Two federal tax credits may help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit.
To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.
For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse's graduate school tuition.
Here are some key facts the IRS wants you to know about these valuable education credits:
The American Opportunity Credit
- The credit can be up to $2,500 per eligible student.
- It is available for the first four years of postsecondary education.
- Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
- The student must be pursuing an undergraduate degree or other recognized educational credential.
- The student must be enrolled at least half time for at least one academic period.
- Qualified expenses include tuition and fees, coursed related books supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.
Lifetime Learning Credit
-The credit can be up to $2,000 per eligible student.
- It is available for all years of postsecondary education and for courses to acquire or improve job skills.
- The maximum credited is limited to the amount of tax you must pay on your return.
- The student does not need to be pursuing a degree or other recognized education credential.
- Qualified expenses include tuition and fees, course related books, supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.
If you don't qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
If you have any questions, please call me anytime at (209) 329-1255.
Have a great week!
Wednesday, February 29, 2012
Thursday, February 16, 2012
Obama's Responsible Homeowner's Plan 2012
On February 1, 2012, President Obama rolled out a comprehensive proposal titled, "Plan to Help Responsible Homeowners and Heal the Housing Market." The President summarized the basics of the plan, the heart of which would make it easier for an estimated 1 million "underwater" homeowners with good repayment records to refinance their mortgage at today's low interest rates.
Key components of the President’s plan include:
Providing Conventional Loan Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all conventinal loan borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.
Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:
• They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement.
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence. This will ensure that the program is focused on responsible homeowners trying to stay in their homes.
• Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed.
Giving Borrowers the Chance to Rebuild Equity in their Homes Through Refinancing: All underwater borrowers who decide to participate in either HARP or the refinancing program through the FHA outlined above will have a choice: they can take the benefit of the reduced interest rate in the form of lower monthly payments, or they can apply that savings to rebuilding equity in their homes. The rebuilding equity program, when combined with a shorter loan term of 20 years, will give the majority of underwater borrowers the chance to get back above water within five years, or less.
The President's housing initiative has other elements as well: 1) a Homeowners' Bill of Rights, which would lay out a "single set of standards to make sure borrowers and lenders play by the same rules"; 2) a pilot program to transform foreclosed owner-occupied properties into rentals; 3) create one year of loan forbearance for borrowers looking for work; 4) pursue joint agency investigations into mortgage origination and servicing abuses; and 5) rehabilitate neighborhoods and reduce foreclosures.
As more information develops on the new plan, I will keep you informed as well!
Key components of the President’s plan include:
Providing Conventional Loan Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all conventinal loan borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.
Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:
• They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement.
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence. This will ensure that the program is focused on responsible homeowners trying to stay in their homes.
• Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed.
Giving Borrowers the Chance to Rebuild Equity in their Homes Through Refinancing: All underwater borrowers who decide to participate in either HARP or the refinancing program through the FHA outlined above will have a choice: they can take the benefit of the reduced interest rate in the form of lower monthly payments, or they can apply that savings to rebuilding equity in their homes. The rebuilding equity program, when combined with a shorter loan term of 20 years, will give the majority of underwater borrowers the chance to get back above water within five years, or less.
The President's housing initiative has other elements as well: 1) a Homeowners' Bill of Rights, which would lay out a "single set of standards to make sure borrowers and lenders play by the same rules"; 2) a pilot program to transform foreclosed owner-occupied properties into rentals; 3) create one year of loan forbearance for borrowers looking for work; 4) pursue joint agency investigations into mortgage origination and servicing abuses; and 5) rehabilitate neighborhoods and reduce foreclosures.
As more information develops on the new plan, I will keep you informed as well!
Thursday, February 9, 2012
Federal Pension Protection Act of 2006
The Federal Pension Protection Act of 2006 was signed into law by President Bush. The Act provides for a mechanism to ensure some safety measures on how your pension is performing in the market, such as giving workers greater control over how their accounts are invested and exceptions to the early withdrawal penalty (some workers are allowed to retire before age 59 1/2).
A very important part of the Act applies specifically to emergency services personnel, including police, firefighters, ambulance personnel and many others in Federal, State and local agencies.
Health Insurance Deduction
Qualified retired "Public Safety Officers" may exclude from income the cost of health insurance premiums or long-term care premiums, up to $3000. However, the health insurance premiums must be paid directly from your pension and the health insurance premiums must be paid to an insurance company that is regulated by your State. Self-insured plans do not qualify. Many municipal governments (like the City of Stockton) are self-insured, which then excludes officers from this tax advantage. The Act does NOT require a pension fund to accept a retiree's election to pay premiums directly from your pension.
This may not show in Box 2 of the 1099-R (Retirement Income) you receive for taxes. This exclusion may be shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. Although this may trigger a letter from the IRS because the amount will not match with the amounts listed on the 1099-R form, it can be responded to with a simple explanation by correspondence with the IRS.
Contact PERS to have your premiums deducted directly from your pension.
Please ensure that you provide me with the amount of premiums you paid during the year, and we will deduct it on your tax return. If you have not previously deducted the amounts, we can prepare an Amended form for up to three years, and get you a small refund!
A very important part of the Act applies specifically to emergency services personnel, including police, firefighters, ambulance personnel and many others in Federal, State and local agencies.
Health Insurance Deduction
Qualified retired "Public Safety Officers" may exclude from income the cost of health insurance premiums or long-term care premiums, up to $3000. However, the health insurance premiums must be paid directly from your pension and the health insurance premiums must be paid to an insurance company that is regulated by your State. Self-insured plans do not qualify. Many municipal governments (like the City of Stockton) are self-insured, which then excludes officers from this tax advantage. The Act does NOT require a pension fund to accept a retiree's election to pay premiums directly from your pension.
This may not show in Box 2 of the 1099-R (Retirement Income) you receive for taxes. This exclusion may be shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. Although this may trigger a letter from the IRS because the amount will not match with the amounts listed on the 1099-R form, it can be responded to with a simple explanation by correspondence with the IRS.
Contact PERS to have your premiums deducted directly from your pension.
Please ensure that you provide me with the amount of premiums you paid during the year, and we will deduct it on your tax return. If you have not previously deducted the amounts, we can prepare an Amended form for up to three years, and get you a small refund!
Monday, February 6, 2012
Mortgage Relief Act Information for Homeowners
I have received a lot of questions about foreclosures and short sales on a taxpayer's principal residence. Here are some facts and tips for you to review.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do NOT qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do NOT qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
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