Identity Theft | Alternative Minimum Tax (AMT) | Foreclosures
Identity Theft
What is Identity Theft?
Identity Theft occurs when someone takes your personal information and commits fraud with it.
How does it happen
Identity can be stolen over the computer, by sorting through your trash, by stealing
your wallet, etc.
How does it affect your taxes?
Someone can steal your Social Security number in order to get a job - leaving you with a
tax debt if the income is not reported. Or someone can use your Social Security number
to claim tax credits and obtain a refund.
How can you prevent it?
Protect your personal information. Don't give out your information over the phone
or computer unless you know the company that you are dealing with. Shred your documents.
Don't carry your social security card in your wallet.
What can you do if you are a victim of identify theft?
- Report it to the FTC online
or by calling 877-438-4338.
- File a report with your local police department and get a copy of the report.
- Contact the three credit rating agencies to see what activity has taken place on your account.
- Put alerts on your accounts.
- Close any accounts that have been tampered with.
- Report misuse of your social security number to the Social Security Administration.
Alternative Minimum Tax (AMT)
What is it?
A tax system designed to prevent wealthy taxpayers from avoiding tax liability.
I'm not wealthy so this isn't an issue for me, right?
Wrong. The AMT was designed decades ago to target wealthy taxpayers.
In 1970 only 19,000 taxpayers fell into the AMT. Today, millions are paying
this tax; it's not just for the wealthy anymore.
Why?
Inflation. While regular tax brackets, deductions and exemptions
are adjusted annually, the AMT brackets and exemptions have not.
People whose income has risen gradually over the years often find
themselves falling into the AMT.
Who's most at risk?
People with $75,000 in income and who have large deductions.
In particular, people who have several children to claim, mortgage
interest to deduct, and a high state tax bill.
How does the AMT work?
It's a separate tax system with its own set of deductions.
The best way to know if you qualify is to fill out the worksheet
that comes with Form 1040 or to fill out IRS form 6251.
Basically, with the AMT you add back deductions and exemptions from
your regular tax (the personal and dependent exemption, the standard
deduction, state and local taxes, and home loan interest) that will give
you your AMT taxable income. You can deduct $62,500 as an AMT deduction.
The rest is subject to AMT tax rates - 26% on the first $175,000 and 28% of the excess.
Form 8801 may allow you to claim an AMT credit on future returns.
Foreclosures
I recently had my house foreclosed. I received a 1099-C and it says
there was debt cancelled. What does this mean?
If your lender forecloses on your home then that is debt
that you no longer owe. The IRS considers this income and
you are taxed on it.
Are there any exceptions to this rule?
Yes. Contact a tax professional to get help.
If you get a 1099-C, odds are that one of these exceptions will apply to you:
- You are bankrupt.
- You are insolvent (your debts outnumber your assets) at the time of foreclosure.
- The debt is "non-recourse."
- You fall under the Mortgage Foregiveness Act, which allows taxpayers
to exclude cancelled debt on a primary residence for tax years 2007, 2008, 2009.
This law is new and still being analyzed.
Basic point: If you have gone through a foreclosure in 2006,
get help from a tax professional.
Cancelled debt doesn't just apply to foreclosures. It can also apply
to car loans, credit card debt, etc.
Cancelled debt doesn't just apply to foreclosures. It can also apply
to car loans, credit card debt, etc. You may be able to exclude this
debt from income if you were bankrupt or insolvent when the debt was cancelled.
To help your tax professional help you, start gathering the necessary documents now!
You should have a copy of your 1099-C, paperwork indicating the fair market value of
your asset, documents such as bills and bank statements to show what your financial
situation was like at the time that your house was foreclosed or your property was repossessed.
