Q. I sold my home after age 55 so I qualified for exclusion of gain. I bought another home for a higher price and elected to postpone gain on sale of the first home until sale of the second home, on which I also made a profit. I thought that I could exclude the combined gain on both homes. IRS said no way. They said that "one time exclusion" meant one home only, not postponed gain from sale of first home combined with gain on sale of subsequent home.

I thought that I had read somewhere that the gains on successive home sales after 55 could be postponed, and then taken at one time so long as they met the requirements for gain postponement. You can put my mind at rest by saying the IRS was right. Or you can give me the moral satisfaction of feeling that the IRS "done me wrong", regardless of whether I become gutsy enough to fight back.

---E.G., San Antonio, TX

  

A. How about a third course of action, one that will cut your tax bill? If you don't like doing tax stuff, reading the instructions, etc. I suggest a trip to a tax accountant with a simple agenda: help you put together the necessary forms to roll your gains to the final sale.

Homeowners can "roll" gains from one house to another as long as they do the necessary paperwork and adjust the "cost basis" of each successive house. If you are lucky, you can own ten houses, make a profit on all of them, never pay a dime in taxes, and then exclude $125,000 in gains when you finally take your one-time exclusion at age 55 or later. And whether the next resident of the White House is named Clinton or Dole, both candidates have promised to make the exclusion larger ( $500,000) because all the paperwork yields the government very little money. Whoever you spoke with at the IRS either misunderstood you or is wrong. It is VERY easy to have a misunderstanding when virtually any tax matter is discussed instead of shown on paper.

  

Q. I feel that I have gone down the wrong path of investment choices. I have recently set up an IRA account with USAA and invest $100 per month into this account. (only until I can invest in my companies 401k)

Knowing that this is a tax deferred account, I was wondering where exactly do I get my tax savings? Since the government doesn't know about it now, will I get those savings back at come April 15th when I file for my taxes? If so is there any way that I can get those savings now, so that I can get the benefit of the Present Value of MY money.

--- T. S., LaSalle.com

  

A. Your tax savings will be official when you complete your tax return for 1996. Your federal income tax liability will be reduced by the amount you contributed to your IRA times your top or marginal tax bracket. You can change your cash flow for the remainder of the year by filing a W-4 form with your employer to reflect your anticipated tax deductions, including your IRA contributions. Many people, particularly young homeowners with large mortgages, could improve their cash flow by making the effort to complete a W-4 and adjusting their Federal Income Tax withholding to an appropriate level.

  

Q. I have been retired for 19 years and am 84 years old. I want to leave my children and grandchildren a nest egg for their old age. I don't have any big sums of money to invest but I do have $100 to $300 a month left after my living expenses are paid. I have started several DRIPs (Dividend reinvestment plans) and have five mutual funds started. What do you suggest?

---A.S., Northfield, MN

  

A. Don't make more additions to what you already have. At your age you should be simplifying your financial life, not making it more complicated. Several DRIPs and five funds is plenty.

  

Q. I am a conservative 70 year old investor. I own shares in five Vanguard funds and one Evergreen fund. Would you recommend one or two other No Load fund groups that have good income and balanced funds?

---C.B., San Antonio, TX

  

A. See the previous letter. The most common problem with peoples portfolios is that they look like a garage sale--- a collection of things bought here and there at different times for different reasons. Sometimes it happens because they have a portfolio that is the product of every financial salesperson they have ever met… and sometimes they have done it to themselves without any outside help.

Either way, it's difficult and expensive to do the record keeping. Worse, having twenty things to make decisions about means the decisions are never made.

My recommendation: if your portfolio is starting to look more like a garage sale or an overstuffed closet, then DON'T add to it. Simplify. Most people can do quite nicely with two to four mutual funds.