Q: I wish that you would write more about real estate, so here is a question. We are retired with an extremely large gain in our home. What are our choices?

A: Many advisors feel that you should live in your home because it is the cheapest "rent" you can find and that you would harm yourself financially by accessing the "equity" and spending it. But many folks want to access their savings and point out that home ownership also includes paying taxes, repairs, upkeep, appliance replacement, and even utilities, which they would not have to finance using other arrangements. They feel chained to pieces of wood and enslaved by dirt. So here are some legal considerations.

First, unless you want to move or access your gain, you can live in your house and then pass on the property in your Will. If you gifted the house, the recipients would take over your basis (what you paid for the real estate) and then later, when the house is sold, would have to pay tax on the difference between the then saleÕs price minus your basis.

But if the house is left as part of your Will, because the house was exposed to possible estate taxes, the recipients would get a "stepped-up" basis to the value of the real estate at your date of death. Thus if the property was sold for the value at the time of inheritance, no tax would be due.

Therefore, the old legal chestnut would apply Ð avoid gifting appreciated assets. If you are satisfied where you live, then do not worry about passing on capital gains problems to your children. Just Will the property to them.

Second, if you decide to move to a smaller place or "take the money and run" and if the property was your principal residence two out of the previous five years, then an individual can protect the first $250,000 from gain and a couple can protect up to $500,000. The amounts do not have to be rolled over into a new residence, unlike the old rules. Thus, unless the law changes, you can cash out the appreciation up to those amounts at any time tax free.

Also, since you have two rental houses and if you wanted to avoid paying capital gains on all three, I have a number of clients who are in a plan to move from their principal residence of more than two years, rent it out for up to three years, and then live in one of the two rentals for two years. Thereafter they will sell the principal residence, move to the last rental, live there for two years, and finally sell the two rentals. With this plan, the $250,000/$500,000 exemption can be used three times avoiding tax exposure.

Another approach is to remember that your house is an untapped source of revenue. Some individuals have arranged to put a "reverse mortgage" on it so if they wish to draw on some funds, then the "tap" has been set into the "money tree". Yes, it may be dangerous if someone leaves the tap on and starts draining the funds, but for many people, the peace of mind of knowing that there can be an immediate source of funds or a steady "annuity" produces security and confidence. The "reverse mortgage" should be set up so there is no payment due and the outstanding balance is paid off when the real estate is sold or at death.

Another choice would be to sell the home and carry back a note secured by a first deed of trust, thus turning your equity into an annuity. This arrangement needs to be carefully constructed by a real estate attorney, but is being used successfully by any number of Fort Collins residents.

Finally (for this column), another choice would be to rent your house and use the proceeds to rent a smaller, less expensive place or use the monthly income to help pay your motor-home expenses as you tour the country.

Out of space, but stop thinking of your house as an albatross hanging around your neck, tying up your net worth so that you are unable to tap it for your needs, or to enjoy life a bit more. It is important to be sure that you have a stable and economic living arrangement but that does not mean that you are chained to your house like the Serfs in Old Russia were bound to the land.