Important Tax Information, First Time Homebuyer Credit, Who Must Repay the Credit

Here are some important information which taxpayers need to know in reference to the First Time Home buyer Credit.  The IRS is no longer sending out letters to taxpayers who must repay the credit.  If you used the First Time Home buyer Credit, here is some important information

 

 

First-Time Homebuyer Credit Look-up Tool
Helps Taxpayers Who Must Repay the Credit

The IRS no longer mails reminder letters to taxpayers who have to repay the First-Time Homebuyer Credit. To help taxpayers who must repay the credit, the IRS website has a user-friendly look-up tool.

Here are four reminders about repaying the credit and using the tool:

1. Who needs to repay the credit? If you bought a home in 2008 and claimed the First-Time Homebuyer Credit, the credit is similar to a no-interest loan. You normally must repay the credit in 15 equal annual installments. You should have started to repay the credit with your 2010 tax return.

 

You are usually not required to pay back the credit for a main home you bought after 2008. However, you may have to repay the entire credit if you sold the home or stopped using it as your main home within 36 months from the date of purchase. This rule also applies to homes bought in 2008.

 

2. How to use the tool. You can find the First-Time Homebuyer Credit Lookup tool at IRS.gov under the ‘Tools’ menu. You will need your Social Security number, date of birth and complete address to use the tool. If you claimed the credit on a joint return, each spouse should use the tool to get their share of the account information. That’s because the law treats each spouse as having claimed half of the credit for repayment purposes.
 

3. What the tool does. The tool provides important account information to help you report the repayment on your tax return. It shows the original amount of the credit, annual repayment amounts, total amount paid and the remaining balance. You can print your account page to share with your tax preparer and to keep for your records.
 

4. How to repay the credit. To repay the First-Time Homebuyer Credit, add the amount you have to repay to any other tax you owe on your federal tax return. This could result in additional tax owed or a reduced refund. You report the repayment on line 59b on Form 1040, U.S. Individual Income Tax Return. If you are repaying the credit because the home stopped being your main home, you must attach Form 5405, Repayment of the First-Time Homebuyer Credit, to your tax return.

The Slient Tax That Can Change Everything on a Tax Return

 

First of all, people who are subject to the AMT Tax should know about it BEFORE the year ends.  This is not a tax that you want to sneak up on you, as it does with millions of taxpayers.  Once this tax kicks in, there is very little you can do to change or lower it. 

 

In our opinion, avoiding the AMT tax takes tax planning, and knowing exactly what tax situation you are in for the year.  If you have a tax on Line 45 of your Form 1040, you may want to consult with a tax professional.  If you believe that you may run into trouble in the next tax year, you can consult with the tax professional on ways to avoid or lower the tax. 

 

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Five Facts to Know about AMT

The Alternative Minimum Tax may apply to you if your income is above a certain amount. Here are five facts the IRS wants you to know about the AMT:

1. You may have to pay the tax if your taxable income plus certain adjustments is more than the AMT exemption amount for your filing status.

 

2. The 2012 AMT exemption amounts for each filing status are:

• Single and Head of Household = $50,600;
• Married Filing Joint and Qualifying Widow(er) = $78,750; and
• Married Filing Separate = $39,375.

3. AMT attempts to ensure that some individuals and corporations who claim certain exclusions, tax deductions and tax credits pay a minimum amount of tax.

 

4. You should use IRS e-file to prepare and file your tax return. You figure AMT using different rules than those you use to figure your regular income tax. IRS e-file software will determine if you owe AMT, and if you do, it will figure the tax for you.

 

5. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.

Visit IRS.gov for more information about AMT. You should also check Form 6251, Alternative Minimum Tax – Individuals and its instructions. Both are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

How Does the IRS Know That I Didn't File My Tax Return?

The IRS uses a computerized, cross check system, to match W-2s, 1099s and other financial institution’s reports, to determine if taxpayers have submitted a return, which matches the information turned into them.

First you must understand, that Employers turn this information into the IRS, so that their expenses can be documented. An employer can claim the wages of employees, as a business expense.

True, the “IRS Computer” is very busy, however, sooner or later, it will figure out that there is no return, on file, for a particular W2 or 1099.

That’s when the letters start going out. The IRS calls them “Notices”

You will get a series of these letters over a period of time. The time frame varies, based upon, how much the IRS calculates that you owe.

It is best to respond ASAP, because the penalties and interest accrues daily. You could end up owing more in penalties and interest, than your original tax bill!

