Tuesday, December 28, 2010

Repaying 2008 First-Time-Homebuyer Credit

If you were a first-time homebuyer and received a credit of up to $7,500 in 2008, you agreed to repay the credit at a rate of 6 2/3% (or $500) in equal payments over 15 years, with no interest charges.  The tax credit worked like an interest free loan.

The recapture period begins with the second taxable year following the year of purchase for which the credit is taken - 2010.  The recapture amount is added to your income tax liability each year for 15 years, beginning in 2010.  YOU WILL NOT RECEIVE A BILL OR REMINDER FROM THE IRS!

If you dispose of the principal residence for which a credit was allowed (or if it ceases to be your principal residence) before the end of the 15 year recapture period, the remaining credit repayment amount is added to your income tax liability for the year of sale or cessation of use.

(The law was changed in 2009 increasing the amount of the credit and providing that you do not have to repay the 2009-2010 credit, provided the home remains your main home for 36 months after the purchase date.)

Wednesday, December 22, 2010

Adjusting Minnesota W-2s

Health coverage for adult nondependent children. Effective March 30, 2010, the health coverage provided for an employee’s adult nondependent children younger than age 27 is now generally tax-free to the employee for federal purposes. Employees with cafeteria plans are allowed to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

For Minnesota purposes beginning with tax year 2010, employees and self-employed individuals will need to include in Minnesota taxable income the fair market value of the policy providing health coverage for their adult nondependent children.

When entering the Minnesota Gross Income amount from the W-2, add the above fair market value.  If that amount is not shown on the w-2, it will have to be obtained directly from the employer

Monday, December 20, 2010

Delayed Refunds

Congress waited until Christmas, 2007, to pass legislation regarding the Alternatve Minimum Tax (AMT).  It took the  Internal Revenue Service (IRS) eleven weeks to reprogram their computers.  Until the reprogramming was completed. the IRS did not accept any returns (mailed or electronically filed) for processing.  An unknown amount of returns were held in the queue until the programming was completed and the program was accepted.  Refunds for e-filed returns were delayed 60-90 days, paper-filed returns several months.

Congress again waited until yearend to pass tax legislation.  However,  this time the list of tax changes is extensive and might require much more than eleven weeks for reprogramming, testing and acceptance.  The IRS has not announced when it will begin accepting e-filed returns, so all filed returns will be held in limbo until that time.  Refunds will consequently be delayed.

Saturday, December 18, 2010

Need For Federal ID Number

Recent federal legislation will soon require individual taxpayers (landlords, small business persons and others) to accumulate information and to send out a form similar to a 1099-MISC.  In a era of rampant identification theft, the reporting individuals social security number is available to anyone viewing the tax form!

It is strongly recommended that every affected (or potentially affected) individual taxpayer obtain (or instruct their professional tax preparer to obtain on their behalf) a Federal Employee Identification Number (FEIN) for reporting purposes.  There is no charge from the Internal Revenue Service.  An ounce of prevention....