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Consult an attorney if trustee delays action on trust
Question: Two years ago my father passed away and named my sister, brother and me as beneficiaries of his trust. My brother is the trustee. I believe my father's only asset was a home owned free and clear. Last year my brother said he wanted to buy the home. However, I have not heard from him in six months and no appraisal has been done on the home. What are my brother's obligations as trustee? What are my rights as a beneficiary? Is there a time period when the trust must be resolved? Also, is the home valued at the date of my father's death or today's appraisal value? Is it time to seek an attorney's advice?
Answer: Real property is generally appraised as of the date of death to establish a new basis for income tax purposes. The trust's terms will dictate whether date of death or date of distribution values are to be used. Here, your brother has sat on the administration of the trust for several years, during which time residential property values have dropped dramatically.
Although some trust administrations
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Car loan vs. paying with cash from stock
Question: I am a retired 70-year-old who is about to make a large purchase for an automobile. My investments are 70% managed funds and 30% aggressive stocks. With the market beginning to return, am I better off financing the vehicle at a 4% interest rate or should I pay cash from my investment account?
Answer: Having the funds to pay cash for a car is quite a luxury in this day and age. But depending on how you look at returns vs. peace of mind, it may make sense to take a loan rather than sell investments.
Over the past 100 years, the stock market has achieved a compounded annual growth rate of more than 11% per year. If you continue to stay invested with proper diversification in your asset mix and are looking long-term, you will likely make more with your current investment plan than the cost of the loan. In other words, the financial markets will produce a higher return than the 4% cost of borrowing the money.
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Get credit (as in tax credit) for your home improvements, and for moving up'
Who knew you can receive a tax credit for new garage doors?
Not Greg Titus' neighbors in Leawood, Kan.
"I haven't talked to even one person who knew about this," said Titus, who recently installed three insulated carriage-style garage doors. "You'd think stores and manufacturers would be shouting about this from the rooftops."
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Strategies to save for school worth knowing
Question: I recently received a large inheritance from a relative and would like to use it for my children's college education. My children are 17 and 14. Two years ago I set up a 529 plan for both children but am afraid to put this new substantial sum into the 529 for fear of losing the principal. I want it to earn more than a savings account. Any suggestions? I'm also worried the kids might not finish four years of college.
Answer: Your fears should be short-lived with some additional information on 529 investments. For older children such as yours, choosing an "age-based" portfolio will lessen your exposure to more volatile investments.
The great thing about 529 plans is the flexibility of moving the money tax-free into another child's account. If one child chooses not to finish college, you can either leave the money in the account for that child's future use or allow the next child or qualifying family member to use those funds.
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Income tax credit extends its reach
More people are expected to qualify for a tax credit aimed at low-income workers this year -- and they will be taking home more money this time around.
Job losses and pay cuts likely pushed more people into income levels where they qualify for the Earned Income Tax Credit when filing their 2009 taxes, IRS representatives said Friday.
The credit is geared toward working people, including those who earn so little that they are not required to file taxes.
Question: I plan to buy a new car (2010 model), which will be delivered in February. Will this qualify for deducting the sales tax? Or does the tax exemption only apply to buying new cars in 2009?
Answer: The key is the date of purchase. Purchase of a new motor vehicle occurs on the date you pay for the vehicle and any sales taxes due. The vehicle's purchase can either be paid in cash or through financing. If this occurs on or before Dec. 31, 2009, you may be eligible to deduct the sales taxes.
However, if you were to merely order a vehicle, or enter into a purchase contract, on or before Dec. 31 without actually paying the purchase price and sales taxes, you would not be eligible for the deduction.
A major provision: The deduction is available whether or not a taxpayer itemizes deductions on Schedule A. That's a lot of folks, since about two-thirds of taxpayers do not itemize and instead claim a standard deduction. The deduction will be claimed next year on 2009 tax returns as an additional standard deduction for those who don't itemize.
The deduction can be claimed on taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle (i.e., if the car costs $50,000, you can deduct the sales tax paid on the first $49,500. Tax is not deductible on the remaining $500.)
The deduction is reduced for joint filers with incomes between $250,000 and $260,000, and for other taxpayers with incomes between $125,000 and $135,000. Those with higher incomes do not qualify.
With this new incentive, potential buyers may find it a good time to buy. For more on this and other new tax breaks, visit the IRS Web site at www.irs.gov/recovery.
Q: If my husband had a business in his name and didn't pay income taxes after it failed, am I responsible for the taxes? He is considering filing bankruptcy, and I am concerned how that will affect my credit.
A: The law makes both spouses responsible for the entire tax liability when they file a joint income tax return. This is called "joint and several liability." It applies to the tax liability on the return and to any additional tax liability, due to unreported income by a spouse.
In some cases, a spouse will be relieved of taxes, interest and penalties on a joint tax return.Married people who did not file joint returns but live in community property states such as California also may qualify for relief.
For more information, visit www.IRS.gov and look up IRS Publication 971, "Innocent Spouse Relief," and Form 8857, "Request for Innocent Spouse Relief." You also can order both by mail at (800) 829-3676.
The bankruptcy's effect on credit is not a tax issue. Ask a bankruptcy attorney who also can advise you about your individual tax liability.
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