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WINTER 2010

This has been a busy year on the tax front and much of the news has been good for taxpayers. The economic stimulus law enacted early in the year provides significant tax relief in various forms. And the IRS and the court have issued a number of rulings that have favored the taxpayer.

For example, homeowners with large mortgages may be entitled to a bigger deduction for their interest payments, thanks to a new ruling from the IRS. The tax law imposes a limit on the amount of interest that's deductible on a mortgage used to buy a home and a second limit on deductions for interest paid on "home equity" loans. The IRS ruled that you can combine the two limits and treat first mortgages in excess of the first limit as "home equity" loans, thus entitling you to a bigger interest deduction.

Another winning combination came in the IRA area. While withdrawals from an IRA before age 59 ½ are generally subject to a penalty tax, there are exceptions. One exception applies to IRA owners who make periodic level withdrawals. Another exception applies to IRA owners who withdraw funds to pay a child's college expenses. The Tax Court ruled that IRA owners can combine these two exceptions. Your regular periodic payments will still be considered "level" even though you withdraw additional amounts to pay college costs.

Another pro-taxpayer ruling from the IRS is good news for taxpayers who make tax payments via credit or debt cards. Reversing a prior position, the IRS says it will allow taxpayers to deduct the convenience fees that credit and debt cards charge for tax payments. The deduction is available if you itemize your deductions and have sufficient deductible "miscellaneous" expenses.

The IRS also provided much-needed tax relief to investors who lost money in the recent widely-publicized "Ponzi" schemes. While investment losses are generally treated a capital loss, of limited tax value, the IRS ruled that investors in the Ponzi schemes can write off their losses as thefts. This allows investors to claim a bigger deduction for their losses.

If you want more information about these rulings or would like to learn about other new developments that may affect your upcoming tax return, please contact me.