CONSIDERING A REVERSE MORTGAGE

Larry, I am thinking about doing a reverse mortgage. I think I understand all of the positive sides. Are there any negative sides to doing this?

Abe

Abe, as you know there are some positives to a reverse mortgage. They are a very good vehicle for certain individuals that are retired that have built up a lot of equity in their home, but are not ready to sell their house. You say that you know the positives so I will just tell you some of the things that we watch out for:

• Expect to pay some hefty fees. Many times we see an origination fee for as much as 2% of the mortgage and then additionally some fees on the balance.
• If you are a younger borrower, there are some big risks. If you live longer than you participate, you could possibly run out of money and won’t have any home equity to fall back on. Over the last decade, the average age of the risk mortgage borrower has fallen from 76 to 72. At age 62 this could cause a problem.
• There are other options that might work better for you. Even though you’ll have some counseling, which is required for first mortgages, taking out a home equity line of credit or downsizing your home might be an answer.
• You may not be able to borrow as much as you think. You will not be able to tap your home for its full price. There is a formula on the amount that you can take on depending on your age and other factors.

Before you determine if a reverse mortgage is right for you, we really would have to know your exact circumstances. You should discuss this with your financial counselor. If you are a client of the firm, please get in touch with me. If you are not a client of the firm, you should discuss this with your representative.

4-YEAR EXTENSION PERIOD TO REPLACE ANIMALS SOLD DUE TO DROUGHT

If you sell livestock due to a sever drought, you normally have two years after the year of the "involuntary conversion" to replace the livestock. This year however, you have been given additional time to make the replacement. The notice below not only explains the law, but more importantly shows the counties that qualify for the four-year replacement.

I thought you might be interested:

Notice 2009-81 explains the circumstances under which the 4-year replacement period under section 1033(e)(2) is extended for livestock sold on account of drought. The Appendix to this notice contains a list of counties that experienced exceptional, extreme, or severe drought conditions during the 12-month period ending August 31, 2009. Taxpayers may use this list to determine if an extension is available.

RECOVERY.COM IS SPOT ON IN TRACKING STIMULUS FUNDS

If you're interested in finding out where the stimulus money is going, click on www.recovery.com.

Recovery.com, a Web site run by government-procurement researcher Onvia in Seattle, is seen to be faster at providing information on how stimulus funds are being spent than Recovery.gov, the federal government's Web site for that purpose. Information on Recovery.com is more up to date, and it tracks local contracts in real time. Onvia's data show that stimulus spending is slow, perhaps because of excessive caution about results, but businesses are eagerly awaiting funds to get started on projects.

REPAIRS OR IMPROVEMENTS

Larry, I hope that you can help me. I am doing some work on my building. At one of your programs you mentioned that repairs are better than improvements, or vise verse. What is the difference?

Carmina

Carmina, when it comes to taxes, talking about repairs versus improvements can be tricky.

The cost of repairs made by your business is currently deductible. However, the cost of improvements must be capitalized and written off over time via depreciation deductions.

What To Do:

Separate repairs from improvements when work is done on the building. For example, don't lump standard repairs with a major renovation. If that occurs, it will take longer to write off the cost of the repairs. It is up to you to show that renovation expenses should be deducted currently instead of being capitalized.

Sometimes it's hard to tell the difference between a repair and an improvement. If you're having trouble telling the difference, remember these rules:

• A repair keeps the property in good operating condition.
• An improvement extends the useful life of the property.
• If the cost of the work amounts to 25% or more of the original cost, it will probably be classified as an improvement.

If you have any other questions, please let me know.

Larry Kopsa CPA

BEWARE: ANOTHER SCAM

Watch out for this scam. I have had a client that received the following email. Remember, the IRS never sends notices by email.

See www.snopes.com for more information.

Taxpayer ID: name-00000174073547US
Tax Type: INCOME TAX
Issue: Unreported/Underreported Income (Fraud Application)

Please review your tax statement on Internal Revenue Service (IRS) website (click on the link below):

review tax statement for taxpayer id: name-00000174073547US

Internal Revenue Service

DOCUMENTATION IS THE KEY

Occasionally I get asked about the deductibility of conventions and meetings to foreign countries. Attached is an article that provides a good summary. You will note that there is a list of the countries that have preference. Don’t forget, the key to “audit proofing” your records is Documentation... Documentation... Documentation!

http://www.bizactions.com/index.cfm/ba/e100/fa/117057430G1603J2842411P8P1402T1/

REMINDER: HOME TAX CREDIT DEADLINE IS QUICKLY APPROACHING

The deadline for qualifying for the Home Tax Credit is December 1, 2009. If you are considering purchasing your first home or have not owned a home in the last 3 years, time is quickly running out if you want to qualify for up to $8,000 in government money.

Here a summary of what you need to know.

1. To be considered a first-time homebuyer, you – and your spouse if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
2. You cannot claim the credit before there is a completed sale and purchase of the residence. The sale and purchase are generally completed at the time of closing on the purchase.
3. To qualify for the credit, the completed purchase must occur before December 1, 2009.
4. The home must be located in the United States.
5. The credit is either 10 percent of the purchase price of the home or $8,000, whichever is less.
6. The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 or $150,000 for joint filers.
7. The credit is fully refundable. A homebuyer with no taxable income, who qualifies for the credit, may file for the sole purpose of claiming the credit and receive a refund. The credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
8. The credit is claimed on IRS Form 5405, First-Time Homebuyers Credit.
9. Taxpayers can claim the credit for a qualified 2009 purchase on either their 2008 or 2009 tax return. For those who have filed a 2008 return, a Form 1040X, Amended U.S. Individual Income Tax Return can be filed in order to get a refund in 2009.
10. The credit for qualified 2009 purchases does not have to be repaid, as long as the home remains your main home for 36 months after the purchase date.