Finance Blog number 1

TAX-CUTTING TIPS

If you’ve lost money in the stock and bond markets, Uncle Sam wants to share your pain. Capital losses are deductible. First, you must use your losses to offset your capital gains — if you’re lucky enough to have any. Then, up to $3,000 can be used to reduce ordinary income. Any leftover losses can be applied to taxes in coming years.

You can’t take a tax loss unless you’ve actually sold the investment. Losses on paper don’t count.

Unfortunately, a loss on the sale of your house doesn’t count either. That’s considered a "personal" loss and can’t be deducted from income or capital gains, according to guidance from CCH Inc., the tax publishing company.

With the stock market still in the pits, taxpayers can save on next year’s tax bill by culling their pile of losing investments this year. You’ll lose the tax break if you buy the stock or mutual fund within 30 days of selling it.

The tax law provides new boons and old bummers this year.

Among the tax boons:

•Good news for homeowners: The standard deduction of $5,450 per taxpayer, taken by people who don’t itemize, can now be padded with a deduction for property taxes. Says CCH: "If you paid state and local property taxes, you can pad the standard deduction by up to $500, or $1,000 for joint filers."

—"…There’s an added break for those over 65 who own homes and take the standard deduction. They can pad the deduction with up to $1,050 for property taxes for each taxpayer who meets the age requirement. You can claim more if you or your spouse is blind.

—"…Lots of homeowners are in trouble these days, and some banks are forgiving part of the debt. That forgiven loan used to be taxable to the debtor as income. A new law exempts forgiven loans from income taxes from January 2007 through 2011. You may not qualify if you took cash out when refinancing your mortgage in years past. You’ll have to fill out IRS Form 982. "It’s a doozy," says Mark Steber, vice president for tax resources at the Jackson Hewitt tax preparation firm.

—"…If you’re a first-time home buyer, Uncle Sam wants to give you an interest-free loan of $7,500. You get it in the form of a refund on your taxes. You’re eligible if you bought after April 8, 2008. If you buy before June 30 of this year, you can get the loan through your 2008 tax return. "You have to pay it back equally over 15 years, beginning in the second year," Steber says. If you sell the home, the loan becomes due that year. Meanwhile, the stimulus bill now in Congress contains a new tax credit for homes purchased this year. The new credit doesn’t have to be repaid.

— If you drive for business, you’ll get a break on last year’s big gasoline bills. The IRS mileage rate was 50.5 cents for the first half of the year, and 58.5 cents from July 1 to year end, according to CCH.

—"…If you drove for charity work, you’ll get your reward in heaven, but not from Uncle Sam paperless payday loans. The charity mileage rate remained at 14 cents last year. However, for those who drove to help out in the Midwest disasters, the rate was 36 cents before July 1 and 41 cents afterward.

—"…Speaking of disasters, victims of last year’s Midwest flooding and tornadoes get special breaks under a special act of Congress. Victims in most counties in the St. Louis area qualify, though the tax breaks vary by county. The rules here are complex. See IRS Publication 4492-B for details.

—"…Missouri State University, Lindenwood and Westminster College students, listen up. There’s a special break for students attending college in a county declared a major disaster area. Taxpayers who go to college in those counties are eligible for up to double the usual Hope and Lifetime Learning tax credits. Greene County, home of Missouri State, is on the list. Nearer home, Lincoln, St. Charles, Callaway and Pike counties are on the list. In Illinois, Calhoun and Jersey counties are eligible.

—"…Teachers can deduct up to $250 a year for unreimbursed purchases of books, computer equipment and other supplies used in the classroom.

•Remember those economic stimulus checks we got last spring? If you didn’t receive the maximum amount, you might merit a fatter refund this spring. The maximum stimulus rebate was $600 for singles, $1,200 for joint filers and $300 per child.

The refunds were figured based on your 2007 taxes. But if your circumstance changed last year — for instance, if you had a child or your income fell — the IRS will retroactively boost your stimulus award.

You have to enter the amount of last year’s stimulus check on your tax return. If you don’t remember the amount, you can find out at this website: www.irs.gov. Click "Avoid recovery rebate credit confusion."

—"…On the Missouri income tax return, the maximum public pension exemption rises to 35 percent, or $6,000. The Social Security exemption rises to 35 percent of taxable Social Security.

TAX BUMMERS

—"…Unemployment benefits are taxable. The government giveth, and it taketh away. However, job-hunting expenses are deductible if you’re looking for a job in your current line of work.

•If you’re saving for college in your child’s name, Uncle Sam wants his slice. If the child was under 18 on last New Year’s Eve, the child’s investment income of more than $1,800 must be reported on the parent’s tax return and taxed at the parent’s rate. Ditto if the child is 18 and didn’t earn more than half his keep by working. Ditto if the kid is in college, up to 23 year old, and still not earning more than half his keep.

—"…By the way, if you steal or embezzle, you must report the loot as income. That’s how they got Al Capone.

jgallagher@post-dispatch.com | 314-340-8390

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