A: [Update on 11/06/09 - The Worker, Homeownership And Business Assistance Act Of 2009 was sigened into law by the President today. The new law extends and expands the first-time homebuyer credit. More to come on this new law in the coming days. Visit www.irs.gov for the latest information.]

Hello Chuck,

The bill you are referring to is not law as of this writing. The IRS usually does not comment about proposed or pending legislation.

Once a bill becomes law, it needs to be reviewed and analyzed before the IRS can provide accurate guidance. In my 32 years of experience at the IRS, the Agency has never done a better job responding to new legislation as it has in the past year. For example, the IRS provided significant guidance to implement the Making Work Pay Credit within a few days after passage of the American Recovery & Reinvestment Act of 2009. This allowed employers to quickly increase the take-home pay of millions of American workers as the law intended.

When new tax law is enacted, the best and fastest guidance the public can get is from the IRS web site at www.IRS.gov.

I applaud your eagerness to learn about new laws that may affect you. It is a character of being an informed citizen that we should all strive for, in my humble opinion.

A: Hi Ed,

The American Recovery and Reinvestment Act generally allows the deduction for state and local sales and excise taxes paid to taxpayers who buy most brand new cars, light trucks, motor homes and motorcycles through Dec. 31, 2009. Consumers buying in states that don't have a sales tax still may be able to deduct other taxes or fees paid.

The key in your case is the date of purchase. A purchase of a new motor vehicle occurs on the date you pay FOR, and pay sales taxes ON, the vehicle. The vehicle's purchase and the sales taxes can either be paid in cash or through financing. If this were to occur on or before Dec. 31, 2009, you may be eligible to deduct the sales taxes. However, if you were to merely order, or enter into a contract to purchase, a vehicle on or before Dec. 31 without actually paying the purchase price and sales taxes, you would not be eligible to deduct the sales taxes.

A major provision of this law is that the deduction is available whether or not a taxpayer itemizes deductions on Schedule A. That's a lot of folks, since about two-thirds of all taxpayers do not itemize and instead claim a standard deduction. This deduction will be claimed on 2009 tax returns as an additional standard deduction for those who don't itemize when filing next year.

The deduction can be claimed on the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with incomes between $250,000 and $260,000, and other taxpayers with incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

With this new incentive, potential buyers may find that it is a good time to buy. For more on this and the many new tax breaks that are part of the Recovery Act visit the IRS Web site at www.irs.gov/recovery.

Enjoy your new car and the new deduction if you buy before the end-of-year deadline.

A: Hi Jean,

I believe the ruling you received is correct, and here is why:

The general rule is: when a person retires on disability they must include their taxable disability retirement income as wages, not pension income, until they reach minimum retirement age. However, when some workers are injured on the job, the disability retirement payments they receive are in the nature of, and in lieu of, workmen's compensation, and such payments are not taxable under section 104(a)(1) of the Internal Revenue Code.

Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act, OR a statute in the nature of a workers' compensation act.

For example, Revenue Ruling 68-10 permits some payments made because of an occupational injury or illness arising out of, and in the course of, the employee's duties to be nontaxable because the payments are in the nature of and in lieu of workmen's compensation. These payments are made by a California county to an employee under section 4850 and pursuant to section 4853 of the California Labor Code.

The exemption from tax however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity.

A: Hi Bart,

The personal representative of your estate would usually be responsible for taking care of federal tax liabilities from your estate after your passing. The personal representative is an executor, administrator, or anyone who is in charge of the decedent's property.

Different factors can affect federal tax liability. For example, a federal tax lien on property owned by both spouses would be affected by how the property is held. Generally, if a husband and wife took title to property as joint tenancy, and the obligation is the husband's alone, then the lien would attach only to his half of the property and not the wife's half. If they took title to the property as community property, then the lien would attach to the entirety.

I suggest you talk to an estate tax attorney for specific advice about this tax-planning issue.

Here's hoping you live long and prosper so you can see the back-taxes paid.

A: Hello Louise,

The issue of spousal liability for federal income tax can be complex. Liability can be affected by the state you live in - for example California is a community property state - and other factors.

The law makes both spouses responsible for the entire tax liability when they file a joint income tax return. This is called joint and several liability, and it applies to the tax liability on the return, and also generally to any additional tax liability due to unreported income by a spouse.

In some cases, under the Innocent Spouse relief rules, one spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of relief are available to married couples who filed joint returns:

-- Innocent spouse relief for additional tax you owe because your spouse failed to report income, reported income improperly or claimed improper deductions or credits.

-- Separation of liability relief provides for the allocation of the additional tax owed because an item was not reported properly on a joint return.

-- Equitable relief applies when a spouse does not qualify for innocent spouse relief or relief by separation of liability. To qualify for equitable relief you must establish, under all the facts and circumstances that it would be unfair to hold you liable for the tax on your joint return, and you must meet other requirements.

Married persons who did not file joint returns, but who live in community property states like California may also qualify for relief. You must request relief no later than 2 years after the date the IRS first attempted to collect the tax from you, regardless of the type of relief you are seeking.

I can't address the bankruptcy's affect on credit, since that is not a tax issue. The best advice I can give is for you to ask a bankruptcy attorney who can also give you advice about your individual tax liability.

Visit www.IRS.gov and check IRS Publication 971, "Innocent Spouse Relief" and Form 8857, "Request for Innocent Spouse Relief," for more information about the Innocent Spouse rules. You can also order the publication and form by mail at 1-800-TAX-FORM (1-800-829-3676).

Good luck to you.

