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

Francis Vayalumkal

Mortgage insurance, used to be something normal and then became something that every one avoided at any cost. Recently, with the rates becoming high on second loans, home buyers are confused on what to do. The 109th Congress passed a tax law in its final hours that would make mortgage insurance tax-deductible in 2007. For some homeowners, the new law means it will be cheaper to get mortgage insurance instead of getting piggyback loans. Hundreds of thousands of homeowners will save a total of $91 million when they file their tax returns in 2008, according to estimates prepared by the mortgage insurance industry. Don't get a piggyback loan without taking a serious look at mortgage insurance because Private Mortgage Insurance (PMI) is likely to be cheaper in the long run, and it might even cost less in the short run. It is estimated that a homeowner with a $180,000 mortgage would save about $351 in taxes per year because of the law. That assumes that the borrower has good credit and is in the 25 percent tax bracket. When you buy a house, lenders consider you a riskier borrower if you make a down payment of less than 20 percent. There are two main ways to make you pay for that risk: PMI and piggyback loans.

PMI is the old-school method. You, the borrower, pay for the policy, but the lender is the beneficiary. If you fall behind on the loan payments and the lender has to foreclose, the mortgage insurance policy reimburses the lender for legal costs and lost income. The premiums depend on the size of the loan, the percentage of the down payment, your credit score and the type of PMI you get.

Piggyback (second mortgage) loans are the relatively new method of dealing with a down payment of less than 20 percent. When you use a piggyback, you get two home loans: a primary loan for 80 percent of the house's value and a second mortgage for the rest of the money you need. With a 5 percent down payment, you would get what's called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and the 5 percent down payment. Getting a piggyback eliminates the need for PMI.

The piggyback can be either a fixed-rate home equity loan or a variable-rate home equity line of credit and usually has a higher rate than the first mortgage. For years, piggybacks had a big advantage because the mortgage interest on both loans was tax-deductible, while mortgage insurance payments were not. Now that has changed, with caveats.


Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with PMI in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.

Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no PMI deduction is available if you make more than $110,000.

Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but there is no assurance.

Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000. With the new law in place, it�s easier to compare loan offers. Now, the piggyback loans and PMI are tax-deductible.


In many cases, monthly payments on a loan with PMI will cost more than piggybacks, even after the tax deduction is taken into account. That makes them more expensive in the short run. But PMI can be canceled on loans more than two years old if the home's value has appreciated enough for the owner to have more than 20 percent equity. In contrast, you can't cancel a piggyback loan. You pay it until it's paid off. When deciding between getting a piggyback or PMI, you have to guess how long you will have the loan. If you think you'll move or refinance within two or three years, it's best to go with the option that provides lower monthly payments. But if it's a fixed-rate loan that you'll keep for five or more years, it's probably going to be cheaper in the long run to get mortgage insurance because you can cancel it.

Ask your lender to compare the total costs for piggyback and mortgage-insured loans over the first one, two, five and 10 years. Passing such a bill does not mean that everything will proceed as written. The IRS will issue regulations interpreting the act and hopefully this will be done in time for the April 15 filing deadline. If you are responsible for paying PMI make sure that your tax professional is aware of this new legislation and understands how it may result in a slightly lower price tag on the bottom line of your 1040.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at [email protected]

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

Nitesh Patel

Conventional wisdom tells us that once you start getting a paycheck, you should save a portion of it for retirement. Too bad life gets in the way: illness, children�s education, home renovations, job loss, divorce and more can all dip into funds earmarked for retirement. It�s no wonder only 44 percent of Americans age 55 and older have saved less than $100,000, according to a Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) (, �Last-Minute Retirement Planning,� 2004).

Still, it�s important for Americans � even those in their 50s and 60s � to know that it�s not too late to jumpstart their savings as they approach retirement. The following are some simple financial strategies to consider:

Know what you�ll need. Take the time to figure out � and revisit � how much money you�ll need in retirement. Experts estimate that retirees generally need at least 70 to 80 percent of their pre-retirement income. You can tap into Web sites that help calculate your life expectancy and how long your money will last in retirement. A few sites featuring financial calculators include,, and If you haven�t already, it may be helpful to talk with a financial professional to develop a strategy to meet your individual needs.

Cut the debt. Eliminating consumer debt and curbing spending is a critical precursor to retirement. This may not be easy, however, seeing that the average American carries $2,328 in credit card debt, according to 2005 research by Myvesta, a non-profit consumer education organization (, �Myvesta Survey Shows Americans Paring Down Credit Card Debt,� Dec. 29, 2005).

If credit cards are sabotaging your pocketbook, you can call your credit card company and renegotiate the interest rates being charged. You also can make a point to pay a set amount of extra money toward your debt. Look for this money by cutting out expenses you could do without � regular trips to coffee shops, pricey restaurants, membership fees for services you don�t use. It�s also wise to destroy your credit cards and keep just one card in hiding in case of emergencies.

