Contact Us
Mental Health
Financial advice
Youth Matters
Techno Corner
  Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Francis Vayalumkal

Several people are inquiring about the government's tax credit for first-time home buyer that is becoming more and more popular. If you're planning to buy a home in the next 10 months, you may be eager to take advantage of the federal government's latest effort to jump-start the nation's moribund housing markets: A tax credit of up to $7,500 for certain homebuyers.

The credit may appear to be an attractive opportunity, but you should be sure you read the fine print before you elect to claim it on your federal tax return. With that warning in mind, here's a summary of the rules.

1. The tax credit is not a deduction, but rather a true credit in the sense that your federal income tax liability will be reduced dollar-for-dollar up to the amount of the credit you're entitled to take. For example, if you owed federal income tax of $8,000 and you took the maximum credit of $7,500, your tax bill would be cut to $500. The credit is also refundable: If you owed, for instance, $1,500 in income tax and, again, you took the maximum credit, your tax liability would be zeroed out and you'd get a check for $6,000 from the government.

2. The tax credit is repayable to the federal government. The total credit is divided into small bits of 6.67 percent, each of which is due annually for 15 years.

3. If you sell your home before the 15 years are up, the remainder of the credit that you haven't yet repaid will become due. If you sell your home at a loss, the government will write off the balance of the credit that you still owe.

4. The credit also will be written off if you die before it's repaid. Special rules apply to transfers of property between spouses or incident to divorce; or if the home is subject to "involuntary conversion," such as being destroyed by a natural disaster; or is seized by a government authority though the exercise of eminent domain.

5. The tax credit is restricted to "first-time home buyers," but the definition includes anyone who didn't have an ownership interest in a principal residence during the prior three years. If you're married, you and your spouse must fit that definition. An ownership interest in an investment property or vacation home is not a disqualification. The rules aren't entirely clear as to how the tax credit will be allocated if two unmarried people buy a home together and only one of them meets the definition.

6. The tax credit may be taken only for the purchase of a principal residence, which means a home where you plan to live most of the time. The home may be a detached house, condominium, town house, manufactured (aka mobile) home or houseboat. It must be located in the United States. A home purchased from a "related party" (e.g., a parent or sibling) is not eligible.

7. Your modified adjusted gross income, or MAGI, on your federal tax return must be less than $75,000 if you're single or a married head of household, or $150,000 if you're married and filing a joint tax return with your spouse. MAGI is a technical term that's defined by the IRS, so you should consult a tax professional if you're not certain you meet this test.

8. If you're single or a married head of household and your MAGI is more than $75,000, but less than $95,000, you may get a partial credit subject to a complicated formula. The same is true if you're married, filing jointly, and your MAGI is more than $150,000, but less than $170,000. If your MAGI is more than those limits, you're not eligible.

9. Technically, the credit is equal to 10 percent of the purchase price of the home, up to a maximum of $7,500. Thus, if the home is worth less than $75,000, the maximum credit is 10 percent of the price, and if the home is worth $75,000 or more, the maximum credit is $7,500. Married couples who file separate tax returns can claim half the credit on each return.

10. The home must be purchased on or after April 9, 2008, but before July 1, 2009. Since the law was enacted July 30, 2008, part of that time frame is retroactive. That means if you already bought a home after April 9, 2008, but before July 30, 2008, you can still take the credit.

11. If you buy a home in the first half of 2009, you can elect to claim the credit on your 2008 tax return. That way, you'll receive the money sooner, but the payback schedule will begin sooner as well. Tip: If your MAGI is over the limit for the full credit in either 2008 or 2009, you can claim the credit in the other year to maximize your benefit.

12. The credit cannot be used with mortgage-revenue bond financing or the Washington, D.C., first-time home buyer tax credit.

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

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Nitesh Patel

After watching the powerful images and later learning about the economic and social impact of recent natural disasters here and abroad, many of us instinctively dug into our wallets and made donations. According to Giving USA, charitable donations rose 6 percent in 2005 to more than $260 billion, fueled by disaster relief giving. (Giving USA Report, Giving USA Foundation - June 2006)

Yet, if you're like many Americans, it probably seems as if whatever you donate won't be enough to make a real difference in these situations. Will your $25 or $50 or $100 really help?

The answer is 'yes'. Although corporate foundations give millions each year, individual giving continues to be the largest single source of donations, accounting for over three-fourths of all charitable giving in 2005. (Giving USA Report, Giving USA Foundation - June 2006). Representatives from most charitable organizations would agree that even the most humble gift is appreciated and does help.

The good news is that you don't need to be wealthy to achieve your philanthropic goals and support a favorite charitable organization or a cause that's close to your heart. One long-term strategy that can effectively reach your philanthropic goals is giving the gift of life insurance. The gift of life insurance is an affordable and flexible way to maximize your contributions to help you to leave behind a legacy for future generations.

There are several ways to structure a gift of life insurance, but the end-result remains the same - the organization benefits. As the beneficiary of a life insurance policy, a charity receives proceeds on a tax-free basis upon the donor's death. Either the charity or a donor applies for a permanent life insurance policy on the donor's life and names the charity as both the owner and beneficiary of the policy. The donor's gift of the annual premium is income tax-deductible since the charity is the owner.

For those who want to maintain control and access to a policy's cash value without an income tax deduction, but still have the charity receive the insurance proceeds at death, the donor may retain ownership of the policy and simply name the charity as a beneficiary. Either way, you're able to leave your mark on a cause you believe in through life insurance.

