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Francis Vayalumkal

A big segment of society is suffering the effects of real estate meltdown and credit crisis. However, first-time home buyers could be in the best position to take advantage of the situation and step into homeownership.

A few years ago, information inundated potential first-timers about how to take the leap via first-time home buyer programs and other avenues that would make down payments affordable and escalating home prices feasible.

In today's turbulent real-estate environment, renters might think the days of first-time home-buying assistance are over. But that's not true. The programs for first-time home buyers that were always tried and true are still there. Combine that availability with low interest rates and low home prices, and you have one of the best times in recent years.

Not only are market conditions favorable, the government is adding incentives to attract first-time home buyers. As part of the economic stimulus package, a tax credit worth 10 percent of the purchase price up to $8,000 is available to first-time home buyers as long as they sign on the dotted line this year. Unlike previous tax credits for first-time buyers, this one does not require repayment.

In addition to the one-time credit, first-time home buyers can take advantage of special programs through the Federal Housing Administration or FHA. The FHA doesn't make mortgage loans directly, but it insures loans made by private lenders, protecting those lenders from losses.

FHA-backed loans tend to have less stringent credit requirements, and let home buyers use financial gifts from family members, nonprofit organizations and employers to pay the entire down payment. However, the onset of the economic downturn has brought a change in these programs. The minimum required down payment has been raised to 3.5 percent.

Many first-time home buyer programs now require higher credit scores to qualify. Although FHA doesn't require a credit score of 700, FHA lenders also have gotten very conservative. Many programs also contain an education component, so prospective buyers will get help with budgeting, as well as advice on clearing up any debt or credit problems. So, even if they don't have the required credit score, a housing or credit counseling agency can help them improve their financial situation as they look for first-time home-buying programs that they will qualify for.

Another requirement of many first-time home-buyer programs is that participants must have income below 80 percent of the region's median income. But if your salary was lowered or your bonuses stopped, you might be earning less than 80 percent of the median income now. So even if you didn't qualify before, you might now. However, as median income levels drop, so does the amount that represents 80 percent.

First-time doesn't have to be your first time ever!

Another thing to remember: Don't always take the term "first time" literally. Many programs don't rule you out if you bought a home before. If you haven't owned a home for three years or more, you are eligible for many of these loans. Down payment assistance for some first-time home-buying programs comes in the form of a second mortgage, and in many cases, some or all of that second mortgage could be waived if the buyer stays in the home a certain number of years, typically between five and seven years. That might have been a limiting requirement during the real estate boom because homeowners often used equity to trade up quickly.

In addition to looking for first-time home-buying programs, prospective buyers also should check out the terms of other programs that have similar advantages. For example, the U.S. Department of Agriculture offers Rural Development Guaranteed Housing Home Financing options, which provide up to 100 percent financing to homeowners in rural areas, typically areas with a population of 20,000 or less. The eligible area for USDA's home loan is preset and can be found on their Web site.

Although some first-time home buyers may qualify for conventional loans, a first-time home-buying program will likely yield better terms and give buyers the option of holding on to their cash rather than using it for a down payment.

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

Kamlesh Patel


This year's hottest tax tip for small businesses comes from a seemingly unlikely source: the IRS. The Internal Revenue Service is urging business owners to take advantage of new tax breaks offered through the American Recovery and Reinvestment Act (ARRA) before they expire.

Perhaps, the most important feature of the ARRA is the accelerated write-off of certain capital expenditures. Up to $250,000 of the cost of new or used equipment purchased and placed in service this year can be deducted from taxable income. In addition, qualifying new equipment, software, or leasehold improvements are eligible for 50 percent first-year depreciation.

Businesses with taxable income in previous years, but a net operating loss in 2008, may be entitled to another tax break. The ARRA allows certain businesses (those with average annual gross receipts over the last three years of $15 million or less) to carry back their 2008 loss to as many as five years ago rather than just two.

Estimated tax payment rules for certain small businesses have been relaxed as well. Now qualified taxpayers are permitted to make quarterly tax payments equal to 90 percent of the lesser of their 2008 taxes or their 2009 taxes. On the personnel front, the IRS reminds small businesses that the 65 percent COBRA premium subsidy required under ARRA for former employees is reimbursable through the filing of their employment tax returns. And the new rules regarding tax-free commuter expense reimbursements begin this year.

If you are refinancing your business loan, here's another tip. Businesses that reacquire their own debt in a restructuring move have the added benefit of deferring the income from any discharged indebtedness for five years. At the end of the five year deferral, the income can be spread evenly over five more years.


Young people generally feel pretty good about life, but once in a while, they may wonder if they're making the right financial moves. Here are some simple (yet effective) financial strategies for people in their early twenties. - Pay yourself first. Every time you get paid, put something aside in a savings or investment account. As a general rule, save 10 percent of your income. Even smaller amounts add up over time.

- Watch your plastic. Credit cards are an expensive form of debt, and it's easy to lose control of them. Try to pay your entire credit balance every month, even if it's a stretch. If you've been carrying a balance, buy nothing more on credit until the balance is zero.

- Keep a clean credit record. If you plan to own a home, buy a car, or start a business, you're going to need squeaky-clean credit. Keep all of your financial obligations current, and never make a financial commitment that you can't keep. If you fall behind on any obligation, talk to the creditor immediately to make alternative arrangements.

- Make sure you have adequate medical coverage. You may not see a doctor even once this year. But if you do need medical care, it could be for something serious and expensive. Anything less than a good major medical policy could ruin you financially.

- Watch your expenses. At this point in your career, you may not receive large or frequent pay raises, but you can achieve the same effect by cutting expenses. Shop before you buy. Very similar - and sometimes identical products - are sold at widely varying prices. Wise shopping can be the equivalent of having a good-paying second job.

