive monthly lifetime income from a reverse mortgage to supplement your Social Security income, you can elect that choice direct from the reverse mortgage lender. You don't need that financial adviser to help you.

However, you will need to use $77,000 of your reverse mortgage entitlement to pay off your current mortgage. Then you won't have any more monthly mortgage payments.

The balance of your reverse mortgage can be taken as lifetime monthly income, a credit line (except in Texas), lump sum or any combination. More details are in my special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

NO TAX ON CONVERTING HOME TO PERSONAL RESIDENCE

DEAR BOB: I am moving into a house I have rented to tenants for several years. I understand that when I sell it, I must pay a 25 percent federal "recapture tax" on depreciation I have deducted on my tax returns. Do I become liable for this tax when I move into my house? Or will it become due when my heirs or I sell the house? --Ruth B.

DEAR RUTH: Converting your rental property into your personal residence is not a taxable event (because no sale takes place). The only time you might owe the 25 percent federal depreciation recapture tax occurs when you sell a former or current rental property.

To fully avoid the 25 percent depreciation recapture tax, you can either (1) make a tax-deferred Internal Revenue Code 1031 exchange of one rental property for another qualifying rental property, or (2) die while still owning the property on which you deducted depreciation. For details, please consult your tax adviser.

Read more:
http://www.inman.com/inmanstories.aspx?ID=55415