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Money Management Q&As


Mortgage point deduction; credit counselors; lemon laws

This seller expense is a buyer deduction

To help my husband and me buy our new home, the seller paid the two points our lender charged to lower our mortgage rate. Will we owe income tax on that money for 2006?

No. Instead, when you eventually sell your home you'll reduce its cost basis by the amount the seller paid on your behalf. In the meantime, you can deduct the two points the seller paid as if you paid them yourself, assuming you itemize your deductions on your 2006 return.

I've run up more credit card debt than I can handle and have considered credit counseling, but I've heard that counselors care more about collecting debts for credit issuers than helping strapped debtors. Is this true?

Some disreputable nonprofit credit counseling agencies have been known to push debt management plans that may not be geared toward the borrower or even necessary. Because they receive compensation from credit issuers, they're sometimes motivated to focus on collecting the debts owed. Other agencies charge borrowers exorbitant fees based on a percentage of the borrower's debt or tack on extra undisclosed fees.

Provisions included in the Pension Protection Act of 2006 clamp down on these and other tactics that take unfair advantage of borrowers seeking help. Debt plans now have to be personalized to address each borrower's specific needs. Fees must be disclosed up front and can't be based on the amount of debt unless state law permits it. Nonprofits also can't hit debtors up for "contributions" during counseling or turn away those who can't afford to pay for the services received. Moreover, new agencies can't collect more than 50 percent of their compensation from credit issuers. Those already in existence must whittle the percentage to that level but are given several years to do so.

If you opt for credit counseling, make sure you ask why a particular plan of action is being recommended and get full disclosure of all fees. You may also want to look for a counseling agency that's certified by the National Foundation for Credit Counseling. You can find a member in your area at http://www.debtadvice.org/takethefirststep/locator.html

Does the lemon law cover used cars?

The used car I bought last year is a real clunker. Does the lemon law apply to secondhand vehicles?

That varies by state and may also depend on whether you bought the car from a dealer or a private owner. To find out your state's laws, you can consult a variety of websites, including the Better Business Bureau ( http://www.lemonlaw.bbb.org) and the Center for Auto Safety ( http://www.autosafety.org/lemonlaws.php).

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 123 Tice Blvd., Suite 300, Woodcliff Lake, NJ 07677-7664, or send an e-mail to memoney@advanstar.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.

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