Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, October 9, 1995                   TAG: 9510100029
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: MAG POFF
DATELINE:                                 LENGTH: Medium

BANK RIGHT TO INSIST MAN APPLY FOR LOAN IN HIS NAME ONLY

A: The bank extended the mortgage loan to both of you based on your combined income. Both of you signed a contract in which you both agreed to be responsible for paying off the loan. The bank is not going to write off one name because of something that happened between you and your former wife. Your divorce doesn't necessarily affect terms of that contract.

You should do as the bank suggests and apply for a new loan in your name alone. You owe that to your ex-wife, who some would argue is facing a very bad deal. She has given up her equity in the house while remaining responsible for the loan. This will affect her credit rating if she applies for another mortgage or even for a credit card.

Widower has a good thing going

Q: I am a 65-year-old widower, retired from Virginia state government in 1990. In 1992, after having my house on the market nearly six months, I finally was able to sell it for $110,950 through a 30-year, owner-financed mortgage at 10 percent annual interest. And, for tax year 1992, I filed the sale as a capital-gain exemption after purchasing another home in 1992 near Roanoke with another veteran's home loan.

While receiving monthly mortgage payments as scheduled since October 1992, I find that the standard amortization statement for $859.59 a month payments accumulates large, initial interest payments to me, which kicks me from the 15 percent to the 28 percent federal tax bracket. This causes my mortgage interest to total about $2,400 annually in additional federal income taxes.

Is there any way short of foreclosure or due-upon-sale by present mortgagees (husband and wife) that I can expect to receive a reasonable sale price (after discounting) on this deed of trust mortgage of $97,950 on the open-mortgage market?

At present, I depend on the $859.59 monthly mortgage payments to offset my current 15-year mortgage payments on my present home at $916.42 per month, costing about $92,000, refinanced recently at 6.5 percent interest.

A: You mention the mortgage being discounted if you sell it. Michael Hincker, manager of the Roanoke office of National City Mortgage Co., said you should get a premium instead if the mortgage is paying 10 percent.

He said you should be able to sell such a good deal merely by advertising in this newspaper under business opportunities. There are investors, he said, who would snap this up.

But he questioned why you should want to sell a security, backed by the collateral of a house, that is returning 10 percent. If you sell, you will pay less taxes but you will lose a stream of income.

Even if you are in the 28 percent tax bracket, you still get to keep 72 percent of the money.

If you sell the mortgage, you would have to invest the money in something else. The new investment presumably would pay you some kind of return, although perhaps not 10 percent, and you would still have to pay taxes on those earnings. There's no way to get out of paying taxes when you earn money.

What you are doing now is borrowing money at 6.5 percent and lending it out again at 10 percent. Most people would consider such a business arrangement to be an excellent deal.

You should be very happy that you have made such a good business arrangement. But if you want to sell, advertise your product.

Offsetting capital gains with capital losses

Q: Some time back, I read something about having to pay capital gains taxes on your losses. It said you had to pay taxes on capital losses. Where can I find out something about this?

A: Not only do you not have to pay taxes on capital losses, but such losses are also tax deductible within certain limitations.

David Wright, a certified public accountant with the Roanoke firm of Anderson & Reed, said losses can be used to offset capital gains. If, for instance, you have capital gains of $10,000 and losses of $5,000, you are taxed only on the difference of $5,000.

If you do not have any capital gains (or enough capital gains) that can be offset, Wright said, you can offset a capital loss against ordinary income up to $3,000 a year.

An exception is the loss on a personal residence. Just as you can postpone paying capital gains on your profit in your home, you cannot claim any loss you incur when you sell your home. But such a loss is certainly not taxed.