Another more immediate strategy to support a non-profit organization is to make a charitable distribution from your IRA. A recent tax law change (Sec. 1201 of the Pension Protection Act of 2006 and Sec. 408(d)(8) of the Internal Revenue Code of 1986, as amended) allows tax-free "gift" distributions.

Previously, if an individual wanted to take funds from an IRA to give to a charity, he or she would be required to first take distribution of the funds, which were fully taxable as ordinary income. This could create quite a tax burden. The new law allows IRA owners age 70˝ or older to give up to $100,000 directly to the charity.

For some donors, these gift strategies may be the answer to "what else can I do?" The bottom line is that supporting a charity or organization you believe in -- either through the gift of life insurance or gift distributions from qualified retirement accounts -- is an easy way for you to leave your mark. All it takes is a simple call, a little paperwork, and a heart that wants to make a difference.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Kamlesh Patel


The new housing law contains a wide range of benefits for homeowners. Here's a summary of four key provisions.

1. Homebuyer's credit. The new law provides a tax credit for "first-time homebuyers" who have not owned a principal residence three years prior to purchasing a home. The credit is equal to 10 percent of the purchase price up to a maximum of $7,500. It's available for homes purchased after April 8, 2008, and before July 1, 2009. However, the credit is phased out for taxpayers with adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers). Also, you're required to repay the credit on your tax returns over a 15-year period.

2. Property tax deduction for non-itemizers. For 2008 - and 2008 only - non-itemizers may deduct property taxes in addition to claiming the standard deduction. The new deduction is equal to the lesser of the property taxes actually paid or $500 ($1,000 for joint filers).

3. Renegotiated mortgages. Under the new law, you may be able to cancel a mortgage originating before 2008 and replace it with a fixed-rate loan lasting at least 30 years. But the new mortgage amount can't exceed 90 percent of the current value of the home. To qualify, your monthly housing payment (as of March 1, 2008) must be at least 31 percent of your monthly household income. This program will end on September 30, 2011.

4. Loan limits. The new law increases the limit for loans purchased by Fannie Mae or Freddie Mac. Previously, the limit was $417,000. Now Fannie Mae and Freddie Mac can buy loans of up to $625,000. Caveat: The loan can't be more than 15 percent higher than the median price for homes in the area.

On the downside, the new law also includes a provision that will reduce the home sale gain exclusion for some individuals. Effective for home sales after 2008, gain attributable to the time when a principal residence was used as a rental property or second home doesn't qualify for the exclusion. Saving grace: The tax only applies to nonqualified use after 2008.


The beginning of fall is a great time to get a head start on your 2008 taxes. You can review earnings and deductions and organize your records while there's still time to make adjustments for maximum 2008 tax savings.

Start your review by pulling out a copy of last year's return and your most recent pay slip. If you're self-employed, pull together your earnings and expenses for the year to date. Focus on the following areas:

- Compare this year's earnings and tax withholding with three-quarters of last year's total. If there are big differences, you may need to adjust your withholding or estimated tax payments before year-end.

- Review your itemized deductions for this year and compare to 2007 numbers. Decide whether you'll likely itemize or take the standard deduction. If you itemize, there could still be time to take discretionary deductions.

- Review your 2008 contributions to 401(k) plans and IRAs. Are you on track to make the maximum contributions you're allowed? Pay special attention to this year's increased IRA limit and the catch-up contributions if you're age 50 or older.

- Look at the performance of your investments, and estimate whether you expect large gains or losses in 2008. Decide if you want to sell anything to offset 2008 gains and losses.

- Finally, are you taking advantage of the tax breaks for individuals and businesses provided in the 2008 tax law (for example, the increased deduction for business equipment purchases)?


What will happen to your business if you die, retire, or become disabled? If you are the owner of a small business, you need a means for the transfer of that business in the event something happens to you. With a "buy-sell" agreement, you are able to plan for many contingencies over which you would otherwise have little control. A buy-sell agreement should establish a price for the business and the method of succession.

The traditional buy-sell agreement is a contract between the business entity and all the entity's co-owners. The agreement typically covers valuing the business, laying down triggering events that would bring the terms of the contract into effect, and defining the transfer of ownership. There are many advantages in drafting a buy-sell agreement, including the following:

- Provides a framework for dealing with owner disputes - ensures a smooth transition of control and power to the owner's successor.

- Facilitates estate planning objectives - can help minimize certain estate taxes and can be structured to take advantage of favorable redemption rules upon death.

- Fixes value for estate tax purposes - includes a method for valuing ownership interests and establishing a fixed value for purposes of taxing the estate upon its owner's death.

- Forces shareholders to deal with liquidity issues - addresses how a possible buyout would be funded.

- Helps prevent loss of tax benefits - especially for S corporations in which transferred stock could lead to termination of the S election. It can disallow the transfer of shares without the consent of owners.

Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes. If you need assistance in drafting a buy-sell agreement or in updating your current buy-sell agreement, please contact us and your attorney.

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

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Satya Shaw

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.

Contact Information
The Editor:
Send mail to with questions or comments about this web site. Copyright © 2004 Khaas Baat.

Anything that appears in Khaas Baat cannot be reproduced, whether wholly or in part, without permission. Opinions expressed by Khaas Baat contributors are their own and do not reflect the publisher's opinion.

Khaas Baat reserves the right to edit and/or reject any advertising. Khaas Baat is not responsible for errors in advertising or for the validity of any claims made by its advertisers. Khaas Baat is published by Khaas Baat Communications.