I am sure everyone has heard the heartbreaking stories concerning the horrific earthquakes that struck Haiti on January 12, 2010. I am also certain many generous individuals made charitable contributions to charities providing earthquake relief. Generally, taxpayers can only deduct charitable contributions on their 2009 tax return that are actually paid in 2009. However, due to the terrible tragedy in Haiti the government has ruled that taxpayers who made contributions after January 11, 2010 and before March 1, 2010 to charities providing earthquake relief are eligible to be deducted on taxpayers 2009 tax returns. This is a great tax saving tip because you get to accelerate the deduction much quicker then waiting until filing your 2010 tax return.
Please keep in mind that contributions to foreign organizations are generally not deductible. Also, please note that this new law only applies to cash contributions, not property contributions. In other words payments made by cash, check, credit or debit card will all be eligible. However, donating a bunch of nonperishable food products will not be eligible for a 2009 tax deduction. Lastly, you will want to keep a record of the deductible charitable contributions (i.e. cancelled check, receipt from the charity or other applicable bank record).
Wednesday, March 3, 2010
Tuesday, March 2, 2010
Changes to Homebuyer Tax Credit
The government has provided a great tax savings strategy via the First Time Home Buyer Tax Credit. Here is a brief background on the extended First Time Home Buyer Tax Credit. Taxpayers must enter into a binding contract to buy a principal residence on or before April 30, 2010 and officially close on the home by June 30, 2010. For those that qualify as a first time homebuyer they are eligible for a refundable credit . The actual credit is based on 10% of the home purchase price up to a maximum of $8,000. Therefore, any home purchased for more then $80,000 will receive the maximum credit of $8,000. It is important to note that anyone can be considered a first time homebuyer provided that they have not owned a principal residence for three year period prior to the home purchase.
In November 2009 the government expanded and extended the First Time Home Buyer Tax Credit, but did also added some new documentation requirements in order to qualify for the credit. Anyone claiming the First Time Home Buyer Tax Credit will want to make sure and complete Form 5405 and include it with their personal tax return. In addition, you will be expected to attach a copy of your closing/ settlement statement. Generally, the closing statement will be the Form HUD-1 statement that will be provided to you at the time of the closing. It is also recommended that you make sure all appropriate signatures have been included on the closing statement. It is important to note that as a result of these documentation requirements individuals claiming the First Time Home Buyer Tax Credit will be ineligible for electronic filing of their tax return. Lastly, please remember that even if you purchase the home in 2010 you can actually elect to accelerate receiving your tax refund by including the home buyer credit on your 2009 tax return.
In November 2009 the government expanded and extended the First Time Home Buyer Tax Credit, but did also added some new documentation requirements in order to qualify for the credit. Anyone claiming the First Time Home Buyer Tax Credit will want to make sure and complete Form 5405 and include it with their personal tax return. In addition, you will be expected to attach a copy of your closing/ settlement statement. Generally, the closing statement will be the Form HUD-1 statement that will be provided to you at the time of the closing. It is also recommended that you make sure all appropriate signatures have been included on the closing statement. It is important to note that as a result of these documentation requirements individuals claiming the First Time Home Buyer Tax Credit will be ineligible for electronic filing of their tax return. Lastly, please remember that even if you purchase the home in 2010 you can actually elect to accelerate receiving your tax refund by including the home buyer credit on your 2009 tax return.
Saturday, February 27, 2010
Cancellation of Debt
Cancellation of debt is a popular topic for the 2009 tax year. I am sure more then a few people will be receiving 1099-C, Cancellation of Debt, forms in the mail. These 1099-C forms are issued by lenders to report when they have discharged (forgiven) outstanding loan amounts owed by the taxpayers.
What taxpayers often fail to realize is that cancelled debt is required to be included as income on their tax return, unless a few specific exceptions apply. The most common exceptions are if the taxpayer discharges their debt through bankruptcy or can prove they are insolvent. Put simply, a taxpayer is insolvent when their debts exceed the fair market value of their assets. However, this can be a complex calculation and a tax professional should be involved in determining if the insolvency exemption is appropriate.
The good news is that the *IRS created a new exception that can prevent taxpayers from having to pick up cancellation of debt income if their home mortgage is forgiven. The Mortgage Forgiveness Debt Relief Act of 2007 created a new tax provision that allows any taxpayer who benefited from discharged indebtedness on their qualified personal residence to exclude that cancelled debt from being considered taxable income. Please note that this exclusion is only available for up to $2 million dollars of debt forgiveness ($1 million for those married filing separately); anything above $2 million of debt forgiveness will still be considered taxable income. Also, this exception is only available for mortgages forgiven from January 1, 2007 thru December 31, 2012.
Keep in mind this only applies to qualified personal residences. Also, the *IRS requires that taxpayers reduce the basis of their personal residence by the amount of debt forgiven, but you do not have to reduce basis below zero. Clearly, this is a complex area that most likely requires help of a tax professional, but it is important to know that an exclusion exists for those that may have received 1099-C’s relating to debt forgiven on their qualified personal residence mortgage.
What taxpayers often fail to realize is that cancelled debt is required to be included as income on their tax return, unless a few specific exceptions apply. The most common exceptions are if the taxpayer discharges their debt through bankruptcy or can prove they are insolvent. Put simply, a taxpayer is insolvent when their debts exceed the fair market value of their assets. However, this can be a complex calculation and a tax professional should be involved in determining if the insolvency exemption is appropriate.
The good news is that the *IRS created a new exception that can prevent taxpayers from having to pick up cancellation of debt income if their home mortgage is forgiven. The Mortgage Forgiveness Debt Relief Act of 2007 created a new tax provision that allows any taxpayer who benefited from discharged indebtedness on their qualified personal residence to exclude that cancelled debt from being considered taxable income. Please note that this exclusion is only available for up to $2 million dollars of debt forgiveness ($1 million for those married filing separately); anything above $2 million of debt forgiveness will still be considered taxable income. Also, this exception is only available for mortgages forgiven from January 1, 2007 thru December 31, 2012.
Keep in mind this only applies to qualified personal residences. Also, the *IRS requires that taxpayers reduce the basis of their personal residence by the amount of debt forgiven, but you do not have to reduce basis below zero. Clearly, this is a complex area that most likely requires help of a tax professional, but it is important to know that an exclusion exists for those that may have received 1099-C’s relating to debt forgiven on their qualified personal residence mortgage.
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