Limits on loans to military

Personal Finance

Your Money

December 05, 2006|By Eileen Ambrose | Eileen Ambrose,Sun Columnist

Readers had a few follow-up questions to recent columns.

John, a service member in North Carolina, e-mailed after reading about interest rate caps on payday loans made to members of the military.

He says he heard that service members can't be charged more than 12 percent on an auto loan. Is it true? he asks. "If it is not, is there something out there for service members?"

Officials with the Federal Depos it Insurance Corp. and the bank ing industry say they are unaware of any law that prohibits lenders from charging more than 12 per cent on car loans.

But there is a long-standing law that helps troops struggling to keep up with car payments after being called up for active duty, says Wayne Abernathy of the American Bankers Association. It's designed for those experienc ing a sizable drop in income when switching from civilian to mili tary pay.

Under this law, service mem bers who had car loans before be ing called up cannot be charged more than 6 percent on the loan while on active duty, Abernathy says. The rate cap doesn't apply to new loans taken out while on ac tive duty, he says.

This 6 percent cap is not just for car loans, either. It also applies to mortgages and credit cards.

Service members must request the rate reduction from the lend er and supply a copy of their or ders, experts said. Lenders gener ally grant the request, although they can challenge it if they be lieve the service member's in come isn't adversely affected by active duty, experts say.

Bob Mooney, acting deputy di rector for compliance and con sumer protection at the FDIC, says John should first check out the bank and credit union on base if he's shopping for a car loan. Also, John should consider getting advice from the family financial counselor on base, Mooney says.

Henry of Roland Park predicts he will be bitten by the alterna tive minimum tax next year.

He writes in a letter: "An invest ment I made years ago is finally coming to fruition. What I thought would be a 15 percent capital gain tax is turning into a nightmarish AMT. "

He has two questions: Will he have to pay federal and state tax es in the quarter that he receives the money next year? What ex penses should he pay this year that he won't be able to deduct in 2007 because of the AMT?

Henry didn't give many details, so it's difficult to give definitive answers.

Generally, taxpayers need to pay estimated taxes in the quarter they receive the income, says Bob D. Scharin, senior tax analyst with Thomson Tax & Accounting in New York. But there are excep tions depending on your income and tax liability, he says.

As far as deductions, Henry can now pay January's estimated state income tax bill this month or real estate tax due early next year, Scharin says.

Also, miscellaneous expenses that exceed 2 percent of adjusted gross income can be deducted un der regular income tax, but not under AMT. If he has any, Henry should this year pay miscellane ous expenses, which include em ployee home office expenses, work-related education costs, tax advice and preparation fees and investment costs.

To tip or not to tip? That's Pat's question. The Ellicott City resi dent and three companions are headed to New York for an eve ning at a cabaret. The meal is $60 per person and each will be charged another $65 for the mu sic. Pat considers the $65 a cover charge.

Do you tip on a cover charge or just the food? she asks. The differ ence is tipping on $240 versus $500.

Mark Brenner, author of Tipping for Success, says the tip should cover the food and drinks, not the music.

How much to tip?

"Tipping is an expression of ap preciation and level of service," he says. If service is just hum-drum, leave the standard 15 per cent, he says. If it's outstanding, 20 percent would be appropriate. "Never feel obligated to tip if the level of service does not meet your expectation," Brenner adds.

A new law allows older savers to roll over an IRA to a charity and get a tax break. If you plan on doing so, we would like to talk to you for an article. Please write, or call 410-332-6984.

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