Tax Adviser

Here are answers from members of the Maryland Association of Certified Public Accountants to readers' tax questions. The Sun will publish answers through April 15.Q: Last year I filed a joint return with my wife. This year I'm separated. I will get a 1099 from the state reporting the refund of state taxes we got last year. Who pays what on this refund? Do I pay 50 percent and she 50 percent or do I have to pay it all?A: Assuming the state refund must be included in income (you can determine this by reviewing the "Tax Benefit Rule" in your Form 1040 tax package)

WITH THE Dow Jones industrial average standing this morning at 6,308.33 -- 2,473.89 points, or 64.5 percent above its Jan. 1, 1995, level of 3,834.44 -- you may wish to take some money off the table.If capital gains taxes are holding you back, consider this offbeat strategy:To preserve stock profits but delay paying capital gains taxes, sell stocks "short against the box."Here, you "short" shares identical to the ones you already own. Your broker borrows and sells the shares on the open market.

Congress returned to "work" this week (now there's a laugh) to complete its lame-duck session before taking another holiday. Spending other people's money is a taxing experience. Their task is to avoid the "fiscal cliff," a geological construct of their own making. It doesn't take a genius to predict both parties will try to do two things: (1) reach an agreement that will allow each side to take some credit and (2) require those who work for a living to pay government more while they come up with phony or inconsequential spending "cuts.

Dear Mr. Azrael, My father assisted my husband and myself in purchasing our house in [Baltimore] City and consequently, his name/signature is on the mortgage and every other piece of paper associated with the purchase. He has asked me to remove his name from the deed for liability reasons. I do not know how to do this or where to begin. Would you be able to shed any light on this issue? Heidi Busch-Gallanar Baltimore Dear Ms. Busch-Gallanar, Removing your father's name from the deed is easy.

The Justice Department asked a federal judge yesterday to effectively shut down a business that it says sells income tax fraud and has bilked the government and 100,000 customers out of $500 million or more. In court papers filed in Las Vegas, the government said it had lost at least $324 million in tax revenue over the past three years because of the company, the National Audit Defense Network, which has 470 employees. But it was the volume of customers that showed how widespread tax cheating has become in the face of a steady erosion in enforcement of the tax laws over the past 15 years.

Dear Mr. Azrael: I intend to make a $30,000 "no-interest" loan to my daughter and son-in-law so they can pay off a mortgage on their townhouse. How will the IRS treat a no-interest loan? Jean Cohen Baltimore Dear Ms. Cohen: As a general rule, a no-interest loan is considered to be a gift loan, where you are forgiving the interest that normally would be paid by the borrower. The IRS refers to this interest as "foregone interest." The foregone interest for any period equals the amount of interest that would be payable if interest accrued on the loan at the applicable federal rate and was payable on Dec. 31. Simply, the IRS would hold you responsible for the interest that you would normally have collected.

Dear Mr. Azrael: Is there a relatively easy way to transfer ownership of property from one sibling to another? Also, are there any tax implications for either sibling in this transfer? Christine Beauregard Pasadena Dear Ms. Beauregard: The state of Maryland and local counties impose taxes on the transfer of real property. The state transfer tax is one-half percent of the purchase price. The state also imposes a recordation tax. The rate varies among counties but typically is 0.5 percent to 0.7 percent of the purchase price.

A reader asks for examples of how a 1031 exchange works financially, and whether real estate agents' commissions can be deducted from the proceeds of the transaction. Dear reader: Section 1031 of the Internal Revenue Code authorizes tax-deferred exchanges of property. Section 1031 exchanges are used most often for deferring taxes on the sale of investment real estate where all or part of the proceeds are used to purchase other investment real estate. Taxes are deferred because the tax basis of the property sold - known as the relinquished property - is carried over to the newly purchased property - known as the replacement property.

Do you wonder how much money to invest in stocks, and into which categories? Lewis Altfest, financial planner, says, "Lighten up on stocks. We could be in for below-average returns, and that could send the market into a tailspin. Cut back especially on technology issues. "My suggested allocations are: 35 percent in bonds and bond funds, 20 percent in large-cap stock funds, 20 percent in international funds, 10 percent in mid-cap funds, 8 percent in small-cap funds and 7 percent in real estate funds.