This being "Tax Guide Day," it may be a good time to take a look at some off-beat tax questions that are interesting but not specifically covered in the guide itself.
Question: My 85-year-old mother is not a U.S. citizen, but she lived with us and qualified as our dependent. Last year we took her home to Lima, Peru, to get her resident visa. But after we arrived, because of her increasing senility we decided to place her in a nursing home there where she would be cared for by Spanish-speaking attendants in a familiar environment. Why does the law only consider as dependents residents of Canada and Mexico, not those in other countries? We contribute substantially to my mother's support but can't claim her as a dependent.
Answer: I don't know the answer to your question about the distinction between residents of Canada or Mexico and the other countries of Central and South America. (Perhaps it is simply because Canada, Mexico and the United States compose the North American continent.)
You may want to address that question to your senator or representative, since the distinction originates in the laws passed by the Congress.
But I have good news for you personally--you can continue to claim your mother as a dependent. If a person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence is considered temporary.
So if she was a member of your household and therefore a resident of the United States when you left for Lima, she continues in that status for U.S. tax purposes and thus continues to qualify as your dependent (assuming the income and support tests are met) as long as she remains in the nursing home.
Q: To help our daughter buy a condo, my wife joined her in making the down payment, and both took title to the property as joint tenants. They each contributed 50 percent of the down payment; my wife is also paying one-third of the monthly mortgage payment and condo fee. On their 1981 tax returns how do they split up the interest payments? How about the one percent assumption fee?
A: The general rule in this situation is that each co-owner may claim a deduction on her own tax return for the amount of interest each one paid.
So your wife may claim one-third of the monthly interest payment while your daughter claims the remaining two-thirds. But since they each paid half of the down payment (and I presume the closing costs, which would have included the mortgage point), each may deduct half of the one percent assumption fee.
Q: My parents sold their home for $500,000, then built a new home that cost $250,000. I know the tax on the $250,000 capital gain can be delayed, but can they take the $100,000 tax exemption for over 55 too (the house was sold in April 1981) and just pay capital gains tax on the remaining $150,000?
A: There's something wrong with your arithmetic, but let's get to your basic question first.
Your parents may take the $100,000 over-55 exclusion and then may defer tax on a part of the capital gain in addition. Form 2119 has the instructions for figuring the deferral when the replacement costs less than the selling price of the old home.
The deferral feature is mandatory, but the over-55 exclusion is optional and may only be used once in a lifetime. (The amount increased from $100,000 to $125,000 for sales after July 20, 1981.) So you should get your arithmetic straightened out to determine whether it pays to use up the one-time exclusion.
The capital gain is not the selling price of the old home ($500,000), nor the difference between that figure and the cost of the new home ($250,000). It is the difference between the net sales price ($500,000 less selling expenses) and the adjusted cost basis (original cost plus permanent improvements less any casualty losses).
After you calculate the capital gain, you may find that the tax amount after the manadatory deferral is not enough to warrant using the one-shot exclusion--so try Form 2119 to see how the numbers come out.