Francis Vayalumkal

FHA loans have been the most popular choice of financing recently. With the decline in home values and increase in FHA loan limits, the combination has been beneficial to many. If you're looking to purchase a new home or refinance the existing one, a loan that's backed by the Federal Housing Administration might be something to consider. FHA loans are especially attractive today because the loan amount limits have been raised, and some loan programs are open to homeowners who have little to no equity or imperfect credit.

Given those benefits, it's no surprise that government-backed loans have accounted for a much larger share of total loan applications. In the second half of last year, government-backed loans accounted for as much as 30 percent of the total loan applications submitted to lenders. Compare that one-third share to the lowest share of government-backed loans on record -- 5.8 percent in August 2005 -- and it's clear that home buyers and homeowners have taken a renewed interest in these loans.

Not all lenders are approved to do FHA loans. So, if you are looking for a new loan and an FHA loan is not offered, find out if that might be a better option for you.

Homeowners have gone for FHA-insured loans for a few reasons in particular.

Here are some of those reasons:

" The qualification guidelines are easier.

" The closing costs may be lower.

" The interest rates are competitive compared with conventional loans.

" The credit standards may be more flexible.

" The loan-to-value, LTV, ratio may be as high as 96.5 percent.

The catch is that all FHA-insured loans require mortgage insurance for at least five years. Mortgage insurance protects the lender if the borrower defaults on the loan but is paid for by the homeowner in the form of an upfront fee and monthly premiums that are added to the mortgage payment. The FHA usually allows the upfront fee to be financed as part of the loan amount, but either way, mortgage insurance still adds to the cost of an FHA-insured loan.

A borrower whose LTV ratio was less than 80 percent typically wouldn't need mortgage insurance on a conventional loan. That tends to make an FHA-insured loan less attractive for those borrowers who have at least 80 percent equity. Borrowers, who are short on equity, perhaps because the value of their home has declined, may find the FHA-insured loan more attractive despite the added cost of mortgage insurance. An FHA-insured loan also may be appropriate for homeowners who want to refinance a first mortgage and home equity loan or line of credit. Those borrowers may be able to combine their two loans into one new FHA-insured loan with an LTV ratio up to 96.5 percent.

Homeowners have two options to refinance into an FHA-insured loan.

" Those who already have an FHA-insured mortgage can use a so-called "streamlined" process that requires neither a credit check nor an appraisal. These loans can be closed in a matter of days and the cost tends to be reduced in part because no appraisal is required. The streamlined process can be used to lock in a lower interest, but not to take out cash or consolidate other debts into the FHA-backed loan.

" Those who have a non-FHA-insured mortgage or want to consolidate debt or take out cash can still refinance into an FHA-insured loan, but a credit check and appraisal will be required. Loan approval will be based on your income, other debts and credit history. You must be a legal U.S. resident and have a valid Social Security number to apply for an FHA-insured loan.

You'll need to consult a loan officer and do the math to figure out whether an FHA-insured loan or conventional loan would be a better fit for your situation. Compare the interest rate, terms and costs, and be aware that if you have a relatively lower credit score or want to take out cash, some lenders will tack on a "price adjustment" in the form of additional points.

Francis Vayalumkal is a mortgage banker with Colonial Bank and can be reached at (813) 719-0303 [email protected]

	Kamlesh Patel

By KAMLESH H. PATEL, CPA

There's little good to say about the current financial meltdown. However, one gift tax strategy can still provide long-term financial and tax benefits. Under gift tax law, gifts to loved ones and others are subject to the gift tax. This tax is imposed on the value of the gift at the time of the gift. However, if the value of the gift is $13,000 or less per recipient per year (up from $12,000 in 2008) the gift will be free of gift tax. Fully utilizing this annual exclusion can be a powerful way to make substantial intra-family transfers.

Thanks to the current financial situation, your investments may have lost value. But if those investments include assets which you believe are likely to recover their value in the future, gifts of these assets now can significantly increase the ultimate value of the gift without income or gift tax cost.

Assume, for example, that you bought stock in ABC Company (a good company) in 2006 for $25,000.

Unfortunately, the value of ABC's stock has declined to $13,000. Because the value for gift tax purposes is the value as of the date of the gift, you can give away all of your ABC stock (now worth $13,000) without gift tax consequences. If ABC's stock recovers to its original cost, your gift will be worth $25,000 (a $12,000 increase in value) at no income or gift tax cost. If you had instead sold the ABC stock for its $13,000 depressed value, you would have incurred a capital loss of $12,000 which might take years to fully deduct on your tax return. And neither you or your heirs will benefit from the anticipated recovery of the stock.

