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

DATE: SUNDAY, July 23, 1995                   TAG: 9507240131
SECTION: HOMES                    PAGE: D-2   EDITION: METRO 
SOURCE: George Karvel/ Knight-Ridder Newspapers
DATELINE:                                 LENGTH: Medium

DON'T TAKE PROPERTY LINES FOR GRANTED

I've been approached by a law firm seeking to rent my home as commercial property. I would like to rent it because the rent is sizable. I would like to return the property to a residence in 10 years, when I'll be 52 years old, and sell it at 55 and take the one-time $125,000 tax break.

Is it best to take the rental-property depreciation (which will be added to the purchase price when I sell and subject to taxes) to lower the taxes on my rental income or just pay taxes on the rental income so I will have a large equity when I sell?

A. A bird in the hand is worth two in the bush. And that's true when it comes to reducing an income-tax bill.

You are better off to depreciate your property, reduce taxable income, reduce the taxes you pay and reinvest the savings. Gains on reinvested tax savings are likely to be greater than any benefits received by having a lower tax bill when the property is sold in 13 years. Gains on reinvested tax savings are reasonably certain now, while tax rates and related taxes payable in the year 2008 are speculative at best.

Q. Three weeks ago, I refinanced my mortgage and locked in an 8 percent, 30-year FHA loan. Now the rates have gone down even more. What options do I have to get a lower rate?

A. Call your loan officer and ask what it would cost, if anything, to lock in your loan at the current interest rate. Although you are contractually obligated to close your loan at the 8 percent rate, lenders are often willing to negotiate the cost of providing a lower, market-rate loan. The cost will typically be one-fourth percent to 1 percent of the loan amount.

If you are adamant about getting a lower interest rate, and don't want to pay to get it, cancel your refinancing. Tell the lender you have changed your mind. You may then reapply for a loan in a few days. Discuss the strategy with your loan officer. This is a no-cost alternative.

George Karvel is professor and holder of the Minnesota Chair in Real Estate at St. Cloud State University, and is a columnist for the St. Paul Pioneer Press. You can write him at P.O. Box 1760, St. Cloud, Minn. 56302.