Tax Basis

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q. My wife passed away in 1996. Can I file jointly this year? Also, I received a lump-sum payment -- the residue from her pension fund. Is that taxable?A. Normally, the determination of whether an individual is married is made as of the close of his taxable year, except when the spouse dies during the taxable year and the determination is made as of the time of death. Unless you have remarried in 1997, you cannot file a joint return because you were not married at the end of your taxable year.

Baltimoresun.com's tax advice column features three experts from the Hunt Valley accounting firm SC&H Group answering questions about preparing your return. Here is an edited excerpt of this week's column: I worked for a company that filed for bankruptcy. When they filed, they owed me 20 days of vacation. I filed a claim as a creditor. I have been notified by the court that the company never came out of bankruptcy. Can I claim this as a loss, as the debt will never be paid? - Barbara, Baltimore Individual taxpayers file on the cash basis method of accounting.

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: Where do I deduct the foreign tax paid on dividends of a foreign stock held as an American Depositary Receipt?A: An individual taxpayer can deduct only foreign taxes paid on dividends on a foreign stock on line 7 (other taxes) of Schedule A, Itemized Deductions. However, not every taxpayer will have enough total deductions to receive a benefit from itemizing and will have to just take the standard deduction.

Editor's note: Every Tuesday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax-advice column featuring three experts from the Hunt Valley accounting firm SC&H Group. On a direct rollover from a company retirement plan to a 401 (k) at a bank, is the gross distribution amount on the form 1099-R added to the total earnings, even though no federal tax is withheld? -- Ted, Fallston Direct rollovers between retirement plan accounts are generally not taxable.

A reader writes that he refinanced his mortgage from a 6.65 percent 30-year mortgage to a 5 percent 15-year mortgage in May. He has $98,000 remaining on the mortgage and was wondering if it would be more beneficial to prepay the mortgage. He earns $45,000 and guesses he is in the 28 percent tax bracket. He wants to know what his actual mortgage interest rate is after itemizing. Dear reader: As a financial matter, repaying a mortgage depends on a person's risk profile and what opportunities exist for the cash that would be used to pay off the mortgage.

Several readers have asked about transferring real estate to family members. Should they transfer property? How is it done? How much does it cost? Should a lawyer be consulted?Transferring real estate has many important implications, including tax effects. For instance, a mother wants to put her house in the name of her two daughters, so they will own it after their mother's death. There are many options available. Three of the common choices are:The two daughters can be added to the deed as joint tenants along with the mother.

75 years ago The acting president of St. John's College in Annapolis, John B. Rippere, stated that the recent hazing of freshmen by upper-class students, notwithstanding the solemn pledge taken by all four classes to abstain from hazing and "slatting," was a serious breach and was under investigation. -- The Sun, Dec. 8, 1920.Plans for the absorption of the Baltimore and Annapolis Short Line by the Washington, Baltimore and Annapolis Railway company and the necessary financing is expected to be completed today.

Q: My question involves the one-time $125,000 capital gains tax exclusion that people age 55 or over can claim when they sell a home.Can I sell my house at age 53 years and six months, not buy another house, and then wait until I am 55 to exercise my one-time capital gains exclusion?Also, what are the rules if two individuals over 55 are contemplating getting married and both own homes?Fred Sweitzer, MonktonA: Technically speaking, if neither you nor your spouse is at least 55 years old when you settle on the sale of your existing house, then you do not qualify for the IRS Section 121 one-time capital gains tax exemption that allows older homeowners to keep up to $125,000 of their resale profits tax free.

Homeowners settlement rejectedA Houston judge has thrown out a $750 million class-action settlement between thousands of the nation's homeowners and three chemical companies over faulty plastic plumbing.Hoechst Celanese Corp., Shell Oil Co. and Du Pont Co. had agreed last October to settle a lawsuit claiming chemicals used to make polybutylene pipes and fittings damaged plumbing in homes nationwide.In a Feb. 16 ruling made public late Monday, state District Judge Katie Kennedy rejected the settlement without giving a reason.

I would like to take your advice about streamlining my finances by using only one or two credit cards. But I'm concerned about the possible effect on my credit score. Is it better to have several credit accounts with small balances, or should I consolidate the balances onto one card, maxing it out but leaving the rest with zero balances? Or does it matter? If you have so much debt that putting all the balances on one card will put you anywhere close to that card's credit limit, then you're better off not making the transfers.