Money Management Q&As

June 16, 2006

Beware this car insurance gap

Q. My daughter, who's about to graduate from college, wants to work in New York City. While she looks for a job, she'll live with my sister and drive her car as needed. She's listed as a driver on my auto policy, but if she has an accident, whose coverage will apply-mine or my sister's?

A. Maybe neither. From an insurer's viewpoint, occasionally borrowing someone else's car or lending another licensed driver yours is fine. But when a vehicle is "regularly available" to a driver who's not listed on the policy, coverage for claims becomes questionable. You'd be wise to check with both insurance companies beforehand. If necessary, your sister could add your daughter to her policy (at your expense or your daughter's).

Q. I plan to sell some shares of stock that I bought at different times last year at roughly similar prices. For tax purposes, will I need to identify what shares I want to sell, or can I just average the cost of all the shares and use that price to figure my gain?

A. No, you can't average the cost of the stocks; the averaging option applies only to mutual fund shares. Unless you identify the shares you want to sell, the IRS will apply the "first in, first out" rule and you sold the first shares you bought.

To satisfy the IRS' rules for identifying shares, you must prove that you delivered those shares to the broker for sale, so request confirmation that he received them. If the broker holds the certificates, your sell order must list the specific shares to be sold, and the broker must give you written confirmation of your instructions.

When a relative uses your villa

Q. My sister will relocate to Maine in early July and plans to rent a place to live until she buys a home next spring. If I rent my vacation home to her instead, would her time at the property be considered personal use when determining whether I could deduct any expenses that exceed my rental income?

A. No. True, your personal use of the property-which includes use by close relatives such as siblings, spouses, parents, grandparents, children, and grandchildren-can't exceed the greater of 14 days or 10 percent of the time the property is rented to others if you hope to deduct excess expenses. But your sister's rental time won't count toward that limit because she'll be using the place as her principal residence. Assuming she rents it as of July 1, you'd still pass the personal-use test as long as you and other close relatives don't spend more than 18 days (which is equal to 10 percent of the remaining days in the year) at the house before Jan. 1. But make sure you charge your sister the fair market rental rate, and keep in mind that to deduct a loss against nonpassive income, the IRS says you also must "materially participate" in managing the property and satisfy other requirements. For details, see Publication 527.

What savings bonds offer over bond funds

Q. I like the simplicity of investing in a conservative bond fund, but sometimes I wonder-what advantages am I giving up by ignoring savings bonds?