IRS tax tip 2010-44

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes—for example, to pay off credit card debt—do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions—such as insolvency—may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Washington — Unclaimed refunds totaling more than $1.3 billion are awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, the Internal Revenue Service announced today. However, to collect the money, a return for 2006 must be filed with the IRS no later than Thursday, April 15, 2010.

The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury.

For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account.

The IRS reminds taxpayers seeking a 2006 refund that their checks will be held if they have not filed tax returns for 2007 or 2008. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.

In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.

WASHINGTON — Taxpayers wishing to claim their Haiti relief donations on the tax return they are filling out this season must make those donations by the end of this month, according to the Internal Revenue Service.
Individuals and corporations have until midnight on Sunday, Feb. 28, to make cash contributions to charities providing earthquake relief in Haiti. These contributions can be claimed on either a 2009 or 2010 return, but not both. Contributions made after that date but before the end of the year can only be claimed on a 2010 return.
Contributions made by text message, check, credit card or debit card qualify for this special option. Donations charged to a credit card before the end of February count for 2009. This is true even if the credit card bill isn’t paid until after Feb. 28. Also, checks count for 2009 as long as they are mailed by the end of this month and clear your financial institution shortly thereafter.
Taxpayers can benefit from their donations most quickly by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.
This special provision, enacted Jan. 22, does not apply to contributions of property. Eligible contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Gifts made directly to individual victims are not deductible. Notice 1396 a one-page notice describing this provision, is available on IRS.gov and is printed in English, Spanish, French and Haitian Creole.
To get a tax benefit, individuals must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.
Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on this Web site under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.
The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.
Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. In addition, for text message donations of $250 or more, taxpayers must obtain a written acknowledgement from the charity. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

Most Americans will get assistance from a professional tax preparer or tax software when filing their taxes this year. The Better Business Bureau encourages taxpayers to use caution when selecting tax preparation help or they may get hit with headaches and mounting fines and fees if the return isn’t correct or filed late.

According to the IRS, 80 percent of Americans enlist the help of a tax preparer or tax software when filing their taxes. Unfortunately, every year the BBB receives thousands of complaints from consumers against tax preparers. Commonly, complainants state that the tax preparer made errors in their return which resulted in fines and fees.

“Even though the tax preparer completes the return, it’s the taxpayer who is ultimately responsible for the return’s accuracy and whether or not it’s filed on time,” said Ken Vander Meeden, BBB of Western Michigan President. “The fines, fees and hassles can mount if you choose an unreliable tax preparer and that’s why it’s important to do your research.”

The BBB offers the following advice to find a trustworthy tax preparer:

• Ask around. Get referrals from friends and family on who they use and check the BBB Reliability Report on tax preparation services at www.bbb.org.
• Look for credentials. Ideally, your tax preparer should either be a certified public accountant, a tax attorney or an enrolled agent. All three can represent you before the IRS in all matters, including an audit. Also, find out if the preparer is affiliated with a professional organization that holds its members to a code of ethics.
• Don’t fall for the promise of a big refund. Be wary of any tax preparation service that promises larger refunds than the competition, and avoid any tax preparers who base their fee on a percentage of the refund.
• Think about accessibility. Many tax preparation services only set up shop for the months leading up to April 15. In case the IRS find errors, or in case of an audit, you might need to be able to contact your tax preparer throughout the year.
• Read the contract carefully. Read tax preparation service contracts closely to ensure you understand issues such as how much it is going to cost for the service, how the cost will be affected if preparation is more complicated and time consuming than expected and whether the tax preparer will represent you in case of an audit.

For more advice on finding professionals you can trust, visit www.bbb.org.

The Internal Revenue Service is sponsoring a public outreach event from 9 a.m. to 3 p.m. on Feb. 19 at the Radisson Hotel Grand Rapids Riverfront to assist taxpayers who may be eligible for the Health Coverage Tax Credit.

