Is my Tax Stimulus Payment Taxable Income On My 2008 Tax Return?

This seems to be a popular question this year. Last year’s Tax Stimulus Payments are Not Taxable! That’s good news, but it has caused some confusion about filing this year’s 2008 tax return. Taxpayers that did not receive their stimulus payment last year may qualify for the Recovery Rebate Credit on this year’s tax return.

The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:

Taxability:
Again, the economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.

Refund delays:
IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment:
In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts:
The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Please feel free to contact E-File Florida at 954-583-8534 or visit us on the internet at www.efileflorida.com for more great tax tips and articles.

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).

Are You a Rental Property Owner Facing Foreclosure? Read on…..

I’m getting phone calls every other day from investors facing foreclosure on their rental properties. What are the tax consequences of such an occurence? They can be costly! The Mortgage Forgiveness Debt Relief Act does not cover rental properties. What this means is that when the bank forecloses on your investment property, you may likely be issued a 1099C form. (Your tax liability depends on whether you have a recourse or non-recourse loan. Recourse means you, the borrower, has personal liability for the loan, in addition to the risk of losing your real property. ) The IRS will also recieve a copy of the same form. This form shows the amount of “cancelled debt” that will be considered income to you. In other words, if your mortgage on your rental property was $200,000 and the bank was only able to sell it for $120,000, the difference of $80,000 is now considered cancelled debt income to you. You must add this amount on your tax return and be taxed on an additional $80,000 income. OUCH!

I want to propose an idea if you are an investor who unfortunately finds him/herself in this situation. It’s called a Deed in lieu of foreclosure.

A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair market value of the property. This is an important point. If you have equity in this property, no matter how small, you may want to contact your lender to see if this is something you can work out. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender. Be sure that the lender agrees, in writing, to forgive any deficiency (the amount of the loan that isn’t covered by the sale proceeds) that remains after the house is sold.

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parol evidence rule (get it in writing!) and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

For you New Yorkers out there….the Home Equity Theft Prevention Act has created some confusion regarding this frequently-used method of settlement. It is unclear whether HETPA applies to deeds in lieu of foreclosure since there is no clear exclusion as there is for a referee’s deed, for example. The 2-year right of recission is not a risk that banks or title insurers are comfortable with, especially given the complexities of compliance, so many banks and title insurers in New York are not willing to work with deeds in lieu.

Please feel free to contact E-File Florida at 954-583-8534 or visit us on the internet at http://www.efileflorida.com/ for more great tax tips and articles.

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).

How Much Should You Pay For Your Tax Preparation?

The price you will pay for tax preparation services depends upon one thing: How complex your tax return is. The more complicated your return, the higher the price will be.

This is true whether your preparer charges a flat-rate, an hourly rate, or has a price for each tax form.For a relatively straightforward tax return (for income such as wages, interest, and dividends, and no itemization), expect to pay between $125 and $200. If you are self-employed, a landlord, or have brokerage trades to report, expect to pay between $200 and $450. If you claim the Earned Income Credit, expect to pay between $150 and $200 due to the complexity of the EIC tax form.

In my experience, retail and independent tax offices tend to charge about the same for tax preparation. It is advisable and wise to seek the services of either a CPA or an Enrolled Agent. Enrolled Agents are Federally licensed by the IRS in the specific area of taxation.

Your tax preparation fee should include electronic filing of your return, or extra copies of the return to file on paper, as well as a brief consultation before or after your taxes are prepared to discuss any concerns you have.

Feel free to visit our website at http://www.efileflorida.com for more informative articles and tax tips.