''DO I HAVE TO PAY TAX ON MONEY THAT I JUST INHERITED?''
By Writer: Bruce Hager Reporter associates: Veronica Byrd and Jacqueline Smith 16

(MONEY Magazine) – ESTATE TAXES Q. I recently received an inheritance. Do I have to pay tax on this money? Debra Palaima % Santa Ynez, Calif.

A. Not on the inheritance. Any federal or state taxes were paid by the estate before you got the money. But if your inheritance earned interest, dividends or other income during the time that it took to settle the estate, you may owe taxes on the income. In that case, the executors will send you a Form K-1, which will list the taxable income.

REAL ESTATE Q. We recently sold our home in Philadelphia for about $125,000 and would like to buy a new one in New Mexico for around $100,000 and invest the difference. But to avoid paying tax on our capital gain, we've been told that within two years we must buy a home of equal or greater value than the one we sold. Is there a way we can circumvent this problem and still preserve our one-time capital-gains exclusion after age 55? Carol Kalkman Skippack, Pa.

A. Yes. What you have been told is correct. But you could buy a new $100,000 home and, using borrowed money, spend $25,000 on renovations over the next two years. That would satisfy the Internal Revenue Service and still leave you $25,000 to invest. Or you could buy a home for $125,000, take out a mortgage for $25,000 and invest the money. In either case, you will have to pay a 2.1% state tax on your capital gain because Pennsylvania, unlike most states, won't let you defer the tax by rolling your gain over into a new residence.

SOCIAL SECURITY Q. I am 76 years old, receive Social Security benefits and pay self-employment Social Security taxes. Last year, I made more money than in any of the years on which my benefits are based. My local Social Security office says I am not entitled to an increase in monthly benefits. Is this true? Paul Kleinberg Douglaston, N.Y.

A. Probably. It is possible to boost your Social Security benefits by earning a high income in a post-retirement job. But this is rare because your Social Security benefit check is based on a complicated formula in which your earnings before retirement are indexed to keep the figures current. In your case, once the formula was applied, the numbers representing your annual pre- retirement earnings apparently exceeded your 1987 wages. This means you are not entitled to a boost in benefits. To double-check, take your 1987 tax return to your local Social Security office and request a recomputation. You should get the answer in four to six weeks. If you are due an increase, it will be paid retroactive to Jan. 1, 1988.

COLLECTIBLES Q. In September 1953, in answer to a letter from me, I received a typewritten reply signed by Professor Albert Einstein concerning his relationship with the Humanist Society and his concept of God and religion. What is the present value of the letter and how can I get it appraised? Philip Rubinstein Deerfield Beach, Fla.

A. An authentic signed letter might fetch anywhere from $600 to $10,000 at auction, depending on content, length and condition, according to Charles Hamilton, a noted handwriting authority in New York City. Einstein, the Nobel- prizewinning theoretical physicist, got thousands of queries a year about his views on subjects ranging from God to Israel to atomic energy. But he often responded with form letters. Hamilton cites two clues to an original Einstein letter: a personalized salutation instead of ''Dear Friend'' and grammatical errors (the German-born Einstein had a tougher time with English than with physics or math). For a free appraisal, send a copy of your letter to the rare books and manuscripts department at Christie's, 502 Park Ave., New York, N.Y. 10022. If the letter is genuine, Christie's can also arrange to sell it at auction, but you should expect to pay a 10% to 15% commission.

PENSIONS Q. I was laid off from my job in September 1987 and still haven't been told when I'll be paid the money I had in my 401(k) and employee stock-option accounts. Should I have heard something by now? Nancy F. Maxon Evergreen, Colo.

A. Not necessarily. Under the federal tax code, your employer can hold up payments from the stock-option plan for six years and 401(k) payments until 60 days after your normal retirement age (usually 65). Those are maximum limits, however, and many 401(k) and stock-option plans permit earlier payouts. To find out about your plan, ask the administrators for summaries of the rules.

LIMITED PARTNERSHIPS Q. A few years ago, I bought shares in a real estate limited partnership with the understanding that leases had been signed on most of the partnership's buildings. This turns out not to have been true, so I want to seek legal redress. To whom should I write for a copy of the original prospectus and for a complete list of the limited partners? Richard L. Bates Camillus, N.Y.

A. First, write to the general partners. If they won't send you a prospectus, you can get a copy from the Public Reference Branch, Securities and Exchange Commission, 450 Fifth St. N.W., Washington, D.C. 20549. In your letter give the name of the partnership as well as the approximate date the prospectus was issued. You must also promise to pay the SEC's bill for the cost of copying (20 cents a page), postage and handling. Generally, an investor has the right, spelled out in the prospectus, to obtain a list of other investors from the general partners. If they won't cooperate, you might be able to get the list from the secretary of the state in which they have their principal place of business. Many states require general partners of limited partnerships to file such lists with the secretary.

STOCK OPTIONS Q. When an option expiration date falls on a Saturday, must the trade take place on the last trading day of the week or can it be delayed until the following Monday? John F. Beaudoin Wadsworth, Ohio

A. The trade would be effective on Friday. Index and equity options are written to expire on Saturdays to give brokerage firms time to correct mistakes.