This credit makes health coverage more affordable by allowing eligible individuals to pay only 20 percent of their health insurance premiums each month.

Nationwide, thousands of people are potentially eligible to receive the HCTC. Some of them are displaced workers who are certified by the Department of Labor as eligible to receive Trade Readjustment Allowances under the Trade Adjustment Assistance Act (TAA). Others qualify because they receive benefits from the Pension Benefit Guaranty Corporation (PBGC) and are between 55 and 65 years of age.

The HCTC Program partners with various federal and state agencies and Health Plan Administrators (HPAs) to deliver the tax credit to eligible individuals.

The HCTC is available on a monthly basis to help individuals pay their health insurance costs as they become due or on a yearly basis when they file their federal tax return. It is a refundable tax credit and is paid in full no matter how much federal income tax an eligible individual owes.

The HCTC began as a ground-breaking tax credit program in 2002 and was expanded in 2009 as a result of the American Recovery and Reinvestment Act.

For more information, call 1-866-628-HCTC or visit http://www.irs.gov/individuals/article/0,,id=109915,00.html

Qualifying state residents can get help with heating costs; information provided with Consumers Energy February bills

Jackson, Mich., February 2, 2010 – As Michigan shivers through an arctic blast, Consumers Energy is alerting qualifying residents that state and federal programs are available to help pay heating bills.

“Qualifying Michigan residents can get help paying their heating bills through a Michigan Home Heating Credit and a federal Earned Income Credit,” said Debra Harmon, Consumers Energy’s customer assistance coordinator.

Information on how to apply for both credits is being provided with bills that Consumers Energy customeres receive in February. Information is also available at Consumers Energy’s “Energy Answers” section on its website: www.consumersenergy.com/energyanswers.

“There is money available in the Michigan Home Heating Credit program that may assist low-income residents with their energy bills. Unfortunately, many of those eligible do not take advantage of this program.” said Harmon. Eligible applications can get up to $200 or more for their winter energy bills through the Home Heating Credit program. You do not need to file a state tax return to apply for this credit.

Home Heating Credit forms (MI-1040CR-7) are available at the following locations, most public libraries, Secretary of State branch offices, Department of Human Services branch offices, or by calling Consumer’s Energy’s toll-free number (800) 477-5050. Forms are also available from the Michigan Department of Treasury by calling (800) 827-4000, or at: www.michigan.gov/taxes.

Last year more than 450,000 Michigan residents received over $103 million in aid through the Home Credit program, which is funded by the federal Low-Income Home Energy Assistance Program. The Home Heating Credit can be applied to all heating costs, including propane and purchased firewood. The deadline to file is Sept. 30, 2010, but residents are encouraged to file now for the credit.

The federal Earned Income Credit is a refundable federal income tax credit available to qualifying low-income workers. For income guidelines, contact your employer, call the IRS at (800) 829-3676 or visit www.irs.gov.

DETROIT— An expanded Earned Income Tax Credit (EITC) means larger families will qualify for a larger credit, offering greater relief for people who struggled through difficult financial times last year, the Internal Revenue Service said today.

The IRS and the Treasury Department marked EITC Awareness Day this week as their partners nationwide worked to highlight the availability of this important tax credit. EITC, which is in its thirty-fifth year, is one of the federal government’s largest benefit programs for working families and individuals. Last year, nearly 24 million people received $50 Billion in benefits. The average credit was more than $2,000.

“As part of the economic recovery efforts, there have been important changes to expand EITC to benefit taxpayers,” said IRS Commissioner Doug Shulman. “Today, more than ever, hard-working individuals and families can use a little extra help. EITC can make the lives of working people a little easier.”

Eligibility for EITC depends on earned income and family size, among other tests. However, single people and childless workers also are eligible, although for smaller amounts. For tax years 2009 and 2010, the American Recovery and Reinvestment Act created a new category for families with three or more children and expanded the maximum benefit for this category.

