ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, August 5, 1996 TAG: 9608060026
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: If you buy something in a charity auction, is the full amount tax deductible or just the item you receive?
A: The amount of any deduction for a charitable contribution is reduced by the value of the premium, meal, magazine or other item you receive in exchange for your donation. Thus, you can deduct as a charitable contribution only the money you paid at the auction in excess of the value of the item you purchased. If you paid $50 to buy a $30 item, for instance, you can claim a contribution of $20.
Don't worry about UGMA account
Q: Several years ago, I took out a Uniform Gift to Minors Act account for my daughter, who just turned 18. I started out with one of the banks in Roanoke. Two years ago, I transferred the CD to another bank, which failed to list it as a UGMA account. She was already 18 when we renewed it. I'm worried about the possible tax repercussions and if I could be held liable later on. Should I do anything?
A: As a practical matter, there's not much you can do about it. You might try asking the bank to change its records retroactively, which it may or may not do.
You have on your side the evidence of the first account, which was listed under the UGMA, and the fact that you turned the money over to your daughter when she reached the age of 18, as required by the act. Besides, the tax advantages of using the act are very small, so the tax difference would have been marginal unless the account contained a very large amount of money.
The worst thing you could do would be to draw the attention of the Internal Revenue Service by inquiring about your status. The chances of anyone coming after you are marginal. So beyond approaching the bank for a change in records, you should stop worrying about it.
Cash from CD should be free from income tax
Q: On Oct. 2, 1992, my aunt took out a $10,000 certificate of deposit in her name and mine. She died recently, and I received the CD. I just cashed it in and received almost $12,000 with the interest. Do I have to report any of this to the Internal Revenue Service as income?
A: Stan Boatwright, a certified public accountant with the Roanoke firm of Lucas & Boatwright, said the short answer is that almost all of the $12,000 should be free from income tax - with a qualification.
The $12,000 distribution can be viewed as two components, Boatwright said.
The original $10,000, which he assumed was entirely contributed by your aunt, is deemed a tax-free transfer for income tax purposes.
Portions of the interest component of $2,000 probably would have been reported annually by your aunt as interest income, assuming the interest was credited to the account at least annually.
He said your aunt probably would have reported on her final income tax return interest income credited to the certificate of deposit from the beginning of the year until the date of her death .
Interest earned from the date of death until you cashed the certificate of deposit would be taxable to you.
Boatwright said the reporting of interest on jointly held bank accounts, including certificates of deposit, can be tricky.
Normally the terms of the bank account or certificate of deposit will establish the rights of the owners with regard to the funds held and income earned, he said. But joint ownership arrangements are governed by local law, and these may vary from state to state.
The general rule, he said, is that each co-owner probably would report interest income in proportion to the amount of funds he furnished. If a true joint tenancy bank account exists, each co-owner would report half the income.
Boatwright said it's possible that a portion of the interest credited to the jointly held certificate of deposit could have been attributable to you and reportable as taxable income by you prior to your aunt's death. However, this would depend on the terms of the certificate of deposit and the state in which it was issued.
Probate carries out final wishes, costs less
Q: I have all of my assets - bank account, certificates of deposit and mutual funds - in my name with my granddaughter as joint tenant.
My will states that all assets will be left to my granddaughter except the home, which is to be sold, with the money from the sale to be divided among my living sisters and brother. My granddaughter is the executor of this will.
Will this will have to be probated?
A: No will absolutely has to be probated, but probate is a means of assuring that your final wishes are carried out. The court will affirm that the money was distributed according to the terms of your will.
In addition, probate will provide some protection for your granddaughter in case any question should arise later, perhaps from a niece or nephew. The court will give her a formal discharge from her duties when the estate is properly settled.
Virginia has simplified probate, and the cost is not high.
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