This Just in from the IRS: New Mileage Rates for 2010

IRS Sent this information concerning New Standard
Mileage Rates for 2010.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

If you have questions, visit: irs.gov for more information

We prepare taxes, online for tax payers. No fuss, no waiting, no problem. Secure, Confidential Online Tax Service.

Bail Out and Past Due Tax Returns - Spells Trouble for Many

With the bail out money ...... who do you think is going to have to pay the cost? You/we the taxpayer will be required to provide the cash flow to make the bail outs work.

Your next thought might be, "Won't money be tight?" The answer is yes. AND guess where they will start looking for large sums of extra cash?

You got it ..... from past due tax returns.

It is only a matter of time before the squeeze will be on. (More so then at the present time) The IRS will be looking for money and if you have not filed your past due tax returns, they will be looking for you.

Sure, there will be a step up in snail mail communications. Then there may even be a massive telephone campaign, if they can put it into the budget. But sooner or later, they will develop an aggressive campaign to contact taxpayers who have not filed past due tax returns, based on W2 information and mortgage interest information.

Now is the time to put "past due tax returns" on your list of things to do.

Not to worry there are online services that are bonded, and licensed and registered with the IRS to complete past due tax returns and http://taxeswilltravel.com/ is one of these services.

Taxpayers can get a simple Federal and State tax return completed for less then $50. and within a very short period of time. More complex returns cost a little more. Many times the IRS can be satisfied just by "us" calling them and asking for wage information to file your past due tax returns

Tax Professionals in the state of California are required to attend tax school EVERY year to keep up with all the new tax laws. There are confidential requirements that we must adhere to.

http://Taxeswilltravel.com/pdr.com uses a secure fax line and all information obtained from the IRS is completed in confidence and destroyed accordingly once the tax return has been completed (except what has to be maintained by law)

Because I am not a tax attorney, our fees are extremely affordable and can benefit moderate income taxpayers greatly. Of course if you earned over $250,000 with a gift tax issue and major AMT concerns, your best bet would be to contact a tax attorney. However, if you have a low six figure income or below, with investment property, investment income, a house or two, a kid or two, a dog or cat, child in college, a small business or you sold some stock during those years - we can more then help.

C. Ingraham
Tax Accountant
Federal & State Taxes

Figuring the Basis of Properety In Order to Generate a Correct Tax Return

If you ask 10 different Tax professionals to calculate the basis of a select group of properties, you will more then likely get 4 to 5 different answers.

Professional tax software helps tax professionals to come up with the best and most correct answer, because the software asks the professional certain questions and the advance software development helps to calculate the basis as close to the tax code as possible.

However, when there is no professional software, you have to refer to Publication 17 for the tax year in question.

That is what we have done here (2007)

We will divide the information into three parts as the Publication 17 for 2007 has done, but will only address the first section in this posting.

* cost basis
* adjusted basis
* basis other than cost


Your basis is the amount of your investment in property for tax purposes. You use the basis to figure gain or loss on the sale, exchange or disposition of property. You also use the basis to figure deductions for depreciation, amortisation, depletion and casualty losses.

So being able to figure the basis is extremely important in arriving at the correct deductions in a tax return. (It is believed that many tax payers miss the boat entirely when preparing their own tax return, when it comes to figuring the basis and using that information to calculate a legal tax deduction)

Property used for business or investment purposes and for personal purposes must allocate the basis based on the use. ONLY the basis allocated to the business or investment use of property can be depreciated.

The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property or SERVICES.

Your cost also includes amount you pay for the following items:

* sales tax
* freight
* installation and testing
* excise taxes
* legal and account fees
* revenue stamps
* recording fees and
* real estate taxes (if you assume liability for the seller)

(The basis of real estate and business assets may include other items)

Real Property - also called real estate, is land and generally anything built on, growing on, or attached to land.

When you buy real estate, certain fees and other expenses you pay, are part of your cost basis in the property.

Example: If you pay a lump sum for the building and the property, you allocate the cost basis according to the respective fair market values FMV at the time of the purchase. Then figure the basis of each asset by multiplying the lump sum by a fraction. The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase.

The FMV or fair market value is the price at which the property would change hands between a willing buyer and a willing seller or sales of similar property on or about the same date may be helpful in figuring the FMV.

Your bases includes the settlement fees and closing cost you paid for buying the property. Please note: A fee for buying property is a cost that must be paid even if you buy the property for cash. You CANNOT include fees and costs for getting a loan on the property in your basis.

When you buy property and assume or buy the property subject to an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage.