A: Hello Doug,

First, you should immediately contact the Taxpayer Advocate Service (TAS) to let the IRS know of your Mother's condition and circumstances. My guess is the IRS is unaware of the situation, since it is extremely unlikely that such a seizure would occur if all the information was known to the IRS. TAS may be able to stop further enforcement until the matter is resolved.

It is always a good idea to legally use all the tax laws that can benefit you. Innocent spouse relief is one avenue that may help, and another that may apply is an Offer in Compromise. You can find more information about the Collection Appeals Program in IRS Publication 594, "The IRS Collection Process," and Publication 1660, "Collection Appeal Rights."

You might also consider getting help from a tax professional like an Enrolled Agent or CPA. If your Mother cannot afford professional tax assistance, she may qualify for help from Low Income Taxpayer Clinics (LITCs) or other organizations that provide free assistance in tax disputes. LITCs represent low income taxpayers before the Internal Revenue Service in audit, appeals, and collection issues, for free or for a nominal charge.

Contact TAS at 1-877-777-4778, or visit www.IRS.gov to find the local TAS office or for more information about the LITC program in your Mother's area. You can also download IRS Publication 971, "Innocent Spouse Relief" and the other publications I mentioned, or you can order them by mail at 1-800-TAX-FORM (1-800-829-3676).

Good luck resolving this and helping your Mom.

A: Hello Doreen,

I would need to be a tax wizard to say you could definitely claim head of household (HOH) filing status for 2010, and I am not. The best I can do is point you in the right direction.

If you are still unmarried and your grandchild remains a "qualified person" for HOH status in 2010, you may qualify. Usually the qualifying person has to be a qualifying child or qualifying relative who lived in your home for more than half the year (except for temporary absences such as school).

The general age requirement for a qualifying child is under 19 at the end of the year, or a full-time student under age 24 (or any age if the child is permanently and totally disabled). A full-time student for these rules means enrolled full-time during some part of five months of the year.

For more information, see IRS Publication 501, "Exemptions, Standard Deduction, and Filing Information" at IRS.gov or order it by mail at 1-800-TAX-FORM (1-800-829-1040).

I hope this helps.

A: Hi Andre,

Your employer's withholding tables do account for increases and decreases in your salary. Usually, if you are claiming the proper marital status and the proper amount of withholding allowances on your Form W-4 filed with your employer, you should end up ok at the end of the year.

In 2009 and 2010, the Making Work Pay Credit, a provision of the American Recovery and Reinvestment Act, will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

Most wage earners started to benefit in April with a larger paycheck resulting from changes to the federal income tax withholding tables to implement the Making Work Pay Credit. Some people may find that the changes built into the withholding tables result in less tax being withheld than they prefer.

For example, if you are not eligible for the Making Work Pay Credit, the withholding changes could mean a smaller refund next spring. In some limited cases, including people who normally get a small refund, taxpayers could owe a small amount of tax rather than receive a refund. Taxpayers who should check their withholding include:

-- Married couples who both have jobs
-- Individuals with multiple jobs
-- Dependents
-- Some Social Security recipients who work
-- Pensioners
-- Workers without valid Social Security numbers

If you think your current withholding might not be right, check out the IRS withholding calculator on the IRS.gov Web site. Publication 919, "How Do I Adjust My Tax Withholding?" provides additional guidance for tax withholding including a special Making Work Pay worksheet. If you need to make any adjustments file a revised Form W-4, "Employee's Withholding Allowance Certificate," with your employer.

All forms and publications are available on-line at www.IRS.gov or can be ordered by mail at 1-800-TAX FORM (1-800-829-3676).

Best wishes.

A: Jay,

You should never try to change the substance of a transaction from what it is to what you wish it to be. If the property has been a long-term rental as you say, you can't re-characterize it on your tax returns now. You should realize that attempting the change might get you into hot water (some would say boiling, now that you know not to do it) and in any event, likely would not decrease the gain you wish to avoid on the sale. This is because the basis of rental or income property is decreased by the depreciation "allowed or allowable," whether you claim it or not.

If you sell the property at a bargain or discount for less than the fair market value, the discounted amount would be treated as a gift. In 2009 a taxpayer and spouse can each give up to $13,000 to another person during the year and not have to file a U.S. Gift Tax return. The recipient does not have to pay tax on the gift.

There are usually options, such as selling property under an installment sale, to spread out the gain over more than one year. But you should talk to a professional such as an attorney familiar with estate and gift taxes and who is qualified to give financial planning advice. Taxes are but one aspect of your question, and one should not base major financial transactions solely on tax considerations.

Good luck on whatever you decide.

A: Hi Dan,

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you dispose of property at a gain in an installment sale, you report part of your gain on the tax returns for each year that you receive an installment payment.

The future yearly amount of gain under the installment sale would be taxed under whatever laws are in effect for that future tax year, which would not necessarily be the laws or tax rates that were in effect in the year of sale.

Under current law, net long-term capital gain is generally taxed at a maximum tax rate of 15 percent, and some or all net capital gain may not be taxed at all if the gain would otherwise be taxed at the 10 or 15 percent rate. There are exceptions to the 15 percent maximum rate, such as net capital gain from selling collectibles (like coins or art), which is taxed at a maximum 28 percent rate.

After 2010 the law returns the general maximum net capital gain tax rates to 20 and 10 percent respectively. These rates were in effect prior to May 6, 2003.

For more information see IRS Publication 537, "Installment Sales," Publication 550, "Investment Income and Expenses," and Publication 544, "Sales and Other Dispositions of Assets." All are available at www.IRS.gov or call 1-800-TAX-FORM (1-800-829-3676) to order them by mail.