Check how you�re saving. Many experts suggest that pre-retirees save at least 10 percent of their annual gross income but those with less resources may need to save more (, �Last-Minute Retirement Planning,� 2004). But how you save can be as important as how much you save.

First, always contribute as much as you can in savings plans. The government allows workers age 50 and over to save more than younger employees with �catch-up contributions,� allowing older workers to contribute thousands more to their 401(k) and IRA each year (, �Last-Minute Retirement Planning,� 2004). In 2006, the maximum contribution limit for an IRA (Roth or traditional) is $4,000 for the general population and $5,000 for those 50 and older by year-end. For 401(k)s, the maximum contribution limit in 2006 for pretax employee contributions is $15,000 for the general population; for those 50 and older by year-end, the limit is $20,000 (, �Last-Minute Retirement Planning,� 2004).

Annuities are another savings vehicle worth considering. They offer a tax-advantaged way to guarantee an income for life, or alternatively, a set amount of income for a specific number of years (Note: Payments under an income option are solely backed by the claims paying ability of the issuing insurance company). In general, funds can be withdrawn from an account after age 59-1/2, at which time the earnings withdrawn are taxed (, �Managing Money in Retirement,� March 2004). Withdrawals prior to age 59-1/2 may be subject to ordinary income taxes and a 10 percent IRS early withdrawal penalty. It�s best to consult with a tax advisor for specific tax advice.

Be prepared for health�s ups and downs. While Americans are living longer, there are no guarantees for good health. Health-related expenses can impact the income you�ll need in retirement while medical conditions can jeopardize your retirement plans. It�s estimated that 60 percent of people over the age of 65 will need help with health and personal needs and activities of daily living as they grow older (Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), �Own Your Future,� December 2002). Having insurance for such needs may be a consideration.

Consider working at least part time. If you receive a regular paycheck, you don�t have to draw as much from your investments to get by. This gives your savings a chance to grow and lowers the risk of your portfolio running dry. Employer-paid medical insurance for you and your spouse may also be a major benefit, especially if you�re waiting for Medicare to kick in.

Another way to look at working: those who retire at 65, work two days a week and earn 40 percent of their pre-retirement salary can increase their savings by 30 percent over five years (, �The New Retirement,� September 2005).

Even with retirement only a decade or less away, those in their 50s have the power to make the most of their prime earning years while refining their retirement strategies. By saving, investing and preparing wisely, pre-retirees can ensure a growing retirement nest egg for years to come.

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 [email protected].

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

Kamlesh Patel
CRUNCHING �EM NUMBERS: Charity Rules: A Review Of The New And The Old


Taking a federal tax deduction for support provided to your favorite charity may now be easier � or more difficult, depending on which provision in a new tax law affects you.

Here�s a selected overview of new and existing charitable donation rules.

What has changed. In 2006 and 2007, if you�re 70� or older, you can make direct transfers from your IRA to qualified charities. The withdrawals, which are limited to $100,000 in each of the two years, count as part of your annual required minimum distribution and are typically excluded from your income. Generally, amounts donated to charity via these new rules are not includible in your itemized deductions.

Another change that became effective Aug. 17, 2006, restricts deductions for contributions of clothing and household items such as linens, furniture and appliances. These donations must now be in �good� condition if you want to claim a deduction. Items with little value are not deductible.

Other currently applicable new law revisions include an extension through 2007 of last year�s rules for donations of food inventories and books and a change in how S corporation shareholders adjust basis for contributions made by the corporation.

What will change. In 2007, you�ll need a bank record or written documentation from a charity to deduct contributions of money, no matter the amount of your donation. Bank records include cancelled checks and statements.

What stays the same. Contributions you make before Dec. 31 by cash, check, or credit card are deductible on your 2006 return, though you�ll still have to itemize to receive the benefit. As in prior years, your deduction may be limited, depending on your adjusted gross income. The five-year carry forward of excess deductions remains available.

take a tax credit for adopting a child

Are you thinking about opening your heart and your home by adopting a child? Since the adoption process can be a costly one, the federal government provides some significant financial assistance with the adoption tax credit.

Here are some of the basic rules.

* It�s important to remember that we are talking about a tax credit and not a tax deduction. The adoption tax credit is even more valuable since it can reduce your actual tax liability by up to $10,960 in 2006, and any unused credit can be carried forward five years. The adoption credit also can offset the alternative minimum tax.

* Qualifying expenses include agency adoption fees, attorney fees, court costs, and adoption-related travel expenses.

* Nonqualifying expenses include fees to a surrogate mother.

* The adoption credit is subject to phase-out provisions. For 2006, the credit begins to phase out once modified adjusted gross income reaches $164,410, and the credit is completely eliminated at modified adjusted gross income of $204,410.

* The timing of the credit depends on the nature of and the progress of the adoption. For domestic adoptions, if the adoption is not finalized by the end of the year, the credit is computed in the second year. For foreign adoptions, the credit is not computed until the year the adoption is finalized.

