The Internal Revenue Service collected $56.4 billion from "enforcement efforts" in 2008. Peter Pappas of The Tax Lawyer's Blog expects the figure for 2009 to be even higher. Don't be another auditing statistic. WalletPop experts are on hand to answer some of your burning questions, from capital gains on property sales to back taxes on a business.Question:
If my wife and I sold our two family houses of 25 years and had a rental 10 of those years, how much capital gains are we allowed to claim?
A two-family home can be treated as one or two separate properties for purposes of a sale, depending on the facts. This is important, because only a home used as your principal residence for at least three of five years before the date of sale can qualify you to claim an exclusion of up to $500,000 of gain on the sale (a $250,000 limit applies to singles). If rental use was longer than three years within this five-year period, then any gain related to this portion of the home will be taxable and won't qualify for the home sale exclusion. Any depreciation claimed on the rental portion of the home after May 6, 1997, is subject to "recapture," which means this amount is taxed at a 25% rate; the balance of your gain is taxed at a 15% rate. And even if rental use during the five years doesn't exceed three years, any gain related to rental use after 2008 won't qualify for the home sale exclusion.
Question:
To claim a medical deduction, what percentage of my income is needed for this? Let's say I earned $80,000 this year -- how much in medical expenses do I need to make a deduction?
--Jim Savick, 65, Lemont, IL
Answer from Bob Meighan, CPA and vice president of TurboTax
The deduction for medical expenses is limited. Medical expenses can only be deducted to the extent they exceed 7.5% of your adjusted gross income (your total income less some adjustments like IRA contributions, alimony, student loan interest, etc.). And it's important to note that it's the expenses in excess of the 7.5% limitation which are deductible.
For example, if your adjusted gross income is $80,000, then only medical expenses in excess of $6,000 are deductible. If your medical expenses are $5,000, you get no deduction. If they are $7,500, you get to deduct $1,500. These deductions help reduce your income if they exceed the standard deduction. One other complication: If you are a high-income taxpayer, your total itemized deductions may also be limited. As you can see, it may be difficult realizing significant tax benefits from your medical expenses.
This is a great question, and we have tax and tech experts live on Twitter to help all season long @TeamTurboTax.
Question:
Four of my brothers and I are going to inherit my sister's estate. She quit paying taxes, bills, insurances, utilities, etc., in 2006. She has not worked since 1995 because of an aneurysm. She also never filed for Social Security, so her only income was from her 401(k) and investments. Do I or the estate have to pay any back taxes she may or may not owe?
--Rog McShane
Answer from John A. Tracy, author of Accounting for Dummies
Quite clearly, the beneficiaries of your sister's estate should contact an attorney who handles estates, perhaps the one already dealing with the estate of the sister. Any estate lawyer will quickly tell you that all liabilities have to be determined in filing an estate tax return. This includes any income tax payable due the IRS. There are probably many other details that come into play -- but my main advice is to bring in an estate lawyer to get matters in order.
Question:
I received a sales tax statement -- money due now -- for a bill 15 years ago and never received any kind of statement within that time period to allow myself to pay off this debt with no interest or penalties. I don't know where to get help fighting this matter. I was in a partnership in a diner with my now ex-husband. Our divorce decree states money owed for any taxes would be 50%. We were divorced in 1997; the money is owed from 11/95, 2/96, 5/96. Please help.
Generally, tax authorities honor whatever is written in a divorce decree. The only potential solutions we see are that some states have a statute of limitations on un-assessed taxes; if neither of you ever received a notice that the taxes are due, the statute could apply. It is also possible that your husband has known all along about the taxes. Did he specifically have the tax clause written into the divorce decree? You may have a complaint that your husband effectively committed fraud. Bottom line: These are questions for an attorney and our thoughts are, at best, possibilities. You need to hire one quickly if you want any chance of avoiding paying the taxes.