In summary, making gifts of temporarily depressed investments may be one of the few silver linings in the present financial situation.

NEW DISTRIBUTION RULES PROVIDE RELIEF TO STRUGGLING RETIREES

Recent tax legislation has pressed the pause button on 2009 required retirement plan distributions. With many IRAs and 401(k) plans severely affected by the economy, the new law relieves retirees from having to take required minimum distributions (RMDs) and risk further eroding their nest eggs.

Normally, taxpayers age 70� and older are required to take taxable withdrawals from their 401(k), IRA, or similar retirement account. In the year that an individual turns 70�, he or she has until April 1 of the following year to take the first distribution. After that, the RMD must be taken by December 31 of each year.

The Worker, Retiree, and Employer Recovery Act of 2008 suspends RMDs for 2009. However, those who turned 70� in 2008 and opted to defer their first withdrawal until April 1, 2009, are still required to take that 2008 distribution. In 2010, the old RMD rules become effective again.

The new legislation is not just for retirees. Those who inherited a retirement account subject to RMD rules also can suspend their 2009 withdrawal. Heirs using the five-year RMD schedule can skip their 2009 distribution, pushing the installments into year six. For those taking systematic withdrawals, the RMD simply resumes again in 2010.

There is one more wrinkle to the new rules. Taxpayers who planned to make direct charitable contributions from their IRA in 2009 may want to reconsider that strategy. One of the benefits of the charitable IRA rollover is meeting the RMD rule, and without the required withdrawal in force, there is less incentive to give from your IRA.

Of course, you can still choose to take distributions from your retirement fund if you wish.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail [email protected] or [email protected].

	Seema Ramroop

Every year, scams are becoming increasingly complex as con artists discover new, sophisticated ways to fleece the public. Unfortunately, even the well-known deceptions still fool victims. Whether new or old, con artists prey upon the same vulnerabilities in our human nature. We can better protect ourselves by first knowing what kind of fraudulent operations exist and how they function.

Affinity fraud

According to the Securities and Exchange Commission, affinity fraud is an investment scam that preys upon members of groups, such as religious or ethnic communities, professional groups or the elderly, by exploiting the trust and friendships that exist within the group. Victims abandon their natural sense of caution and good judgment because the swindler pretends to be, or may be, one of the group. The most common affinity scams are pyramid schemes, which create the false illusion that an investment program is successful by taking money from a new investor and using it to make payments to previous investors.

Prime bank schemes

Victims are taken in by the lure of a very high-yield, tax-free return that, supposedly, is only available to extremely wealthy individuals through off-shore trades of bank notes. You are required to execute confidentiality agreements and not consult an attorney, accountant or financial planner. The secrecy is exciting and makes you feel exclusive and important. There are no such legitimate programs. Once your money is turned over, it is gone - the only person enjoying a high-yield, tax-free return is the con artist.

Personal information scams

We've all heard of identity theft: thieves steal your private financial information and use it to open credit cards in your name, buy a car, get a driver's license, open bank accounts and write bad checks. They can steal your information directly by taking your wallet, checks, financial statements or credit card receipts from your mailbox or trash can. Thieves can get the same information indirectly by hacking into computers, stealing client data while on the job or diverting your mail with a change-of-address form.

Frequently, victims will give an unscrupulous person their private financial information simply because they need help. The paperwork that senior citizens must deal with for medical insurance claims and prescription benefits is overwhelming. Con artists may use the phone or E-mail to pose as the agent of a legitimate health or life insurance company. They may offer to fill out forms, file claims, facilitate payments or straighten out a fake problem with your account, meanwhile asking to verify your social security number or your bank account number.

Ways to protect yourself

" Discuss with others. Many investors have been spared tragedy because they had the good sense to ask an accountant, an attorney or a financial planner to review and evaluate an investment before getting into it. A licensed financial advisor can help you determine if the investment is suitable for you and your personal financial goals, and an attorney may see warning signs that you have missed regarding its legitimacy.

" Insist on written information on an investment product - and read it carefully. Ask tough questions and check out everything. Be very skeptical of an investment that you must keep confidential and is not in writing.