* Special needs adoptions can be eligible for the maximum credit even if actual expenses are less.

* Some employers provide adoption financial assistance. These proceeds can generally be excluded from taxable income, but the reimbursed expenses also can�t be used to figure the adoption tax credit.

make your business meetings worth the time

Are your organizational meetings dull, uninspiring and inefficient? Do they drain morale, waste time and focus on the past? Would you like them to be vibrant, engaging, productive and future-focused? If so, here are some suggestions to supercharge your business meetings.

* Assess your current situation. Be honest. Determine what is and isn�t working and commit to improvement.

* Raise your expectations. Demand more from your sessions. Agendas should be circulated in advance. Attendees should be on time, prepared and ready to actively participate.

* Set ground rules. No Web surfing or crossword puzzles. Keep your sessions disciplined and business-like. But don�t forget the benefits of humor to lighten things up and reduce stress.

* Have an agenda, but be prepared to leave it. If a stimulating and productive discussion develops, exploit it. Harvest those creative ideas. You can always revisit less important matters.

* Challenge your meeting time and formats. If your meetings get in a rut, try something different. Don�t underestimate the power of mixing things up.

* Know when to quit. If you hit a big breakthrough, consider stopping. End on a high note. * Avoid the trivial. Handle routine updates via memos or e-mail.

* Stretch and challenge the team. Your meetings are valuable personal and organizational development opportunities. Treat them that way.

* Recognize excellence. Praise and reward performance.

* Focus on the positives and keep future-focused. Maintain a positive tone. Discuss your yesterdays only to improve your tomorrows.

* Recap and take action. Resolve issues, determine a course of action, and assign action steps. It�s important to make recognizable progress.

* End on a unifying note. Reinforce the common bond and move forward together.

You can make your business meetings more productive. Commitment and discipline will make it happen.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail [email protected] or [email protected].

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

Satya Shaw

Ownership of rental properties has become a popular investment strategy during the last 10 years. Our client�s holdings consist of apartments, office buildings and single-family houses for rent. In many cases, the appreciation in value of these properties far exceeds everything else the client has saved from his or her medical practice over the years. The downside of all this, from a legal perspective, is that real estate activities are a strong attraction for lawsuits. So, it does make sense to take appropriate steps to minimize the associated risks.


Inside liability is a lawsuit risk that is produced by the property itself. For example, a tenant can be injured on the property or you might have a dispute with a buyer or seller. A lawsuit over these types of claims puts your other properties and savings in a certain amount of jeopardy. The first objective of asset protection planning for rental properties is to insulate and shield yourself from any liability arising out of the property so that you do not expose your other assets to this lawsuit risk.

Outside liability is the risk presented by your other activities your medical practice or business dealings � or even those of your family members driving habits. A lawsuit from any one of these sources poses a potential threat to all of your holdings, including the equity in your properties. Clients are concerned that a lawsuit from their practice could cause them to lose their investment properties.


If anyone is injured on a property for any reason and regardless of fault, the owner will generally be held responsible. That is a substantial legal burden and it is easy to see how lawsuits are generated in this type of system. Real or alleged injuries to tenants and their guests are regular occurrences. Serious injury to even one person might create a potential liability exceeding the amount of insurance coverage.


Threat of a lawsuit from a tenant, visitor, buyer, seller or lender �

can usually be contained by using the correct legal structure to hold the property. Almost always, this is accomplished with a type of entity known as a Limited Liability Company (LLC). It was conceived as an alternative to traditional corporations and partnerships. The key features of the LLC are:

A. Owners are called members. No member is personally liable for the obligations of the LLC. This means a member cannot be sued in connection with any matter concerning the LLC.

B. An LLC can elect to be taxed as a partnership. There is no separate tax at the LLC level .All items of income or loss flow through directly to the member�s personal tax return. Additionally, if it is structured with a single member, the LLC can be disregarded completely for tax purposes and no federal filing is required.

C. An LLC is not required to maintain records such as minutes, bylaws, or shares. However, a corporation can be legally pierced if it fails to follow the prescribed formalities.

D. There is an initial filing of the Articles of Organization with the Secretary of State. This document specifies the name of the LLC and the name and address of either the members or the manager. An Operating Agreement must be prepared that specifies how the LLC will be governed. Property should be transferred into the LLC with a deed.

Because the law specifically states that no member can be named in a lawsuit against the LLC, it allows us to achieve the necessary protection from inside liability. Should you transfer property to an LLC, you � as a member or manager � are insulated from the lawsuit if there is a subsequent claim regarding the property. That is an ideal result from an asset protection standpoint and it creates the ability to own real estate without personal liability risk. In addition, because the LLC can be treated like a partnership or sole proprietorship for tax purposes, there should not be any unforeseen tax or accounting problems.


If you own more than one rental property, each property should have its own LLC to isolate each property from liability connected to the others. If something happened to one property, there would be no risk of loss for the remaining properties.

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

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