Question: I am a first-time home buyer in this hectic market. I have heard that the first-time home buyers credit will be extended to houses closing until June 1, 2010. The original date for closure cutoff was April 30, 2010. Any truth to the June deadline extension?
Question: My former employer checked block 13 of the W2 stating I was offered a 401(k) program, which I never gave anything to. I have my own IRA. However, when I did my taxes, I had to pay a penalty. Why is this?
Your access to a 401(k) may make you ineligible for the deduction you wanted on your IRA, but all is not lost. You can still contribute and look forward to withdrawing the non-deductible part of the contribution tax-free in the future -- after all, you've already paid the taxes on it. Or, if you're eligible, you could instead fund a Roth IRA. A Roth won't give you a deduction now -- just like your IRA -- but all future withdrawals are tax-free. See IRS Publication 590 for details and more info.
Question: We inherited my mother's house. It was appraised at $450,000 and sold for $400,000. We paid back real estate tax of $10,000. Each one of us got $130,000. Did we have to file?
Answer from Scott Testa, professor of business administration at Cabrini College in Philadelphia: Generally, taxpayers can exclude up to $250,000 in capital gains when selling their primary residence -- the exclusion is $500,000 if you are married and filling a joint return -- which is known as the Section 121 exclusion.
There may be transfer, stamp or property taxes to be paid when selling the house, and those taxes are listed in detail on the settlement statement prepared by the title company during escrow. However, there should be no federal income taxes. The tax code allows taxpayers to exclude up to $250,000 in capital gains ($500,0000 if married), provided the taxpayer has owned and lived in the property as their main home for two out of the past five years.
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