Members of the Maryland Association of Certified Public...

Tax questions

April 04, 1997

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

The first question is reprinted from Tuesday to correct erroneous information that was given in the answer.

Q: I am selling 7 acres of unimproved land to my niece at 8.5 percent plus interest, with monthly principal and interest payments of $50 for eight years. Do I have to account for the interest on my income tax return and what form would I use if I do? Also, I am selling the land at a loss. Can I claim the loss?

A: Interest received on the installment note is taxable as received. The interest should be reported yearly on Form 1040, Schedule B. If the land has been treated as personal use property, you cannot deduct the loss. Report the loss on Schedule D, but do not fill out columns (f) and (g); instead write personal loss across these columns. If the property was held as an investment, then the loss should be reported on Schedule D for the year of the sale. If the land was held as trade or business property, then the loss should be reported on Form 4797, Sale of Business Property, and also on Form 1040, Schedule C. Additionally, this transaction should not be subject to the gift tax, if the sale is bona fide at arm's length, and free from donative intent. Be aware that transfers between related parties are subject to special scrutiny for both income and gift tax purposes.

Q: My mother died in January of this year. I've been doing her taxes for the past several years. Can I still do her '96 taxes?

A: You can still prepare your mother's return. If a refund is due, you must attach a copy of the Letters of Administration showing your appointment as personal representative or Form 1310, if you are not the personal representative.

Q: My son is paying off a home equity loan I have on my house in my behalf. Can he deduct the interest?

A: No. Interest is only deductible by the person who is legally liable for the debt. You cannot deduct payments you make for someone else.

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

Readers can find an archive of tax questions answered thus far plus links to other tax information on The Sun's Web site --

Pub Date: 4/04/97

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