(MONEY Magazine) – This month's tax questions are answered by Barbara Pope, a tax partner in the Chicago office of the accounting firm Price Waterhouse.

Q. About six years ago I purchased a single-premium deferred annuity from an insurance company on behalf of my child, with money from his own savings and gifts. Because he was a minor, my insurance agent told me that I should make myself the annuitant and my son the principal beneficiary of the annuity. Now that my son is an adult, can I transfer the annuity to him without tax consequences? Edward Oleksy, Vernon, N.Y. A. You can with ease if the annuity's current value is less than the $10,000 annual gift-tax exemption, which would enable you to make a tax-free gift. If you are married and the annuity is worth up to $20,000, you and your wife can still give it to your child free of tax, but you will have to submit a gift- tax return to the IRS. If the annuity exceeds $20,000, your estate-tax exclusion of $600,000 for each spouse will be reduced by that excess amount. If, on the other hand, the annuity is so large that it would create a serious tax bite, then you can use your son's old savings account records to document that the investment was his. Because you were the owner of the policy, however, the IRS would likely require irrefutable evidence to prove that you aren't simply trying to dodge gift taxes.

Q. We recently heard that we might be able to roll over our IRA to make a down payment on our first home. Is that true? Capt. Stephen and Janet Ryan, APO New York A. No, although defeated Democratic presidential candidate Michael Dukakis, among others, has made such a proposal. As the law stands -- and it isn't likely to change soon -- any lump-sum IRA money you withdraw before age 59 1/2, even if you use it to make a down payment on a home, is generally subject to income taxes and a 10% early-withdrawal penalty. You also aren't allowed to use your IRA assets as loan collateral. Instead, your company may allow you to borrow from your savings in a 401(k) retirement plan to come up with the money for a down payment on a home.

Q. I co-owned a house with my boyfriend for five years. After he moved out, I sold the property in July 1988. Unfortunately, he wants more than half of the proceeds, which are in escrow while the court resolves our dispute. I want to be able to roll over my share of the money into a more expensive principal residence to defer capital-gains taxes on the first house. Does the two-year time limit for making the rollover begin when the home was sold or when I receive the money? A.R. Owens, Glastonbury, Conn. A. Unfortunately, the two-year clock begins ticking the day of the closing on the sale. If it becomes doubtful that the court will settle your dispute in time for you to beat that deadline, you might try borrowing the money you need to make the down payment on your next house. Some bankers may even accept part of the money parked in the escrow account as collateral. If you are certain that you won't be able to buy another place within the two-year deadline, amend your 1988 return and pay your capital-gains tax as soon as possible to minimize the interest charges -- currently accruing at 12% -- that you will owe the IRS. Remember that you can deduct only 10% of that interest in 1990, compared with 20% this year.

Q. If you inherit an IRA with no previous distributions and roll it over into your own IRA, are you subject to immediate income taxes on the lump sum? Arthur L. Clary, Long Beach, Calif. A. Only surviving spouses are able to defer income taxes on an inherited IRA by rolling it over into an IRA of their own. Anyone else must report the full value of the account as taxable income in the year they withdraw the money, which must be within five years after the inheritance is collected. The 10% early-withdrawal penalty is waived for inherited IRAs, however. Alternatively, you may be able to elect to collect annual annuitized payments from the inherited IRA beginning in the year the money is bestowed on you. The amount you must withdraw each year will depend on your life expectancy. Each payment will be subject to income taxes but no early-withdrawal penalty.