Your Tax Question - 072

Dear John, I received a 1099-G from the state. Why do I need to claim this amount on my taxes, isn’t that a double taxation event. Thanks, Gloria
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Hi Gloria,

Thanks for the question. The 1099-G from the state reports the amount of money that you had returned from the state last year. When you itemize your taxes on Schedule A of your Federal 1040 you are reducing your AGI (the taxable amount of income) by what was withheld from your income by the state income tax. When you do your state taxes after your federal and you have some of your income tax returned to you then you need to claim that returned amount on your following year’s taxes. If they did not do it this way you would have to correct your federal taxes right then but for convenience sake Congress has not gone this route. Instead, think of it as a FREE 1 year mini-loan from the federal government.

Thanks,
John

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