" Never let someone pressure you to make an immediate decision. Don't feel like you're missing an opportunity if you don't rush into an investment. Wise financial decisions take time to investigate and evaluate.

" Beware of strangers who guarantee spectacular profits and quick returns. These are hollow lures to encourage you to relinquish your money. Successful con artists can sound very professional and make the riskiest and strangest deal sound safe and legitimate.

" Never give out your personal financial information unless you have initiated the contact. Invest in a shredder to destroy credit card offers and any other papers you discard that contain private information.

" Report fraud. Don't let fear or embarrassment keep you from telling the authorities about abuse. Frequently, victims keep quiet because they feel humiliated for falling for the scam and don't want their family or friends to find out. Reporting a scheme will help others to not fall prey.

Seema Ramroop, financial advisor at Morgan Stanley in Palm Harbor, can be reached at (727) 773-4629 or e-mail [email protected]

	Shan Shikarpuri

While the media has extensively covered the financial crisis in the banking, insurance and auto industries and other larger retail companies, etc., little or no attention has been paid to the smaller businesses (such as retail, service, etc.) who are struggling to survive during these uncertain and turbulent economic times. As businesses gauge the economic recovery plan from the Obama administration, we can be certain of new tax legislation that will contain many additional deductions and credits for individuals with adjusted gross income of $250,000 or less, as well as bonus depreciation for businesses and allowing loss carry-back for five years (currently two years) in an effort to create new jobs and jump start the economy in 2009.

The recent $787 billion economic stimulus package signed by the president contains significant tax-saving opportunities. However, this subject will be discussed in a separate column.

The purpose of this article is to make you aware of the changes that were made in 2007 and 2008 so you can take advantage of these opportunities of additional deductions and credits for both businesses and individuals for 2008 filing. Please keep in mind that a complete and comprehensive discussion of the recent tax legislations is beyond the scope of this brief article and have merely outlined the tax matters that affect businesses and individuals in our surrounding area.

The recently passed legislations are: (1) The Mortgage Forgiveness and Debt Release, enacted in December of 2007, (2) The Economic Stimulus Act of 2008 passed Feb. 13, 2008; (3) Heartland, Habitat, Harvest and Horticulture Act of 2008 enacted May 22, 2008; (4) Heroes Earning Assistance Act of 2008 passed June 17, 2008, (5) Housing and Economic Recovery Act of 2008 (July 30, 2008, and (6) Emergency Economic Stabilization Act of 2008 enacted October 3, 2008.

Some of the changes affecting individuals include:

1. Exclusion of mortgage debt relief. Up to $2 million of qualified mortgage indebtedness on principal residences is extended to the year 2012.

2. First time home buyer credit is ten percent of the purchase price up to $7,500.

3. Additional standard deduction for real estate taxes is $500 for single ($1,000 for joint filers).

4. Deductions extended through the year 2009 include: sales tax deduction, tuition and fees deduction, out of pocket educator deductions, and IRA distributions to charity.

5. Mortgage insurance premium deduction.

6. Surviving spouse sale of home (full exclusion until two years from the date of death).

Some of the changes affecting businesses:

1. Enhanced code section 179 deductions (immediate write-off of qualified equipment expense). For the year 2008, the expense limit went to $250,000 from $128,000; and asset limits went to $800,000 from $510,000.

2. The first year bonus depreciation: 50 percent of property with 20 years or less life.

3. New luxury auto first year limit is $8,000. Business mileage rate is 58.5 cents as of July 1, 2008. 4. Extension of research credit to the year 2009.

5. Extension of 15 years amortization of leasehold improvements and restaurant properties to the year 2009. 6. Extension of expensing environmental remediation costs.

7. Extension of energy conservation credits and energy efficient property credits (qualified wind turbines and qualified geothermal heat pumps) and energy efficient appliances credits.

8. Extension of deductions for energy efficient commercial buildings.

9. Bonus depreciation for re-used and re-cycled property.

Please note that the above represents a brief outline of only some of the provisions of the legislations passed in the past fourteen months. There are numerous other changes that I have not outlined, such as farmers & agricultural energy credits, tax breaks for military reservists, disaster relief provisions, and issues affecting international businesses and tax preparers, etc. If any of these affect you or your business, we encourage you to consult with your tax advisor.

Shan Shikarpuri, C.P.A., of Shan Shikarpuri & Associates, P.A. is a certified public accountants/business consultant in Palm Harbor, and can be reached at (727) 786-1800 or e-mail [email protected]