Money Management Q&As

December 1, 2006

Reverse mortgage; world allocation funds; phone tax refund

Fund long-term care with home equity?

My widowed mother needs periodic in-home care to continue living on her own. Since her house is worth close to $500,000, she wants to use a reverse mortgage to fund the nursing services. But what will happen if she gets sick or hurt and has to move into an assisted-living facility or nursing home for a while?

She'll have no problem if her stay in the facility lasts less than a year. Any longer than that, though, and the reverse loan will come due. The National Council on the Aging has studied this issue and prepared booklets that explain the pros, cons, and other issues important to homeowners who are considering this route. You'll find the booklets online at the National Reverse Mortgage Lenders Association's website, http://www.reversemortgage.org. Click on the Reverse Mortgages and Healthcare tab.

Since my son's credit record still reflects some financial goofs he made in college, he can't qualify for a mortgage yet. So the owner of the condominium he wants to buy suggested a lease-option deal: My son would put down $5,000 to start and would have the option to buy the condo after two years. In the meantime, a third of his monthly rent payments would count toward the down payment if he buys the place. My son's tempted, but I'm skeptical. What do you think?

It's a mixed bag. On the pro side, $5,000 is far less than your son would pay for a down payment or closing costs to buy a home. He'd also get to try the place out before committing to it permanently and could postpone the lengthy mortgage approval and purchase process.

On the con side, if he can't get a mortgage two years from now either, or if he decides he no longer wants the condo, he'll forfeit all the cash already paid. In the meantime, he'll probably wind up paying higher-than-market rent because of the option to buy. And if the local real estate market fizzles, the purchase price set today may be higher than the condo's true value two years from now.

If your son does decide to take the deal, he should find out how much similar units have sold for recently, to make sure the purchase price isn't inflated. He'd also be wise to have a real estate attorney review the contract before he signs it.

Claiming a child after a split

My wife and I are getting divorced. Our 10-year-old son will live with her, but since she only works part time I'll wind up paying for most of his support. Will I be able to claim him as a dependent on my 2006 tax return?

Only if your wife agrees to skip the dependency exemption herself. If she does, she'll have to declare that in writing, either by completing Form 8332 or providing a substitute waiver, and you must attach that document to your tax return. Your divorce decree also should spell out that she won't take the exemption. But before you argue for the exemption, make sure you'd actually benefit from it. Assuming you're legally separated or divorced by year-end, you'll have to file as a single person for 2006. If your adjusted gross income for the year tops $150,500 you'll get only a partial tax break, and if your AGI exceeds $273,000 you'll get none at all.

Do you get a tax break for charitable care?

I'm on my hospital's "unreferred" patient admission list, which means I admit several uninsured patients a month. Most of these patients can't pay for the hospital services I render and their charges are eventually written off. Can I deduct the value of the unreimbursed services I provide?