Members of the Maryland Association of Certified Public...

Tax answers

March 22, 1996

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

Q: I have a rental property that is clear of any mortgages. If I re-mortgage the house and deduct the interest, can I take the mortgage money that I'm receiving on the house and put it into another rental investment?

A: You could use that money as you have noted. However, to better match investments with income streams, you might want to borrow money directly with a lien on the new property to finance the new property in question. This would more closely match income streams and expense streams. Additionally, there may be problems with regard to basis and investment in the properties and deductibility of losses if there is a mismatch with regard to assets, depreciation, interest and loans. You should consult a tax adviser directly to discuss the more complex issues involved in this matter.

Q: The only income I have for 1995 was approximately $5,800 in unemployment benefits. Can I contribute $2,000 toward an IRA for that year?

A: To make a $2,000 contribution to your IRA, you must have $2,000 in compensation. Compensation is defined as wage, salary, professional fees or other amounts derived from, or received for, personal services actually rendered. Compensation also includes alimony, which is includable in the recipient's gross income. According to the IRS' proposed regulations, compensation does not include unemployment compensation received under a law of the United States or of a state.

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

A joint service from The Sun and the Maryland Association of Certified Public Accountants can help you with your tax queries. Association members, all CPAs, will answer questions from readers until April 15. To ask a tax question, call Sundial, The Sun's telephone information service, at (410) 783-1800. Using a touch-tone phone, enter 6225 after you hear the greeting.

Callers are asked to leave their names and phone numbers, should questions need to be clarified. Selected questions will be answered in the Business section. No questions will be answered by phone.

Pub Date: 3/22/96

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