Your Financial Bodyguard

Mortgage Debt Forgiveness: 10 Key Points

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

 

4 ways to Get Free Tax Help

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The IRS offers free assistance by computer, telephone and in person. The easiest and fastest way to get free tax help is through the IRS website – www.irs.gov. The IRS can also help find free tax preparation sites for those who qualify. Here are four easy ways to get the help you need to file your tax return.

1. IRS website The IRS website at www.irs.gov is a one-stop shop for a wide array of tax information. You can even prepare and file your federal tax return – for free – through Free File, a service offered by IRS and its partners who offer free tax preparation software and free electronic filing. But you must go through www.irs.gov to use Free File. Have some tax questions? Check out 1040 Central on the Individuals page for the latest news. You can even check the status of your refund with Where’s My Refund?

2. Community resources Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs are provided through partnerships between the IRS and community based organizations. They offer free help in preparing simple tax returns for low-to-moderate-income taxpayers. To find a site near you, visit www.irs.gov, or call 800-906-9887. Qualified taxpayers (age 60 or older) can also find help at a local TCE site by visiting www.aarp.org or calling 888-227-7669.

3. Telephone Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions, To hear pre-recorded messages covering various tax topics or to check the status of your refund, call 800-829-4477. To order free forms, instructions and publications, call 800-829-3676. TTY/TDD users may call 800-829-4059 to ask tax questins or to order forms and publications.

4. Taxpayer Assistance Centers When you believe your tax issue cannot be handled online or by phone and you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center. Locations, business hours and an overview of services are available at www.irs.gov. Just go to the Individuals tab and click on the Contact My Local Office link on the left under IRS Resources.

Even though the IRS offers many options for assistance, remember the easiest and fastest way to get help is through the IRS website – www.irs.gov.

For more information about free services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

 

5 Housing Markets Beating the Trend

Very interesting analysis to show five housing markets beating the trend.  Needless to say none are in my home state of California.  Take a look at this link from smartmoney:

http://www.smartmoney.com/spend/real-estate/5-housing-markets-that-bounced-back-1329928251575/?link=SM_hp_featStory

Eight Things to Know about Medical and Dental Expenses and Your Taxes

If you, your spouse or dependents had significant medical or dental costs in 2011, you may be able to deduct those expenses when you file your tax return. Here are eight things the IRS wants you to know about medical and dental expenses and other benefits.

1. You must itemize You deduct qualifying medical and dental expenses if you itemize on Form 1040, Schedule A.

2. Deduction is limited You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year. You figure this on Form 1040, Schedule A.

3. Expenses must have been paid in 2011 You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. You’ll need to have good receipts or records to substantiate your expenses.

4. You can’t deduct reimbursed expenses Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6. Types of expenses that qualify You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8. Tax-favored saving for medical expenses Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

 

College Student Aid Dwindling?

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Interesting article written by Annamaria Andriotis on wsj.com about the situation in college funding and I thought I should share.

College financial aid season has just kicked off, and experts say students seeking state grants had better act fast. 

At least six states, including Illinois, Kentucky and Tennessee, now have "until funds depleted" policies on grants, meaning late filers risk getting nothing. Other states are shrinking the application window. Oklahoma, for example, moved its grant application deadline to March 1 this year, two weeks earlier than last year. Oregon's Feb. 1 deadline is the earliest of any state for the second year in a row. "It's essentially a technique for reducing the number of students who qualify because not everyone will [apply] on time," says Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

States defend their actions. Thanks to growing budget deficits and rising demand for financial aid, they say they're running out of grant money earlier and earlier each year. In Illinois, for example, the primary grant program was depleted in early April last year, compared to late April in 2010, mid-May in 2009 and late July in 2008, says Katharine Gricevich, director of government relations for the Illinois Student Assistance Commission. In Oregon, applications for aid are already 32% higher than they were a year ago, says Josette Green, executive director at the Oregon Student Access Commission.

The moves come as many families are in greater need of financial help. Many cash-strapped states have cut student aid, while colleges have been raising tuition. The average annual cost of tuition and fees at a four-year private university in 2011-12 is $28,500 -- a 15% increase from five years ago, according to the College Board. The cost at a four-year public college has risen 28% to $8,244. At the same time, many families are still struggling to rebuild battered college funds.

For some, acting quickly still won't be enough. Last year, New Hampshire announced it was ending its grant support to college students because of state budget woes -- making 2012-2013 the first year that residents can't apply for state aid. (Last year, students were told they would receive state grants but the money never came through, says Tom Horgan, president of the New Hampshire College & University Council.) The cut also impacts Maine residents, who previously could use their state's grant when attending a New Hampshire college, but Maine ended that practice after New Hampshire terminated its grant program. (Maine still offers its state grant for students attending college in its state and in five other states on the East Coast, including Connecticut, Massachusetts and Pennsylvania, as well as Washington, D.C.)

To increase their chance of receiving aid this year, parents should file the Free Application for Federal Student Aid or FAFSA as soon as possible, says Rod Bugarin, a financial aid consultant and former financial aid officer at Brown and Columbia universities. Even parents in states with spring deadlines might want to consider filing soon since more states may run out of aid early, he says. Filing early also helps maximize the free aid students will get directly from colleges, advisers say.

Of course, submitting the required paperwork in the next few weeks may be a challenge, especially for families who have not yet filed their taxes. Rather than waiting, parents should consider filing the FAFSA with estimates based on 2011 paystubs, bank account and brokerage statements and their 2010 tax return, says Kantrowitz. If any changes need to be made on the FAFSA after tax season, students can go online to update it or they can inform the financial aid office at the school they ultimately decide to attend and the school will notify the state.

Experts recommend parents keep in mind that revisions could impact the grant money students receive when school begins. For example, a state may lower the amount of aid given to a specific family if the tax return shows higher income than reported on the original FAFSA. Still, that's better than delaying your application, say experts, and missing out entirely.