Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 13, 1995 TAG: 9503140001
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Her husband wishes to file a joint return with her for 1994 and claim personal exemptions for the two of them. IRS Publication 17, page 29, gives the dependency tests that must be met in order to claim a dependency exemption for her.
Our question concerns the ``joint return test,'' specifically the exception.
This section seems to indicate that we, her parents, can also claim her as a dependent under certain circumstances.
Please clarify these circumstances for us and tell us if these circumstances do permit both us and her husband to claim her on our 1994 returns.
If so, are there explanations we must provide to the IRS with our return to keep the computers from assuming an error on our return?
After many inquiries, I have been unable to get a satisfactory answer from the IRS over the phone.
A:There are three special tests (in addition to the normal dependency tests) that must be met in order for your daughter to file a joint return with her husband and for you and your husband to still be able to claim her as a dependent.
First, neither your daughter nor her husband is required to file a return; second, neither your daughter nor her husband would have any tax liability if they filed separate returns; and third, they file a joint return only in order to receive a refund of the tax withheld.
If your daughter and her husband each had less than $2,450 of wages and no income from any source that was not subject to withholding, neither would be required to file a return.
However, if they had income tax withheld from their wages, they would want to file in order to get a refund.
Under these circumstances, they may file a joint return and you and your husband still would be allowed to claim a dependency deduction for your daughter if the other dependency tests are met.
If in fact you do claim her, you should attach a statement to your return stating your daughter's name and Social Security number, that she is your daughter and that you provided more than half of her support during 1994, and that you are claiming her as a dependent pursuant to the exception to the joint return test outlined on Page 29 of IRS Publication 17.
- Answered by James B. Taney of Anderson & Reed
Insurance policy donations explained
Q: If I donate a life insurance policy to a charitable foundation (that is, make them the beneficiary), what tax deductions are allowed?
A: A gift of a life insurance policy would qualify for charitable contribution deduction, provided that the donor irrevocably contributes his full rights of ownership in the policy.
However, such a contribution may be nondeductible under certain circumstances where state law prohibits the donee charity from owning a life insurance policy on a donor in whom the charity has no insurable interest.
In instances where state law does not preclude a charity from having an insurable interest in the donor, the amount of the deduction for a gift of an insurance policy is its fair market value or replacement value reduced by any gain if the policy had been sold. Your insurance company should be able to furnish you with this information.
Also, once an effective gift of an insurance policy has been made, subsequent premiums paid by the donor are deductible as charitable contributions. The contribution would be subject to limitations of 50 percent or 30 percent of adjusted gross income, depending on the type of organization.
- Answered by David Wright of Anderson & Reed
Taxes on sale of rental property?
Q: When I sell a full-time rental property, will the gain be taxed as ordinary income? The property has been rented full-time for the past 31/2 years.
A: The nature of the gain on the sale of real estate depends on the method of depreciation used.
If you used the straight line method of depreciating your rental property, the gain would be taxed at capital gain rates. If an accelerated method was used, the excess of the depreciation taken over the straight line method would be taxed as ordinary income and the remainder of the gain would be capital gain.
Since the 1986 tax law only allows straight line depreciation on rental real estate, your gain probably will be taxed as capital gain.
Any gain realized from the sale of personal property used in the rental property would be ordinary income to the extent of depreciation taken.
- Answered by William Brumfield of Foti, Flynn, Lowen & Co.
by CNB