BE CAREFUL ABOUT HELPING ELDERLY NEIGHBOR

DEAR BOB: Our next-door neighbor, Charlie, is about 65 and retired. He is divorced and lives alone in his house. In 1995, he and his ex-wife bought the house for $220,000. Today, it is worth around $650,000. The ex-wife is asking that he now sell the house to pay off its $187,000 mortgage to get her name off the mortgage so she can receive her half of the profit. Charlie doesn't want to sell the house and move. He is a wonderful man and neighbor. My wife and I trust him completely and are willing to use our liquid assets to help him stay in his house. We are thinking of buying the house from him for cash and then selling the house back to him. Or perhaps we can loan him the money to pay off the mortgage and buy out his wife's share, with him getting a home equity line of credit (HELOC) to pay us back. Your thoughts please --Ashley S.

DEAR ASHLEY: If Charlie can qualify to get a HELOC for the amount needed to buy out his ex-wife and pay off the existing mortgage, let him do it on his own. No sense in you getting involved in a potentially messy situation.

If he can't qualify for a new mortgage, perhaps you can buy the house and rent it back to Charlie. That would give you the rental property tax benefits and Charlie (and his ex-wife) can each claim their $250,000 principal residence sale tax exemption up to $500,000 total. For more details, you and Charlie should consult your tax advisers.