Question: I am 65 years old, single, retired and have lived in my home for 30 years. When I decide to sell my home, the tax exclusion would be $250,000. Given that the estimated selling price would be about $550,000, I will be royally screwed on taxes. I bought my house for $42,000 in 1976 and have made about $75,000 of improvements since then.

From what I understand, Congress eliminated the one-time, tax-free sale of a home in 1997. I'm hoping you will tell me I am wrong. The proceeds from the sale would definitely help me in my old age, something Congress didn't consider when taking this action, which is inherently unfair to the majority of citizens.

Could you explain the current law? How can we get Congress to amend the tax law? I've written my senators and a representative and have received canned responses. -- J.R., Seattle

Answer: I hate to rain on your dark cloud with happy talk, but you're much less oppressed than you think. The old laws for the taxation of gains in residential real estate allowed two things. First, you could roll over all gains to another property of the same or greater cost tax-free. Or you could have a one-time exclusion of $125,000 if you were age 55 or older.

The law was changed in 1997 to allow an unlimited number of $250,000 gains for a single return, tax-free and without any age limits. Those filing joint returns could realize $500,000 in gains, tax-free. The only requirement is that you must have lived in the house as your primary residence in two of the preceding five years.

As a consequence, you will pay less in taxes, not more, when you sell your home. Under the old rules, if your house sold to net $510,000 after commissions and other expenses, you would have had a cost basis of $117,000 plus a one-time exclusion of $125,000, leaving $268,000 subject to capital gains taxes.

Under the revised laws you'll have the same cost basis plus a $250,000 exclusion, leaving only $143,000 subject to capital gains taxes, currently 15 percent. The taxes you will pay will be at least $18,750 lower than they would have been under the old law.

You should also know that some of that gain came from the tax reduction itself. Making gains on homeownership virtually tax-free for most Americans increased the value of owning a home relative to other assets. This effect is called "tax-capitalization" -- reflecting the fact that an asset with low taxes will be worth more than an asset with high taxes. Add low interest rates, and you've got a recipe for the bull market in housing we've seen since 1997.

Bottom line: You should thank your senators and representative. While they were busy creating a capital gain on your house and lowering the tax you'll pay on it, they were preparing to do really nasty things to the young. In the process of buying your vote with a prescription drug plan in 2003, for instance, they added $8 trillion in new unfunded liabilities to federal commitments, all to be paid for by taxes on the young. Many of those young people will never be able to afford a home in Seattle or elsewhere.

Question: Would you discuss ways to reduce the tax liability caused by the required minimum distribution (RMD) from an IRA? The tax due on the distribution itself cannot be avoided, but the kind and amount of taxable earnings outside of the IRA will increase the taxing effect of the RMD.We have been retired for a number of years, have no debt, have not needed to access any IRA funds and don't anticipate doing so. Two-thirds of our investments are in the IRA. The RMD will cause our tax bracket to jump from 15 percent to 28 percent. -- C.B., Huntsville, Texas

Answer: The most complicated wrinkle in this is that the RMD will cause a portion (or as much as 85 percent) of your Social Security benefits to become taxable. This will create an effective marginal tax rate much higher than the 28 percent rate that concerns you. I suggest a visit to a CPA to explore options such as a major Roth conversion or creating a charitable gift fund.And think about this: Given a choice, I would far prefer to pay taxes than to have so little income that I had no taxes to pay.