To qualify for the EITC, earned income and adjusted gross income (AGI) for individuals must each be less than:

•    $43,279 ($48,279 married filing jointly) with three or more qualifying children
•    $40,295 ($45,295 married filing jointly) with two qualifying children
•    $35,463 ($40,463 married filing jointly) with one qualifying child
•    $13,440 ($18,440 married filing jointly) with no qualifying children

The maximum credit for tax year 2009 is:

•    $5,657 with three or more qualifying children
•    $5,028 with two qualifying children
•    $3,043 with one qualifying child
•    $457 with no qualifying children

The maximum amount of investment income is $3,100 for tax year 2009. For families, there are also certain requirements for child residency and relationship that must be met. Additional eligibility information is available in FS-2010-12 and on the Web at IRS.gov/EITC.

Another new provision adds to the definition of a “qualifying child:” The child must be younger than the person claiming the child unless the child is totally and permanently disabled any time during the year. The child cannot have filed a joint return other than to claim a refund. Also new for 2009, if a qualifying child can be claimed by either a parent or another person, the other person must have an AGI higher than the parent in order to claim the child for EITC purposes.

Historically, one in four eligible taxpayers fails to claim the EITC, which is why the IRS and its free tax preparation partners host an annual EITC Awareness Day. This year, there are 68 news conferences being held around the country. Community coalitions and IRS partners nationwide also are also issuing 128 news releases, writing letters to the editor and using social media tools to spread the word about EITC.

Typically, people who fail to claim the EITC include workers without qualifying children, people whose earned income falls below the threshold required to file a tax return, farmers, rural residents, people with disabilities and nontraditional families such as grandparents raising grandchildren. People must file a tax return to claim the EITC.

Free help is available to EITC-eligible taxpayers. There are nearly 12,000 free tax preparation sites nationwide. People who want to prepare their own tax returns can visit Free File on IRS.gov. This free tax software and free electronic filing program will walk taxpayers through a question and answer format and help them claim the tax credits and deductions for which they are eligible.

EITC-eligible taxpayers also can seek assistance at the 400 IRS Taxpayer Assistance Centers nationwide. To assist EITC taxpayers, 167 IRS assistance centers will offer Saturday service on Jan. 30, Feb. 6 and Feb. 20.

There is an online EITC Assistant also available on IRS.gov which can help taxpayers and tax preparers determine eligibility. And, for tax preparers and IRS partners, there is EITC Central which has links to toolkits that include marketing products.

More than 65 percent of EITC returns are prepared by a third party. The IRS urges taxpayers to choose a reputable tax preparer to avoid problems that come with an inaccurate tax return. The agency also urges tax preparers to follow due diligence requirements when preparing an EITC tax return. More information is available at irs.gov/eitc.

Your home can house a terrific tax credit.

(NAPS)—Many current homeowners can now qualify for up to a $6,500 home buyer tax credit. The initial success of the $8,000 first-time home buyer tax credit convinced Washington to expand the program and extend it until April 30, 2010. This extension, however, will be the last.

Under the extended home buyer tax credit, current homeowners are eligible as long as they have lived in their present residence for five consecutive years within the past eight. First-time home buyers who haven’t owned a home in the past three years are still eligible for up to an $8,000 tax credit. Singles who make up to $125,000 and married couples who make up to $225,000 can qualify for the full credit. Those who exceed those income limits may qualify for a reduced amount.

“The new provisions and modifications make an already enticing real estate market even more attractive and accessible. Interest rates are low and home prices are more affordable now than they have been in decades,” said National Association of Realtors® (NAR) Chief Economist Lawrence Yun. “There’s never been a better time for potential buyers to invest in their future through homeownership.”

Many areas are already seeing a rise in home prices and demand, with multiple bids on properties becoming more common. According to the NAR Profile of Home Buyers and Sellers, first-time home buyers became homeowners in record numbers over the past year, comprising 47 percent of all home sales between July 2008 and June 2009. This flood of activity helped shrink housing inventory levels. Reduced inventory is a sign the market is returning to a more balanced state and helps sustain home values.

