Your Tax Question - 069

Dear John, in 2010 I sold my home and bought a new one. I understand that I have to consider any profit on the house that I sold but I’ve been told that there are other tax considerations in the information found in the closing statements. Is this true? And if so, what do I need to know? Thank you, Jerry
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Hi Jerry,

Well the sale of one home and the purchase of another each have to be considered on their own but merge together in the itemized deductions of the Form 1040 Schedule A.

The profit from the home you sold needs to be realized against the amount that you had invested in that property (basis) plus closing costs. If you profited $250,000 ($500,000 married filing jointly) then you will need to report this sale to the IRS and pay the tax due. Plus, lines 510 & 511 on your HUD-1 are deductible amounts to you as well as line 901 if it is on the seller’s column.

As the buyer, so long as this is your main home and your loan was secured by the home itself then HUD-1 lines 106, 107, 801, 802, and line 901 (if in the buyer’s column) are deductions to you. The calculations necessary for these are quite cumbersome and you will likely need the aid of an accountant and tax-preparer. (Luckily I am both and know how to handle these adjustments huh?) Don’t worry, the extra costs are well worth the returned money to you.

Please let me know if I may help.

Best wishes,
John

Your Tax Question - 066

Dear John, I am trying to get me medical expenses together because I think I have enough of them this year (along with other things) to itemize this year. Can you please tell me what the conditions for claiming medical expenses are? Thanks, Jon
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Hi Jon,

Well, let me express that I am sorry that you had so many medical expenses this year – the medical deduction never really makes up for it the hardships so often involved with the medical problems does it?

There are a number of things that you need to keep in mind about the itemized medical deductions on your Schedule--A. First, in order to have enough to claim, your medical expenses must be more than your AGI. So, for instance, if your AGI is $100,000 then you will have to have had $7,501 dollars in med expenses to begin taking this deduction.

Your expenses are only those expenses made during the year and reduced by any amounts reimbursed to either yourself or directly to the care provider.

You may include qualified medical expenses for:

• yourself


• your spouse


• a person you claim as a dependent under a multiple support agreement
  
  • If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child.
  
  
• someone who would have qualified as your dependent except that the person didn't meet the gross income or joint return test.

Deductions are allowed for expenses paid to prevent or alleviate physical or mental defects or illnesses.

Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.

Transportation costs that are primary and essential to medical care that qualify as medical expenses are deductible as well. And remember that any distributions from your Health Savings Accounts (HSA) and withdrawals from Flexible Spending Arrangements (FSA) are tax free if you paid qualified medical expenses.

I know it can be a bit confusing at times so if you should need any help figuring it out, please know that I am always accepting new clients.

Thanks,
John

Your Tax Question – 057

Dear John, Is it true that I need to wait until after February 15^th to do my taxes this year? Sincerely, Jules
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Hi Jules,

Because congress did not get things wrapped up until mid-December of 2010, the IRS has been scrambling to get their systems changed. For that reason the IRS had informed preparers that beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, and the educator expenses deduction. So Jules, if you are not one of these effected people you are free to submit your return at any time.

With that said, I also suggest that my clients wait until after February 15^th to do their taxes if they have any dealings with brokerage firms as these firms are not required to have 1099-INT’s to their clients until that time anyway.

I hope this helps,
John