Dear Edith: My sister has a property our father sold her years ago. She is having trouble financially and needs to sell. She asked me whether I think she should hold the mortgage. I think absolutely not! But I told her I would e-mail you for advice. — D.K.

Answer: As so often, it all depends.

Taking back a mortgage (lending the buyer some of the purchase money and collecting it year by year) might be a good investment for your sister — or she might end up in even more financial trouble.

In the best case, your sister would receive monthly income over a period of many years, with interest at a higher rate than she could get these days from a savings account or Treasury securities. In addition, she'd save the buyers many of the costs of placing a bank mortgage, which makes her place easier to sell or even worth a bit more.

In the worst case, the buyer would put almost no cash down, neglect the property and fail to make mortgage payments, leaving your sister with a big mess on her hands.

So before making any commitment, she needs to analyze the prospective buyers' financial situations: their income, other debts and above all, their bill-paying habits. For that, she could use some professional help from a certified public accountant and her own lawyer, who should be involved right from the start.

If it turns out that a lending institution wouldn't qualify the prospect as a good risk for a regular mortgage, she'd better think hard and long before lending the person that much of her own money.

Leaving to a Friend

Dear Edith: I own a house with $45,000 left on the mortgage. It is assessed at $230,000. A good friend is living there now. (I am somewhere else.) If I die, I want the house to be his. I realize a will naming him would be the way to go, but what fees and taxes would he have to pay, as he is not a relative? This could be a big problem for him if they are too high. — via e-mail

Answer: At the moment, you can leave up to $2 million to anyone you like with no federal estate tax due. I don't know where the property is; you'd need to investigate that state's estate tax situation.

Inheritance tax on the person who receives the property is something else. Only 11 states charge it.

Granite Kitchen Counter

Dear Edith: I am putting my 20-year-old house on the market soon and downsizing. The house is in good shape, has been carefully maintained, and the appraiser suggested only minor repairs, which I am addressing.

My question is the kitchen. My daughter and son-in-law (who just built a new house) think I must redo the countertops with granite, put in new stainless steel appliances, etc. They maintain that a kitchen sells the house.

My kitchen, granted, is 20 years old, but it is still very attractive. The countertops are Corian and unscarred. In the past three years, I have replaced most of the appliances and the floor.

Should I call in kitchen designers and put in a whole new kitchen, or should I leave it as it is and have the future buyers do it if they think it is necessary. — B.F.C.

Answer: You can get expert advice from local real estate brokers who know your price level, the houses with which you'll be in competition, and buyers' expectations in your neighborhood. Call several nearby agencies, and explain that you're not quite ready to put the house on the market but would like some advice. Most agents are happy to advise at no obligation.

Homesellers Tax Break

Dear Edith: We just recently sold our home. We are younger than 55. How long can we keep our profit before investing it in another property without having to pay taxes on it? Can we purchase property that is worth less than our home we just sold? — via e-mail

Answer: I'm surprised someone your age even remembers that old tax break, which hasn't been in force for at least a decade. It no longer matters to the Internal Revenue Service whether you buy a replacement residence or not, and they're not interested in your age.

If you owned the house and occupied it as your main residence for at least two of the past five years, as a married couple, you can take a profit of up to a half-million dollars on the sale with no capital gains tax due at all. You even could do it again on another house in the future, as often as every two years.

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

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