Your Tax Question - 028

Dear John, I filed my tax return nice and early this year because I thought it would be nice and straight forward this year. After I patted myself on the back and let out a deep sigh of relief for having filed my taxes so early, I got a form 1099-A from our former mortgage company because they sold our house which they foreclosed on. The 1099-A has the ending balance of our loan which was $100,000.00, and the "fair market value" of $50000. It states that "If the fair market value is less than the principal outstanding, and your debt is canceled, you may have cancellation of debt income. If the property was your main home, see Pub. 523, Selling Your Home, to figure any taxable gain or ordinary income." As far as I can tell, we're not liable for any additional taxes because we went through a bankruptcy and this was our principal residence. The best conclusion I can see is that I have to submit an amended return and attach form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness just to say that it was our principal residence. But I don't know what number to use as the amount. The full principal outstanding? The fair market value? Or the difference between the two? I don't know if you'll have a simple answer for me or if you'll really need to look at my stuff. If you want I can hire you to help me and I can bring all my stuff and come see you. Sincerely, Monica
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Hi Monica,

You're basically correct in what needs to happen.

1. Your taxable gain due to the Discharge of Debt is your loan balance (100k) less the fair market value (50k) which equals your taxable gain (50k).
2. But your gain is not taxable because it was you primary home. So you will report this discharge on a Form 982 explaining that it was not taxable for this reason.
3. Since you have already filed your 2009 taxes you will need to do a Form 1040X to explain why you need to include your 982. Since it does not affect your figures it will be a fairly straight forward fix.

I hope this helps,
John

PS. I am happy to help you further should you require my assistance. email me

Your Tax Question - 027

Dear John, I have heard that the Child Tax Credit that returns $1000.00 per child per family will be expiring this year - is that true? Thx, Clair
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Hi Clair,

Yeah, it's true. 2010 will be the last year for the $1000.00 credit and in 2011 the CTC will revert to a $500.00 credit. Unless Congress acts to extend it - that is the plan.

I'm not much of an activist but this is one of the issues that I think I will write Congress about. If you also want to write a letter, here is a list of suites that will help you do that.

1. How to write a letter to Congress.
2. How to find you congressional representatives.

And FYI - I've heard that it is good to sign your name in blue so that your reps know that it is not part of a mass mailing campaign.

Good luck,
John

Your Tax Question - 026

Dear John, I am a college student and I had a summer job. I did not make a lot of money and I was wondering if I had to file a tax return this year? Thanks, Jay
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Hi Jay,

From what I gather you are single. The IRS requires that you file a return if you earned at least $9,350 in wages. If you made less than that you are not required to file. However, I suggest filing because you may have some federal or state tax money that is due back to you and since you are a student you may have student loan interest to claim. Also, this year President Obama is giving you $400 for having earned income so you really do need to file.

Best wishes,
John

PS. I know an excellent tax guy you can trust. Email me

Your Tax Question - 025

Dear John, I have heard that the IRS actually taxes money that is made illegally. Is this true or was my leg just being yanked. Really, Ken
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Dear Ken,

I find it humorous that you would ask this question but the funniest part is that I actually know the answer to this question. According to the IRS, under the heading of Gambling Income (And Other Gains), gains made on illegal activity is actually a taxable event. However, I would have to have this verified with your legal counsel.

Best of luck,
John

PS. I know a Tax Attorney. Email me

Your Tax Question - 024

Dear John, I received a correction to my taxes and a check with extra money. Now that the IRS told me that I did not owe them as much as I thought, does this mean that the state owes me some money too? If so, how do I get that money back? Thanks, Heather.
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Hi Heather,

The answer to your question depends on the reason for the IRS returning money to you. If it was a simple clerical error then the IRS was just adjusting some wrong math or something taken from a wrong line. However, if you received money because your stated income was incorrect then the state likely does owe you some money. Contact your state's Treasury Office for more information.

Happy Hunting,
John

PS. I'm a pretty good shot if you need some help with this. Email me