Principal Residence

In a tax-Peter-to-pay-Paul move, the House Ways and Means Committee voted to permanently remove the so-called "phantom income" tax penalty that haunts financially distressed homeowners whose debt is partially forgiven by a lender after a foreclosure or a "short sale" to avoid foreclosure. The committee also voted to extend the deductibility of mortgage insurance premiums through 2014 - an important benefit for many borrowers who pay either private mortgage insurance or Federal Housing Administration premiums on their loans.

Members of the Maryland Association of Certified Public Accountants are answering tax questions through April 15.Could you explain the new rule on the exclusion of profit from the sale of a home in or after 1998?Under the Taxpayers Relief Act of 1997, an exclusion for the profit from the sale of a home has no age restrictions, as under the previous law. Single filers may exclude up to $250,000 and married couples filing jointly may exclude up to $500,000. The taxpayer or his/her spouse must have owned the home and both must have occupied it as a principal residence (or lived in the home as the main home)

CREATIVE homeowners and small-scale real estate investors are coming up with new money-saving twists on Congress' 1997 changes to the Internal Revenue Code.Among the most ingenious, according to accountants and lawyers, are those that maximize the benefits of the most generous real estate change in last year's law -- the $250,000 (for single filers) and $500,000 (joint filers) capital-gains exclusions for home-sale profits. Even more clever are concepts that meld the new exclusions with tax-deferred real estate exchanges under Section 1031 of the code.

CALL IT the ultimate layer of icing on the homeownership benefits cake. Thanks to legislation passed last week by Congress, not only will most homeowners be free of federal taxes whenever they sell their property at a profit, but they'll also be less likely to have their home seized by the IRS in the event they get into a dispute over back taxes.The massive Internal Revenue Service Restructuring and Reform Act sent to President Clinton for signature contains loads of goodies for taxpayers in general, but has three special provisions aimed solely at homeowners.

Several weeks ago, I mentioned a new program to help Baltimore City employees purchase homes in three city neighborhoods. The city's "Tri-Neighborhood Program" provides financing benefits to full-time city employees to purchase homes in Ashburton, East Arlington and Calloway-Garrison.Here are the benefits:1. Up to a $5,000 grant to be applied toward closing costs, minor rehabilitation or to reduce the first-mortgage principal amount. The buyer signs a 10-year, no-interest note for the grant, which is reduced by 10 percent per year.

JUST IN CASE you thought the federal tax laws couldn't get any more favorable to homeowners after two major reform bills in less than two years, think again.Tax specialists on Capitol Hill say many taxpayers have overlooked key "effective date" provisions hidden in the fine print of the 1997 and 1998 tax laws that bestow even more goodies on certain sellers of homes. The provisions could be especially helpful to people who want to sell their home tax-free in the coming months, but don't think they qualify under the 1997 and 1998 tax laws' strict two-year minimum ownership rules on capital gains.

The new tax law recently passed by Congress revamped the way capital gains are treated when a homeowner sells his home and realizes a profit.Under the new law, those homeowners who file single federal tax returns are allowed to exclude up to a $250,000 gain realized on the sale of a principal residence; married couples are allowed up to $500,000.The only requirement is that the homeowners have owned and used the home as a principal residence for at least two years during a five-year period.

IMPORTANT NEW details about the scope and timing of President Clinton's proposed elimination of capital gains taxation for most home sales emerged this month in the administration's fiscal 1998 budget submission to Congress.As promised at last year's Democratic National Convention, Clinton called for revision of the federal tax code to allow married taxpayers filing jointly to exclude up to $500,000 of profits on the sale of a principal residence. Single taxpayers, heads of households and married persons filing separately could exclude up to $250,000.

The ink is barely dry on the 1997 tax law, but creative accountants and tax lawyers already have spotted ways for homeowners -- and other real estate owners -- to reap benefits beyond what even Congress might have contemplated.Tops on the list: Call it the serial home-sale strategy.It could save some property owners hundreds of thousands of dollars over a period of years.The technique has potential applicability to homeowners who also own a second house or condo, a vacation house or any rental residential property.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q: What are the rules on scholarships? Are they taxable? Does the student have to file a return even though he is still a dependent?A: Qualified scholarships to cover the costs of education, such as tuition, room and board, books, etc., are excludable from gross income and do not constitute support for the purposes of hTC determining the availability of the dependency deduction.

