Recession Nears, Housing Falters

Michelle Singletary
Michelle Singletary
Thursday, January 24, 2008; 4:07 PM

The Mortgage Bankers Association released a survey that said delinquent borrowers were "almost twice as likely to lose their homes as they were to reach an agreement with their lender that would allow them to stay put" reports Renae Merle in "Foreclosures, Lenders' Preferred Fix" (Jan. 18). Foreclosure rates have reached a historic high.

The Bush administration plans to freeze mortgage rates for 600,000 homeowners with adjustable rate loans, but consumer advocates fear that this won't be enough to prevent foreclosures. Read more.

The MBA also says "almost 60 percent of all new mortgage applications by mid-January were for refinancing," reports Kenneth R. Harney in the Nation's Housing. "While much of the demand is from homeowners facing payment resets on adjustable-rate and interest-only loans, many applicants simply want to take advantage of rates in the...5 percent range -- often with no out-of-pocket cash costs."

Check out "Lower Rates, Coming Resets: An Opening For Refinancing" (Jan. 19), and see how you too can save. The Federal Reserve interest rate cut could make for an even softer landing for consumers planning to refinance. See "Fed Cuts Key Interest Rate as Asian Markets Drop for Second Day" (Jan. 22) by Neil Irwin, Howard Schneider and Ariana Eunjung Cha.

More Tax Tips

Last week, I talked taxes with expert Paul Thompson, president of Premier Accounting & Tax, Inc. There were so many questions and we ran out of time. But here are Thompson's answers to some questions he didn't get to during the chat:

Q: I sell stuff on e-Bay. I'm not a big seller, more like "garage sale" selling. They're things from my house or from thrift stores. How much income can I make before the IRS can start charging tax?

A: Any profit earned from a hobby business or otherwise is subject to taxes. Be sure to deduct and document all of your expenses. The deduction rules are different for hobby businesses versus profit-motivated businesses.

Q: My sister and I inherited our parents' house (4 years ago). My sister lives there and during the summer she bought out my share. Will I have to declare this as income and pay capital gains tax on it?

A: Yes, you have to report the sale on your tax return in the year of sale. Your tax basis in the house is one-half the fair market value of the house at your parents' date of death. For example; if the fair market value at your parents' date of death is $100,000, then your tax basis is $50,000 plus one-half of any improvements made to the property since you inherited it. Don't forget to take into account the selling expenses when figuring the capital gain.

Q: Are there suggestions on how to spend the balance of a flexible healthcare spending account before the grace period ends so that I won't lose the money? I can't think of too many big-ticket items.

A: The basic rule is that any medical or dental expenses allowed by IRS qualify for reimbursement from your flex plan. Before the deadline, make that dental appointment, get a physical, buy eyeglasses or contacts, prescriptions and many over-the-counter items qualify as well. Contact the flex plan administrator for a list.

Q: How does one even figure out if they might get hit with the alternative minimum tax and need to delay filing? Is there any way to guesstimate in advance? Will Turbo tax figure that out for me?

A: Go to At the bottom left click on "more online tools," and then scroll down to AMT Assistant, which can help you figure if the AMT will apply to you. Your tax preparation software should be able to calculate it as well. Make sure you have the updated version of the software.

Q: In reference to equipment deduction: I have a job that I started working in 2008. In late 2007, I bought some equipment for the job, which I know is deductible. The receipt says 2007, but at that time I didn't have the job to refer back to this particular piece of equipment. Do I claim the deduction in 2007 or 2008?

A: Business depreciation deductions for equipment begin on the date the equipment is placed into service/use. If you have started your business and the equipment is "available" for use, you can take the deduction.

For more questions from the chat with Thompson, click here.

For our Spanish speaking taxpayers, watch "Los Impuestos y Usted" or "Taxes and You" airing Sunday, Jan. 27 at 3:30 p.m. Eastern and Pacific Time, 2:30 p.m. Central Time and 1:30 p.m. Mountain Time. The program will discuss various tax issues and feature tax experts. For more information read "IRS Offers Tax Program for Spanish Speakers" (Jan. 17), from the Small Business blog.

What's Happening to the Workforce?

According to Washington Post reporter Michael A. Fletcher, the unemployment rate is growing the fastest among white-collar workers, many of whom have been out of work for months.

"With the economy sliding┬┐the already high rate of long-term unemployment is likely to grow...a prospect that has spawned calls in Congress and on the presidential campaign trail to extend unemployment benefits and expand tax cuts to protect jobs and fuel the economy," reports Fletcher in "Highly Skilled And Out Of Work" (Jan. 21). Unemployment benefits run out after six months.

In other news, Yahoo and Sprint are set to layoff numerous workers. Analysts are saying Yahoo will probably layoff 5 percent of its 14,000 employees. Sprint will dismiss roughly 4,000 workers or 7 percent of its workforce. Read the Associated Press's "Reports: Major Layoffs for Yahoo Inc." (Jan. 22) and "Sprint To Shed 125 Shops, 4,000 Jobs" (Jan. 19) by Post writer Zachary A. Goldfarb.

Engineering Energy Savings

The fluorescent bulb will replace the old incandescent light bulb by the middle of the next decade, reports Steven Mufson. Legislators aim to reduce electricity use in the United States and though some homeowners are reluctant to make the switch, the change can be cost effective. They could cut their utility bill by an average of $50 a year using more energy and water efficient washing machines.

"If every American household replaced just one incandescent bulb with a compact fluorescent bulb, the country would conserve enough energy to light 3 million homes and save more than $600 million annually. It would be as if 800,000 cars were taken off the road, according to a Web site maintained by the Energy Department and the Environmental Protection Agency, " reports Mufson.

To aid the transition, Bush and Congress passed legislation regulating energy use and bulb wattage in December. The first phase of the law takes effect in 2012. For more details, see "Power Switch" (Jan. 20).

Read the full transcript of Mufson's recent online discussion on this topic here.

See my previous columns on energy conservation; some readers had great ideas on how to save money and the earth:

* "Conservation Saves More Than the Environment" (July 15)

* "This Year's Winner: Don't Flush Good Water After Bad" (Sept. 16)

Also, read how one man, Dan Goodman, is trying to make a difference. He started the Biodiesel University in 2006. "It is a non-profit, renewable energy education organization designed to educate students, teachers and consumers about renewable energy and environmental stewardship," says Sharon McLoone. See "Fueling the Future, One Student at a Time" (Jan. 22) in the Small Business blog.

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