The following are some of the settlement fees or closing cost that you can include in the basis of your property. (Not to be confused with what you can deduct)

* abstract fees abstract of title fees
* charges for installing utility services
* legal fees including fees for the title search and preparation of the sales contract and deed
* recording fees
* survey fees
* transfer taxes
* owner's title insurance
* any amounts the seller owes that you agree to pay, such as interests, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

If you pay real estate taxes, the seller owed on the property you purchased, and the seller did not reimburse you, you can treat those real estate taxes as a part of you basis. You CANNOT deduct them as an expense.

Points - If you pay points to get a loan, including a mortgage, second mortgage, line of credit or a home equity loan, do NOT add the points to the basis of the property. Generally you can deduct the points over the term of the loan.

If certain requirements are met, you can deduct points in full for the year in which they are paid.

Then there is the topic of Adjusted Basis, more on this at a latter time.

Help with Past due Returns: http://taxeswilltravel.com/

Estaimated Taxes ES

Estimated taxes is the method used to pay tax on income that is not subject to withholding.
This includes income from self-employment, interest, dividend, alimony, rent, gains from the sale of assets, prizes and awards.

You may also have have to pay estimated tax if the amount of income tax being withheld from your salary, pension or other income is not enough.

You usually do not have to pay estimated taxes if:

* you had no tax liability for the previous year
* you were a US citizen or resident for the whole year
* your previous year taxes covered a 12 month period

Or if your previous year tax liability was zero and you did not have to file an income tax return.


You usually will have to pay estimated tax payments if the following applies:

* you expect to owe AT LEAST $1000 in taxes for the coming year, after subtracting your withholding and credits

* You expect your withholding and credits to be less than the smaller of

1. 90% of the tax to be shown on your upcoming tax return, or

2. 100% of the tax shown on your previous tax return. Your previous year tax return must cover all 12 months.

Estimated Taxes are paid for the Period of:
Jan 1st - March 31 on April 15
April 1st to May 31 on June 15
June 1 to August 31 on September 15
and
Sept 1st to December 31 on January 15 of the next year.

Personal Exemptions and Dependents

Exemption amount for each person that you claim on your tax return was $3,300 in 2006 and $3,400 in 2007, and continues to go up each year.

There are two types of exemptions: personal exemptions and exemptions for dependents. Each exemption is the same amount $3,400 in 2007 - different rules apply to each type.

You are generally allowed one exemption for yourself and if you are married, one exemption for your spouse. These are called personal exemptions. (You can not take an exemption for yourself if you can be claimed on another taxpayer's tax return)

Your spouse is NEVER considered as a dependent.

Exemptions for Dependents - The term "dependent" means:

* A qualifying child
* A qualifying relative

There are three test to determine if a person can be a qualifying child or a qualifying relative.

1. dependent taxpayer test
2. joint return test
3. citizen or resident test

If you have housekeepers, maids or servants working for you, you CANNOT claim exemptions for them.

And to get a child tax credit, the child MUST be UNDER 17 at the end of the year. Child tax credit is not to be confused with the earned income credit which is discussed in another blog posting.

You can't claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns.

You can't claim a person as a dependent unless that person is a US citizen, US resident alien, US national or a resident of Canada or Mexico, for some part of the year.

You can't claim a person as a dependent unless that person is your QUALIFYING CHILD OR QUALIFYING RELATIVE.

There are 5 test to be meet before a child can be considered a qualifying child

1. relationship
2. age
3. residence
4. support
5. special test for qualifying child of more than one person.

Knowing When You Have to File a Tax Return

You can file a tax return even if you are not required to file, in order to get a refund.

Each year the requirements to file change. For instances in 2007 if you were single and under the age of 65 and your "gross income" was at least $8,750 or if you were 65 or older and your gross income was $10,500 - you would be required to file a tax return.

For this same year (2007) the filing requirement changes for each filing status, for example if you were under the age of 65 and were filing as head of household, and your gross income was at least $11,250 or $12,500 for 65 or older - then you would be required to file a return.

To view the tax laws for past due tax returns that you are filing, visit irs.gov and click on More Forms and Publications and then click on Previous Years to get to the year that you want to file a past due return for.

You must file a return if you are a citizen or resident of the U.S. or a resident of Puerto Rico and you meet the filing requirements.

Example of how to figure your exact age for tax purposes: If you were born on January 1, 1943, you would be considered to be age 65 at the end of 2007.

Gross Income includes all income you received in the form of money, goods, property and services that is not exempt from tax.

(Quick Note: If your spouse is serving in a combat zone and CANNOT sign the married filing joint tax return, attach a signed statement to your tax return and explain that your spouse is serving in a combat zone)