Your Tax Questions Answered

Posted by Madison

While I do have a lot of tax knowledge, most of it from volunteering at VITA, I am by no means an expert!

Every so often, I forward a bunch of questions from readers to our local IRS agent to either answer or confirm my answers. Our contact recently retired after over 3 decades of service, but is willing to still answer questions reader have.

 

My husband was a co-signer on our daughter’s student loan. We made all the payments towards that loan until we paid it off for her. We claimed the interest that accrued until we paid the loan off, however, the IRS wants the money back. They said since she was not a dependent of ours at the time, they will not allow our deduction.

Since my husband was a co-signer, don’t we have the option to pay it off and receive the benefit of claiming the interest? My husband spoke with someone at the IRS while inquiring about the paperwork to send the payment to them, & she was very surprised that they did not side with us on our appeal. – Cara

Unfortunately, the IRS doesn’t care if your husband was a co-signer. The only way for a parent to deduct student loan interest for a child is if your daughter was a dependent at the time the loan was taken out. The IRS can easily determine that by looking at your tax return the year the loan was taken out.

However, if your daughter made any of the payments, she can deduct any student loan interest payments that she made for her part of the loan. Check out Publication 970 for more information.

 

Two years ago my father helped me buy a house. He used a home equity loan on his house to purchase my house for me. I was the only one making the payments and it was my primary residence for 2 years.

Now due to financial hardship I have to sell the house. What is going to be the tax liability on the few dollars I will make off the house. Do I have to pay capital gains? We were both listed as the owners on the title. Or since was my primary residence can I get around paying taxes on what I make. – Rudy

Rudy, I’m sorry that you are being forced to sell your house. As long as you owned your home for the full two years (24 months) and used it as your primary residence and you do not make more than a $250,000 gain you will not have to report your share of the gain.

Your father as co-owner will need to report his share of the gain as a capital gain on Schedule D (Form 1040). The exclusion will not apply to him since he was living at another house.

 

My husband is working overseas for a year as a civilian contractor for a company here in he states on a military base. Do we have to pay taxes on his income that he receives while working overseas? – Debbie

You do not need to pay tax on the foreign earned income if he meets the qualifications. Here are the qualifications from the IRS:

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements:

  • Your tax home is in a foreign country.
  • You meet either the bona fide residence test or the physical presence test.

You’ll have to determine if you meet the qualifications, because I couldn’t tell from the information that you provided. For more explanation, and how to claim the exclusion see the Foreign Earned Income Exclusion at the IRS website.

 

On the “First Time buyer” – Loan, it is defined that a first time buyer can not have owned a primary or main residence in the last three years. In 2004 I separated from my wife and I moved out and had a lease on a rental property that became my primary residence.

I still was required to pay the mortgage on the home during the divorce and later ended up losing the house to my ex in the divorce. The house was refinanced without my name and I signed over ownership. Since this was not my residence since 2004 and can prove with utility bills and lease would I qualify for the $7,500.00? – Leo [in Myth Busted: $7,500 First Time Home Buyer Tax Credit is Not a Credit]

Oh my! This is a tough one and an interesting question. Unfortunately, the answer is not spelled out, but “I would go with his name was still on the residence that he lived in previously and he still owned it until it was transferred to his wife.” This one would be contested until spelled out in court cases.



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Comments to Your Tax Questions Answered

  1. First of all, thanks for being a volunteer. Next, thanks for this great post. I actually had a similar student loan question, since my husband’s parents helped us out for a while with the education loans. Maybe we’ll reimburse him, since we feel like we should do something…

    Miranda

  2. I take care of my six children during the year, but I’ve always claimed two exemps with my employer. I only claim two of my children when I file taxes. If I claim six exempts on check, would that effect the amount that I receive back for my taxes when I file?

    Tee

  3. My husband and I make $250,000 together. Both our children went to college.Of course, The student loan is under my name. The loan amount is $120,000.Before, we could not declare the loan because we made more than $160,000 a year.Now with the new law going to $450,000 are they going to up the amount from $160,000.

    Everyone thinks that $250,000 is alot of money, but I pay a higher tax rate.Also, I inherited my mother house with a $150,000 reverse mortgage on it (the house is double the amount of $150,000),but I can’t deduct the interest on the loan. I also have my own house. I didn’t hock it up like so many people did. I have a 30 year adjustable and it will be paid off in about 10 years. My husband and I have done everything in life to be responsible peoples. I hope with the new taxes we can catch a break.

    Debbie Morgan


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