Saturday, February 15, 2003

Church deduction up in air

Income tax Q&A

More answers to readers' tax questions, courtesy of Chuck Stevens, accountant and partner at Cooney, Faulkner & Stevens:

Question: Will I be able to claim my church offering since I don't itemize? I had heard early in the year they were going to let you claim this even if you don't itemize.

Answer: President Bush has been working on a tax law change to allow non-itemizers to deduct charitable contributions since shortly after taking office; however, to date, this has not been passed into law.

Q: Is the $5,000 I spent for a lawyer to defend my son in court a deductible expense?

A: It would depend on the nature of the case. Generally, if the case is personal in nature, it would not be deductible.

Q: Besides deductions for interest and points, are there any additional deductions you can take when you buy a home? For example, can you deduct inspections, closing costs or private mortgage insurance?

A: In general, inspections and closing costs would increase your basis in the home and would reduce the amount of gain you might have in the future. Private mortgage insurance is not deductible.

Q: We have a 92-year-old parent living with us. She receives Social Security and a small annuity. She has some savings and files her own income taxes. While not bedridden, she requires daily care and is almost totally dependent. She does contribute a modest amount monthly to the household budget, but not nearly sufficient to cover her care. Can we claim her as a dependent on our joint return?

A: There are five requirements for claiming an exemption, all of which must be met in order to qualify. There is a relationship test, which seems to be met by virtue of her being a parent. She must also be a U.S. citizen or resident and not filing a joint return with her spouse. You must have provided more than half of her total support. Finally, there is a gross income test. This limit is $3,000 in 2002. In calculating her gross income, Social Security, disability and exempt interest not taxable to her are disregarded.


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