Yun said that while the housing crisis isn’t over, the extended and expanded tax credit is a step in the right direction.
“The bottom line is that the housing market is doing much better now than one year ago, and the home purchases using the tax credit should continue to reduce inventory to acceptable levels. The extension is a big win for consumers, but to take advantage of this rare opportunity, would-be buyers need to get the ball rolling and contact a Realtor® who can help them on the path toward owning a home.”
For more information about the tax credit, visit www.HouseLogic.com/homebuyertaxcredit.

Many people may wish to contribute to relief funds for the victims of Haiti’s recent earthquake.

Contributions to domestic, tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has full control and discretion over the uses of such funds. Contributions to foreign organizations generally are not deductible. Contributions to benefit specific individuals or families are also not deductible.

Contributions are deductible in the year made. To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions.

IRS Publication 526, Charitable Contributions, provides information on making contributions to charities. Pub. 3833, Disaster Relief: Providing Assistance through Charitable Organizations, explains how the public can use charitable organizations to help victims of disasters.

Donors should ensure that their contributions go to qualified charities. Taxpayers who have a specific charity in mind can make sure it’s a qualified charity by doing a search on IRS.gov. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov.

(NewsUSA) – The American Recovery & Reinvestment Act will  benefit millions of workers, homeowners, college students and vehicle owners through new and  expanded credits and deductions. The Act was created to give a tax break to 95 percent of taxpayers, with some families potentially saving more than $13,000.

The Making Work Pay Credit is equal to 6.2 percent of your earned income, up to $400 for individuals and $800 for joint filers in 2009 and 2010. It starts phasing out at $75,000 for individuals and $150,000 for joint filers, and is reduced by the Economic Recovery Payment and Government Retiree Credit.

The credit should be figured using Schedule M and recorded on Form 1040, 1040A or 1040EZ.

The First-Time Homebuyer Credit is for homeowners who did not own a principal residence during the past three years before closing before Dec. 1, 2009. It’s 10 percent of the purchase price, up to $4,000 for individuals and $8,000 for individual or joint filers, and phases out at higher income levels. Different rules apply to homes purchased in 2008, but the credit for purchases in 2009 doesn’t have to be repaid unless it ceases to be the primary residence within three years of closing.

It can be claimed on Form 5405 on either a 2008 or 2009 return.

Certain energy efficient improvements are worth up to $1,500 for homeowners through The Nonbusiness Energy Property Credit and Residential Energy Efficient Property Credit. The credits provide up to 30 percent of related expenditures.

Both credits should be claimed on Form 5695.

The HOPE credit is now called the American Opportunity Credit and is worth up to $2,500 per student for tuition, related fees and required course materials in 2009 and 2010. It phases out at a modified adjusted gross income of $80,000 for individuals and $160,000 for joint filers. Form 8863 must be filed to claim this credit.

State or local sales or excise taxes paid on qualifying new vehicles purchased after Feb. 16, 2009, and before Jan. 1, 2010, may be deductible. It’s limited to the tax on up to $49,500 of the purchase price and phases out at income levels of $125,000 for individuals and $250,000 for joint filers. The deduction should be recorded on either Schedule A or L.

“Many credits are available for a limited time, so do your tax planning early,” advises Jessi Dolmage, spokeswoman for 2nd Story Software, Inc., makers of TaxACT. She also recommends:

1. Using TaxACT 2009 Free Federal Edition to see how the ARRA will affect your bottom line. Start your free federal return at www.TaxACT.com.
2. Reviewing your withholding. The Making Work Pay Credit is being distributed through decreased federal withholding, so having too little tax withheld may result in a smaller refund or more taxes owed.
3. Learning more about the ARRA at www.IRS.gov/recovery and www.TaxACT.com/recovery-act.