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Q: My husband is 82, and I am 75. We have two married sons. Our house is paid for and worth about $100,000. We are trying to decide what to do to prevent the boys from paying a lot of taxes on the house when they inherit it. Any tips?

A: Federal estate tax rules are likely to change by 2013, so it's difficult to plan with any certainty. I don't think, though, that your sons would have any tax liability if they inherited your house and sold it, now or in the future.

As it stands today, they would get a new "stepped-up" cost basis for the property value - as of the time they inherited it. If they sold it for about that amount, they wouldn't have any taxable gain. Right now, this stepped-up rule covers up to a million dollars' worth of profit, so it should more than take care of your house.

Underwater owners have a few options

Q: I own a home and am underwater on the value. If I were to sell my house and buy another, what would happen to the remaining balance that I owe?

A: In case there's anyone left who doesn't know what you're talking about, "underwater" means you owe more on your mortgage than you could get by selling the house.

With some mortgages, including FHAs and VAs, a qualified buyer can take over your mortgage along with the house. That's not likely to happen, though, if the buyer can purchase a similar house for less money and get a new mortgage at today's lower rates.

So, nobody will buy your house if the present mortgage stays on it. It will have to be paid off. There are several possibilities:

- Perhaps your bank would agree to take whatever you can get on the open market and cancel the rest of the debt. That's usually possible, though only if you can prove that you have no other assets and are near destitute.

- Perhaps the lender would agree to a short sale, but they'd seek a judgment against you for the unpaid balance.

- Perhaps your lender wouldn't agree to anything and you'd have to pay off the shortfall with your own funds.

Or perhaps you'd just walk away and abandon the property, so the mortgage will go into foreclosure. Then you wouldn't have good enough credit to get a loan on another house.

Some people who must move, due to this situation, end up holding on to the present house and renting it out. They take on the worries and risks of being landlords, hoping for enough rental income to cover the mortgage payments.

No question, it's a difficult situation and through no fault of your own. If you don't have to move, just hang in there. Or if you want to move, look at it this way: What you lose on your house, you'll make up by buying someone else's house for less than it would have cost formerly. The extra money it'll take to pay off your present mortgage is the same as the savings you'll make over what you would have paid for the new house a few years ago.

Edith Lank answers questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or e-mail her at