Q: Can you explain the difference between federal savings and loans and the newer form of federal savings bank? I started a retirement plan at an S&L, which was merged into another S&L and then evolved into a savings bank. I asked what the difference is between the two, and was told, "There is no difference: Both are insured with FSLIC the Federal Savings and Loan Insurance Corp. ." I'd like your opinion.
A: You can relax -- there really is no difference. The bank told you correctly -- money at both is insured by the FSLIC for up to $100,000 per depositor.
Some S&Ls are adopting the "savings bank" name in an attempt to indicate the wider range of financial services they may offer since deregulation of the banking industry.
Their primary mission remains unchanged: to lend money for home purchases or improvements. Although many S&Ls offer other personal loans in addition to mortgages, as a rule they do not provide business or commercial loans. But the lines of demarcation have become blurred, and S&Ls now offer such things as discount brokerage services and personal financial counseling.
In terms of insured safety, however, there really is no distinction between commercial banks, savings and loans, savings banks or credit unions as long as the institution is covered by one of the forms of federal deposit insurance.
Q: With regard to itemizing deductions on the Form 1040 of a dependent child, you said last year that "children are unlikely to have any itemized deductions." If any state income tax due on the child's income is paid with the child's funds, must it not be deducted on the child's return? If the parents pay it for the child, may it be deducted on the parents' return? Also, is the child entitled to the sales tax deduction?
A: Sure. Any deductions to which the child is entitled should be taken on Schedule A of the child's return. (A child with only unearned income -- such as interest and dividends -- who is claimed as a dependent on the parents' return must file a 1040 and may not use the zero bracket amount.)
That includes any state or local income taxes paid by the child, allowable sales tax, contributions made by the child from his or her own funds, etc. But if the parents use their own assets to pay state income tax due on the child's income, the deduction may not be taken on either return.
In order to claim a deduction for state or local income tax, the payment must meet two qualifications: It must be imposed on the taxpayer and it must be paid by the taxpayer. The parent can't claim the deduction if the tax was imposed on the child; and the child can't claim it either if it was paid by the parent.
Q: Our divorce decree provided that my former wife could remain in the house we jointly own for seven years, at which time the house is to be sold and the proceeds divided equally between us. Now that the time of sale is approaching, a critical question for me is whether my half of the profit can be rolled over to a new house I plan on buying or if it will be considered taxable capital gain. Or could the profit be nontaxable under the over-55 one-time exclusion? Although I have not owned another house during this time, obviously our jointly owned house has not been my primary residence since the divorce; but under the terms of the agreement, I was not permitted to sell the house before this. What are my options?
A: Unfortunately, you really don't have any options. You may not defer tax on the gain by rolling it over into a new home, and you may not use the over-55 exclusion either. In both cases, the tax deferral or the tax exclusion is only available on sale of your principal residence.
Although sale of the house was not permitted by decree, there is no provision for waiving the principal residence rule. The only action I can think of is for you to move back into the house with your former wife for long enough to qualify -- three years for the over-55 exclusion, for example. (Why do I have the feeling that neither you nor she would consider this acceptable?)
Abramson is a family financial counselor and tax adviser. Questions of general interest on tax matters, insurance, investments, estate planning and other aspects of family finances will be answered in this column. Advice cannot be given on an individual basis. Address all questions to E. M. Abramson, The Washington Post, Business News, 1150 15th St. NW, Washington, D.C. 20071.