Savings Bonds (Part 1) - Learning More about those Bonds

Category: Elder Law, Estate Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Many people have invested in saving bonds at one time or another, or another has done so for them. For the most part, they sit in a safe deposit box until cash is needed (or you remember that you have them). However, there may be a need to find out more about the bonds or liquidate them as part of estate planning, estate administration, or elder law, or just sound financial planning for yourself.

Savings bonds are investment in the US government. There are various types of bonds, that earn interest in different fashions, and have unique tax consequences. Luckily, there are some wonderful resources on the web to cut through all of this information.

The US Government provides a very informative website at www.savingbonds.gov that goes through the purchase and redemption of various government investments (T-Bills, T-Notes, T-Bonds, I Bonds, EE Bonds, HH Bonds) and explains the differences between the various investments.

There is a very useful toolbox a the website for determining the current and future value of your investment:

Have Your Treasury Securities Stopped Earning Interest?

Savings Bond Wizard

Savings Bond Calculator

Growth Calculator

Savings Planner

Tax Advantages Calculator


Another excellent site is www.savingsbonds.com. This is a commercial site oriented to financial planning. It does have excellent step-by-step guides on bond redemption, including the practicalities of redemption and guidelines to the tax consequences.

Energy Tax Incentives Act of 2005 - Dollars to you?

Smartmoney.com: Tax Matters: What the New Energy Bill Means for You describes some generous new tax incentives for consumers.

"The best part: They all come in the form of tax credits, the very best kind of tax break. A credit lowers your federal income tax bill dollar for dollar. In contrast, a deduction lowers only the amount on which you're taxed, so your bill is reduced only by a percentage of the write-off. "

Some highlights from the Article:

Four New Tax Credits for Energy-Efficient Vehicles

Credit No. 1 for Hybrid Vehicles: Up to a maximum credit of $3,400.

Credit No. 2 for Lean-Burn Technology Vehicles: "Qualified "lean burn" vehicles are passenger cars and trucks with internal combustion engines that use a direct injection of a fuel mix with a higher-than-normal percentage of air." The credits are still unknown.

Credit No. 3 for Fuel-Cell Vehicles: "Qualified fuel-cell vehicles include, for example, cars that run on hydrogen cells." The credit amount can be as high as $12,000.

Credit No. 4 for Alternative-Fuel Vehicles: "Qualified alternative-fuel vehicles include cars and trucks that run solely on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen, or any liquid that is at least 85% methanol...The maximum credit for garden-variety autos and light trucks is $4,000."

New Tax Credit for Residential Energy Improvements
"This personal tax credit has a $500 lifetime limit, but it's broad enough that many folks will benefit even though the numbers won't be very big."

New Tax Credit for Other Residential Energy Equipment
"You can also collect a completely separate personal tax credit equal to 30% of the cost of:

* Qualified solar water-heating equipment (maximum credit of $2,000).
* Qualified electricity generating solar photo-voltaic property (maximum credit of $2,000).
* Qualified fuel-cell property (maximum credit of $500 for each 0.5 kilowatt of capacity)."

So You Want to Be a Landlord - Tax Benefits

Category: Tax Law and Planning, Financial Planning

I have discussed here before some of the risks with owning rental real estate in your own name ("Rental Real Estate - What are the Risks?") - it should be titled to an LLC or some other entity to create a barrier between your personal assets and the property. As a general rule, if rental real estate is owned by an LLC, the LLC is the only entity that is liable in the event of a lawsuit, and only to the extent of its assets.

The article Smartmoney.com - Tax Matters: So You Want to Be a Landlord discusses the income tax benefits of owning rental real estate (as opposed to purchasing real estate to fix up and flip).

"But the real kicker is that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. Say your rental property (not including the land) cost $100,000. The annual depreciation deduction is $3,636, which means you can have that much in positive cash flow without owing any income taxes. That's a pretty good deal, especially after you own several properties. Commercial buildings must be depreciated over a much longer 39 years, but the write-offs will still shelter some cash flow from taxes. "

Since an LLC is a pass-through entity for tax purposes, if the rental real estate is owned in an LLC, the tax benefits will flow through to your personal return.

Midyear Financial and Tax Planning Checkup

Category: Tax Law and Planning, Financial Planning

Portsmouth Herald Financially Speaking by Holly Hunter: Mark calendar for midyear financial checkup - If your spring cleaning resulting in a pile of papers to go through, or you resolved to make some financial housekeeping changes this year, some food for thought.

Also, some views from James Jimenez, CPA, a partber at Fass & Associates, certified public accountants located in Parsippany, New Jersey as to mid-year tax tuneups:

"CUT YOUR TAXES WITH MID-YEAR PLANNING

It’s summertime! Probably the last thing on your mind is tax planning. The problem is that if you wait until December to think about your 2005 taxes, there won’t be enough time for any tax strategy to take effect. But if you take the time to plan now, you still have six months for your strategy to work this year. So set aside some time for tax planning right now. Begin by pulling out your 2004 tax return.

* Review your income and deductions for last year. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, find out what you can do to keep this year’s income below the threshold in order to save the tax break.

* Evaluate your investment portfolio. By now you should have an idea whether you’ll be selling any investments this year. Taking losses by pruning your portfolio can be an effective way to manage income.

* Build a retirement fund and cut taxes too. Take advantage of the new higher contributions allowed for IRAs, SIMPLEs, SEPs, and 401(k) plans. If you will be 50 or older by December 31, take advantage of the additional “catch up” contributions you can make to your retirement plan.

* Check out education tax breaks. If you or your children are in college, review the education tax breaks for 2005. These include the deduction for higher education expenses, a deduction for student loan interest, and contributions to Section 529 plans or education savings accounts.

* Don’t overpay your taxes. Finally, if you received a large refund on last year’s taxes, consider reducing your withholding for this year. To adjust your withholding, file a new Form W-4 with your employer."

Don't just deed your house to your child

Category: Elder Law, Estate Planning, Tax Law and Planning

TimesDispatch.com MAIL BAG: Mom made a costly error in deeding house to child is an example of good intentions coupled with a lack of understanding of tax laws resulting in a large unexpected tax.

While the owner of their own primary residence enjoys an exemption from capital gains tax on the sale under IRC Section 121, a non-resident owner does not. See IRS Publication 523 for more information.

Here, mom gifted her house to son, and when he went to sell it to pay for mom's care, he found out that he owed capital gains tax on over $400,000 on the sale of the house. He (mistakenly) believed there was no tax on the sale of a home. He misunderstood that the tax exemption only applied (1) to his primary residence, not any residence he owned, and (2) only up to certain dollar limitations ($250,000 for a single person and $500,000 for a married couple).

This situation described in this article could have been avoided by considering several other alternative plan with the house such as:

• Mom selling house to son for a note - mom's sale is sheltered from tax through IRC Section 121, and son's basis in the house is the purchase price,
• Mom and son joining together to take out a home equity line so that she can keep the house but pay for her care,
• A reverse mortgage,
• A gift to son with mom retaining a life estate so she can always live in the house. The life estate would also include the house in her taxable estate, which in turn means that upon her death the son's basis is the fair market value at time of death (a "step-up" in basis under IRC Section 1014) - son can rent the house to generate income to pay for mom's care if she can no longer live at home.

Thoughts before making that Charitable Contribution

Category: Tax Law and Planning

Good tips to consider before you make that charitable contribution - you should know what you are contributing to, with what result.Bluefield Daily Telegraph