Members of the Maryland Association of Certified Public...


March 08, 1995

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: My wife and I were planning to purchase two homes in 1994. After we bought our first home, we placed a contract with a deposit of $2,750 to purchase a newly constructed house that we were planning to rent. But when interest rates skyrocketed, we couldn't afford the house we were planning to rent and lost the deposit. Can we recoup this loss on our income tax return?

A: The critical issue in this situation is proof that you intended to use the home as a rental property, not your personal property. If your true intent was to produce income by renting the house, the $2,750 deposit would qualify as a tax loss.

Q: I'm about to settle a lawsuit from a car accident. Do I pay taxes on the settlement? Also, are the medical bills that I pay out of that deductible on my 1995 taxes, even though I may have incurred them in 1993 and 1994?

A: To the extent that your settlement is for injury, it is not taxable. However, medical expenses that are reimbursed or compensated for are not deductible.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To submit a question, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford 836-5028, and in Carroll 848-0338. Using a touch-tone phone, enter 6225 after the greeting. Push 1 to submit a tax question; state the question in full. Push 2 to hear a tax tip.Selected questions will be answered in the Business section. No questions will be answered by phone. Please leave your name and phone number.

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