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

Seema Ramroop

Most of what children learn about managing money comes from their parents, and we all hope that our offspring will grow up to be financially responsible adults. Here are some ways you can teach your kids to save and instill a healthy dose of financial responsibility that they can carry with them to adulthood.

Start early. Even very young children can learn to tell different coins apart. Give them each a bank and teach them to deposit their coins and watch their banks fill up.

Make savings a habit. Encourage children to save a portion of their income, even if it's only a small amount from a monthly allowance, earnings from a lemonade stand or a part-time job later on.

Give regular allowances. Allowances give kids the chance to manage cash "hands on," a chance to practice how to save regularly and plan their spending. Of course, the amount should fit the child and be determined by you.

Open an account in your child's name. Savings can show youngsters how their money can earn more money through compound interest. They will also see that their funds are in a safe place, recorded and available when they need it. Regular deposits, however small, will help them feel comfortable handling their own accounts. Referring to their statements reminds them that their savings are there and growing.

Help plan a budget. Have your kids practice writing down what they'll buy during the week and how much each item costs. Then, suggest that they compare the list to their weekly income. If it doesn't add up, they'll have to prioritize their immediate needs and wants.

Encourage goal setting. Help your kids acquire the savings habit by helping them make a "wish list" and a schedule for saving with a target date for acquiring the wished-for items.

Encourage money-earning ventures. Suggest that older children find creative ways to earn money beyond their weekly allowances - doing special chores or seeking jobs around the neighborhood such as raking leaves, running errands or pet sitting.

Issue an IOU if you extend credit to your children and set a repayment schedule. You may want to charge interest at a nominal rate to demonstrate the cost of borrowing.

Show the effects of inflation. To demonstrate how prices have gone up over the years, sometime when you're at the library with your children look up past ads in the newspaper archives for movie tickets, bikes, sneakers and other favorite spending goals. Then discuss what things cost when you were a child and even when your children were younger.

Acquaint them with stocks. Make a game of teaching kids about stocks and how they work. Have everyone in the family pick a favorite company and "invest" $100. Show them how to keep track of the stock's daily progress through the newspaper's financial section. Explain that stocks represent ownership in a company. Then describe how the price of a stock generally follows the company's progress and how - as the company's fortunes may rise - so potentially does its stock.

Encourage financial reading. As your children grow older, provide financial magazines and discuss investment choices. Invite them to meet your financial adviser and to attend investment seminars with you.

Fiscal responsibility won't happen overnight. If you begin early, however, by the time your children are ready to start investing on their own, the ground work will be in place for them to potentially become savvy investors.

Seema Ramroop, financial advisor at MorganStanley SmithBarney in Pam Harbor, can be reached at (727) 773-4629 or e-mail

Ramesh Parekh

Recognizing the need for the aging United States population, Congress and many states have enacted tax laws that encourage individuals to insure for the long-term care by providing tax incentives to buy Long Term Care Insurance (LTCI).


Under income tax rules, a medical deduction is allowed for premiums paid for medical care insurance as well as out of pocket expenses for qualified medical expenses. Premiums paid for a qualified long-term care insurance contract are considered medical expenses for the purpose of federal income tax purposes but the deductible amount of the premium is limited by age of the individual at the close of the tax year. The inflation-adjusted maximum deductible amount for 2009 is:

" Age 40 or less ----------- $320

" Age 41-50 -------------- $600

" Age 51-60 ------------- $1,190

" Age 61-70 ------------- $3,180

" Age 71 or older ------------- $3,980

The medical expense deduction can be claimed as an itemized deduction and is subject to a floor of 7.5 percent of the adjusted gross income of the taxpayer.

Example: Single individual age 55 with adjusted gross income of $50,000 has LTCI premium of $1,500 and other medical expenses of $3000 for 2009. His/her medical expense would be computed as follows:

Long Term Care Premium - Maximum deduction allowed ------------- $1,190

Other Qualified medical expenses ------------- $3,000

Total qualified medical expenses ------------- $5,190

Less 7.5% of AGI $50,000 ------------- $(3,750)

Deductible Medical Expense ------------- $1,440

Above deductible medical deduction will be part of the total itemized deductions for the individual. If the individual does not itemize his deductions, he/she will not be eligible for medical deduction. " Tax planning tip:

LTCI premiums can be paid from a Health Savings Account (HSA).

Self-employed individual:

A self-employed individual can deduct 100 percent of his/her out of pocket eligible long-term care insurance premiums up to the limits without having to meet the 7.5 percent threshold discussed above.

Partnerships, LLCs and S-Corporations:

Partners of a partnership, members of a LLC and Shareholders of an S-Corporation owning more than 2 percent of ownership are taxes as self-employed individuals if the business entity pays the premium. The individual does not have to meet the 7.5 percent threshold for the deduction.


For a business operated under a C-Corporation entity, if the corporation pays for the LTCI policy of an employee, it can deduct 100 percent of the premium as a business expense without the age based limitations described above. The purchase of tax qualified LTC insurance policy is not subject to certain non-discrimination rules.

Tax planning tip:

As there is no age-based limit on deduction for a C-Corporation for deducting the premiums on employee policy, the company can use an "Accelerated Premium Policy" such as "Ten-Pay" premiums to get higher deduction.

Taxability of benefits:

Generally, benefits received under a tax-qualified LTC insurance policy are non-taxable unless the daily benefits exceed certain dollar limits.

Disclaimer: The purpose of this article is to provide general information on the subject and not a tax advice. Always consult your tax adviser for tax advice.

Ramesh Parekh, CPA, can be reached at (727) 461-9770 or e-mail or

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

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