Answers to your tax questions

March 18, 2005

About special situations

Q My mother lives in Italy, and I have a noninterest-bearing checking account with her, to which I occasionally wire deposits. Do I have to report this on Schedule B where it asks about accounts in foreign countries?

A Not if the total value didn't exceed $10,000 at any time during the year. If it did, you'll have to file an information form, TD F 90-22.1 (downloadable at http://www.irs.gov/pub/irs-pdf/f9022-1.pdf). Don't attach it to your return, but mail it to the US Treasury Department at the address shown on the form. If you don't do so by June 30, 2005, you risk a sizable penalty.

Q I overpaid my state tax for 2003 and received a refund of the excess last year. In 2003, I was subject to the alternative minimum tax and wasn't allowed to claim a deduction for state taxes. Must I still include the refund amount in my 2004 income?

Q I started a new job several hundred miles from my home in November 2004, but my family won't be joining me until the school term ends this year. How do I claim our moving expenses?

A You can claim your personal travel expenses, as well as the cost of shipping your belongings, on your 2004 return, and the expenses associated with moving your family on this year's return. Remember, moving costs aren't treated as itemized deductions. Instead, you list them as adjustments to income on the first page of Form 1040.

Q We can't claim a tax credit for our son's college expenses in 2004, because our income was too high. But I've read that an education deduction of $4,000 is available for couples with joint adjusted gross income of no more than $130,000, or $2,000 for an AGI up to $160,000. Since our AGI last year was $145,000, can we claim a $3,000 deduction?

A No. The education deduction isn't phased out. It's a flat $2,000 for joint AGI in the $130,000 to $160,000 range. For lower AGI, it's $4,000; for higher, it's zero. The deduction applies to tuition and enrollment fees and certain other expenses if the school requires payment for them. Costs covered by scholarships and other tax-free assistance don't count.

Q I'm sure my estimated tax payments for 2004 add up to more than the tax due, but I'll be leaving on vacation shortly and would like to delay filing until I return and can find time to get all my records together. Would I have to pay a penalty?

A Not if you don't owe tax. But if it turns out that there's tax due because you overlooked some income, claimed deductions you weren't entitled to, or simply got the arithmetic wrong, you could be penalized 5 percent of the tax due for each month your return is late. To play it safe, you can get an automatic four-month extension if you file Form 4868 by April 15. That would avoid a penalty (but not interest) on any tax subsequently due, if the estimated tax paid was at least 90 percent of the total tax.

Q I rented a co-op apartment to my sister. Since the income from it is less than my expenses for the unit, can I claim a deduction for the difference?