Members of the Maryland Association of Certified Public...

Tax questions

March 12, 1997

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

Q: I sold my house in September 1996 and plan to buy a new house in March 1997. On which year's tax return would the capital gain be reported? On which year's return would the closing costs be deducted? Are points paid at closing deductible in that tax year?

A: The gain should be reported on Form 2119 of your 1996 return. Also include the closing cost from the sale on your 1996 return. "Seller paid points" are not deductible on the 1996 sale; they are considered a reduction to the selling price on Form 2119. The 1997 return should include the deductible closing cost on the new purchase. Points paid on the 1997 purchase are deductible in 1997. Please note you have up to two years from the date of the sale of your home to purchase a new primary residence to avoid being taxed currently on the capital gain from the sale.

Q: Because I was injured all year, I made only $2,000 in interest. My wife earned about $17,000. Would it be advantageous for me to file a separate return or file a joint return? Also, am I eligible for an IRA with my interest income?

A: Even though your income is low, you and your wife's combined income taxes would probably be lower if you file a joint return. This is because your exemption deduction would probably exceed your income. Therefore, filing a married-filing-separatly return would result in lost deductions. You are not eligible to fund an IRA based on interest income.

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

To ask a tax question, call Sundial at (410) 783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County and 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after you hear the greeting.

Readers also can e-mail questions through The Sun's Web site -- www.sunspot.net.

Selected questions will be answered in the Business section. No questions will be answered by phone.

Pub Date: 3/12/97

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