State tax amnesty window closes soon

The Washington Department of Revenue’s first-ever tax amnesty program means qualifying businesses with overdue taxes can apply to pay them without associated penalties and interest.

“Hardworking business owners have faced some very tough economic times over the past several years,” Department Director Suzan DelBene said. “This program will help them meet their tax obligations without the additional burden of penalties and interest.”

The amnesty program was authorized by the Legislature during its special session last December at the request of Gov. Chris Gregoire.

To take advantage of the amnesty program, businesses must submit an application by April 18, and taxes due must be paid in full by April 30. Businesses can find complete program details and the program application at PayMyTax.org.

The Department of Revenue estimates that about 10,000 of 50,000 delinquent businesses and additional unregistered businesses will take advantage of the program, generating $24.4 million in state revenue and $3.9 million in local revenue.

Hundreds of businesses already have requested estimates of how much they would save if they agree to pay all back taxes during the amnesty window.

Owning home can cut tax bill

At tax time, homeownership can be sweet.

Mortgage interest is the best known tax deduction for homeowners, but it’s not the only one available. Potential deductions are available for other costs associated with purchasing a home, certain energy efficient repairs and even modifications for a disabled family member.

There’s also a bit of good news for homeowners who were in serious financial distress last year.

Taxpayers who have debts reduced through forgiveness may be unpleasantly surprised to learn that whatever portion they don’t have to pay is considered income by the Internal Revenue Service. But that’s not the case through 2013 for debt slashed from mortgage modifications or debt written off on foreclosed homes sold for less than the value of the outstanding mortgage. The Mortgage Debt Forgiveness Relief Act of 2007 allows those individuals to omit forgiven debt from their income, up to $2 million ($1 million for married filing separately).

This rule does not, however, apply to home equity lines of credit that were used for purposes other than constructing, acquiring or improving the house. So taxpayers who were forgiven debt from a HELOC used to pay down credit card bills or pay college tuition will have to report the amount as income.

Also, homeowners with modified loans will have to recognize the amount forgiven if they eventually sell their home, warned Mel Schwarz, a partner in Grant Thornton’s national tax office in Washington. But for those experiencing financial distress right now, the ability to delay paying taxes on forgiven debt will be a relief.

Here’s a rundown of deductions homeowners may be entitled to:

• Mortgage interest: Homeowners can deduct all of the interest they pay on their first mortgage, up to $1 million. For a second mortgage or home equity line of credit, up to $100,000 in interest payments may be deducted.

• Mortgage insurance premiums: If you pay insurance premiums on a mortgage issued after Jan. 1, 2007, you may be able to take an itemized deduction. Homeowner’s insurance premiums covering events like fire and property damage are not deductible.

• Real estate tax: Taxes paid to local and state governments are deductible if they’re based on the assessed value of the property. New homeowners may deduct any partial-year taxes paid during the closing.

Owners who live in private communities should make sure they deduct only tax payments, and not payments for special privileges (like a community swimming pool) or services (like trash collection or snow removal.) Homeowner’s association fees and assessments are also not deductible.

• First-time homebuyer credit: Anyone who purchased before May 1 may be eligible for a credit of $8,000 or 10 percent of the purchase price of the home, whichever is smaller. There is also a provision providing this credit for homebuyers who signed a contract before May 1 to purchase the home before July 1, even if the closing was delayed as late as Sept. 30.

The credit does not apply for homes purchased for more than $800,000 or for individuals whose income topped $145,000 ($245,000 for married filing jointly.)

Homeowners who claimed the 2008 first-time homebuyer’s credit must start paying that amount back this year.

• Purchase points: Certain charges paid by a borrower to obtain a mortgage, known as “points,” may be deducted in part or in full. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Appraisal fees, inspection fees, title fees and attorney fees are not deductible.

• Energy-efficient improvements: Homeowners who installed insulation, energy efficient windows, doors, air conditioning systems or certain other items in 2010 may be able to claim a credit of 30 percent of the costs, up to $1,500. Those who installed solar water heaters, geothermal heat pumps and other alternative energy equipment may be able to deduct 30 percent of their costs, with no cap. The maximum claim under this credit drops to $500 for 2011.

• Disability modifications: Modifications like accessible bathrooms, wheelchair ramps, wider doorways and stair lifts that are made in relation to a medical condition may be deductible as part of medical expenses. The changes to the home must have been made to meet the medical needs of the taxpayer, spouse or dependent and not be considered an improvement to increase the value of the property.

The addition of a swimming pool may qualify with documentation from a doctor that it was medically necessary, said Christian.

The costs can only be deducted if together with other medical expenses they exceed 7.5 percent of adjusted gross income.

• Home offices: Rooms or other parts of a home are set aside for business may qualify for home office deductions.

Generally, home office deductions are based on the percentage of the home devoted to business use. Employees who use part of their home for business for the convenience of their employer may also qualify for this deduction.