The economic stimulus package, particularly the first-time homebuyer credit, generates lots of questions to our consumer blog, Consuming Interests. Tax professionals Theresa M. Bandell, director of Stegman & Co. in Baltimore, and Mark Steber, vice president of tax resources at Jackson Hewitt in Sarasota, Fla., provided these answers: Question: : Does the credit of 30 percent on an energy-related investments - windows, furnaces, insulation - up to...

WASHINGTON -Rep. Pete Stark, a California Democrat and dean of the California congressional delegation, has claimed his Maryland home as his principal residence to qualify for the $3,770 homestead tax credit, even though it is thousands of miles from the Northern California district he represents - and where he is registered to vote. A senior member of the House tax-writing Ways and Means Committee, Stark said he was unaware that he might not be eligible for the tax break. Asked whether it was questionable for him to receive it, he said, "I guess it is."

I am the co-executor of an estate of a relative and was left the house in the will. We have been unable to sell the house. I've been paying the mortgage and costs for a couple of years. I recently decided to move into the house. Will the mortgage companies (original and equity lenders) transfer the house into my name and qualify me for a new mortgage based on my credit? Is it possible to avoid closing costs? What is the best way to approach the mortgage companies? What is the best and easiest way to transfer ownership of the house to me?

Deep in the nearly 700 pages of the new housing bill just signed into law is a complicated tax-code change that could affect substantial numbers of people who purchase second homes or rental investment real estate in the coming decade with an eye to occupying them as their main residence later. The bill narrows the use of the code's tax-free exclusion that allows sellers of principal residences to escape taxation on the first $500,000 of their profits (married joint-filers) or $250,000 (single-filers)

Editor's note: Every Sunday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax advice column featuring experts from the Sparks accounting firm SC&H Group who will answer reader questions. Submit questions at www.baltimoresun.com/taxtalk I sold my house for a big profit. I plan to buy in the near future but I am currently renting. I am spending the profit from the sale. What are the issues related to the profit, length of time to buy and does the new house have to cost more than the old or simply as much as the gain from the sale?

The Q: From the local gym to the utility company, almost everyone wants your Social Security number before they'll do business with you. Some have a legitimate reason: for example, credit reporting agencies if you're checking your credit history or requesting a credit freeze. Some don't, like the electric company and phone company. Reader Dale Rains wondered whether all government agencies need the nine digits, too. More specifically, he wondered why he had to provide it to the Department of Assessments and Taxation to get the Maryland Homestead Tax Credit.

In a tax-Peter-to-pay-Paul move, the House Ways and Means Committee voted to permanently remove the so-called "phantom income" tax penalty that haunts financially distressed homeowners whose debt is partially forgiven by a lender after a foreclosure or a "short sale" to avoid foreclosure. The committee also voted to extend the deductibility of mortgage insurance premiums through 2014 - an important benefit for many borrowers who pay either private mortgage insurance or Federal Housing Administration premiums on their loans.

Some highlights of three laws approved during the Maryland General Assembly's 2004 session: Security deposit interest The Maryland Landlord-Tenant law required landlords of residential properties to accrue simple interest on tenants' security deposits of $50 or more. The law, which took effect Oct. 1, lowers the annual interest rate from 4 percent to 3 percent (House Bill 723). Displaying the U.S. flag Some condominiums, co-ops and subdivisions have restrictive covenants that prohibit or restrict owners and tenants from displaying insignia, including flags, on the exterior of their homes or residential apartments.

Some readers have inquired about capital gains taxes on the sale of a residence. One reader writes that she sold her Glyndon home to her daughter in July. There was no down payment and the reader is carrying the mortgage. Her daughter is repaying the loan at the rate of $300 a month plus interest. The reader asks if she has to pay capital gains taxes on the sale. Another reader writes that she has owned a house in New York since 1990. In 1993, she married and moved to Maryland. She rented the house until 2002, when she returned to New York and moved back into the home.

When nonresidents sell real property in Maryland, they are supposed to pay income tax on capital gains realized on the sale. A new law that goes into effect Wednesday requires that a percentage of the net proceeds of the sale (total payment) be withheld from the funds received by the nonresident and paid to the clerk of court. The withheld amounts will be 4.75 percent for individuals and 7 percent for entities. The new law enforces collection of the tax from nonresidents by requiring every deed to include a statement of the seller's total payment.