Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 18, 1991 TAG: 9103160048
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
In January 1987, my homeplace was sold and the only amount that I was eligible to inherit was one-sixth of that real estate, amounting to less than $3,000. During January 1988, I received a Form 1099 for this inheritance, even before I received the money.
When I receive a 1099, I feel that I must include the amount on it in my income, and I found no way of excluding it. Should I have received a 1099 at all when this was an inheritance, and a very small one at that?
A: David Lucas, a certified public accountant with the Roanoke firm of Lucas & Boatright, said the estate pays the all the taxes. The recipient of an inheritance should not pay a tax on the proceeds.
For years since 1987, Lucas said, most transfers of real estate are reported on Form 1099-S, which should reflect the part of the sale proceeds attributable to your interest in the property. If the sale came shortly after the death, when the tax basis was established for the heirs, there should be no gain or loss. Lucas said you would report the transaction on Schedule D and state that the cost of the property and the sale price were the same.
Lucas said there is another possibility if there was a delay between the times of sale and distribution. The 1099 might then reflect some type of earnings on investment of the money during the delay. You would be required to pay tax on any interest or other income for your share if it was earned subsequent to the death.
\ Hold on to Ginnie
Q: I have about 25 percent of my IRA account in a Ginnie Mae at 9.5 percent. I will retire in about 10 years. Is there a good or bad time to get out of a Ginnie Mae?
A: The value of a Ginnie Mae investment on the secondary market moves inversely to the direction of interest rates. You would, therefore, buy when interest rates have peaked and sell when interest rates are low.
You are getting a good return in a safe investment, however, so there is no special reason to sell your Ginnie Mae. Most of these mortgage-backed securities play out in about 12 years as people move and pay off their mortgages. Your monthly income includes both interest and return of principal, reflecting the payment pattern of the underlying home mortgages. By the time you retire, the Ginnie Mae should have about run its course.
\ Home tax options
Q: I have two questions concerning taxes on buying and selling a home.
First, I understand that mortgage interest is deductible. What other items are deductible when initially purchasing a home? Are loan origination fees? Lender's fees? Attorney fees? Title insurance? Recording fees? County tax stamps? State tax stamps? Survey costs?
Second, we recently sold a house that is not our primary residence and realized capital gains from this sale. We are currently paying estimated taxes. Must we include capital gains on our quarterly payments or can we pay what is due when we file our 1991 taxes as long as our estimated payments are equal to, or more than, our last year's liability?
A: Harry Schwarz, a certified public accountant with Schwarz & Co. in Roanoke, said your only deductions (outside of mortgage interest) are your prorated share of real estate taxes, interest and points. Loan origination fees are deductible if the institution deems that amount to be interest. Nothing else on your list is eligible. Schwarz said the institution should send you a 1099 form listing the deductible items although you may want to double-check the prorated taxes.
You can postpone paying taxes on the sale until next year provided that you pay an amount equal to this year's tax liability. Schwarz said you may, in the alternative, pay 90 percent of next year's liability but most people find it easier to follow the first method. Next year, if you have no large capital gain, you will want to use the second option.
\ What's equitable
Q: I have an annuity with Equitable Insurance Co. I keep hearing unfavorable things about this company. What is your feeling about this company?
A: Best's Insurance Reports shows eight companies with the name Equitable. None is called Equitable Insurance Co.
The largest is Equitable Life Assurance Society of the United States. Only 85 percent of its bond portfolio is of investment grade, and this insurer holds bonds of 25 companies that are in default. Nevertheless, Best ranks the company A+ or superior because of its overall size and strength.
Equitable Beneficial Life Insurance Co. is ranked NA-9, which means the ranking isn't published at the insurer's request. This means either that the company deals with a market that doesn't require rankings or that it disagrees with Best's opinion.
Equitable Life Insurance Co. of Virginia, Equitable Life Insurance Co. of Iowa, The Equitable of Colorado and Equitable Reserve Association all rate an A+ or superior, the top grade.
Equitable Variable Life Insurance Co. is graded A or excellent.
Equitable Life and Casualty Insurance Company is rated B+ or very good.
by CNB