Watch out for this refinancing fee; How to deduct more car costs; Late plan contributions needn't affect withdrawals; Smoothing the ride on British trains
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Q: Because of my home's rising value, I can easily get a new mortgage for a larger amount than the balance on my present one. But I'm told I'll have to pay extra for the bigger loan. Is this something new?
A: No. Borrowers who cash out a portion of their higher equity when they refinance their mortgages have long paid a premium for that privilege. But early this year, Fannie Mae increased the premium it charges for certain loans. Say your home is currently worth $300,000 and you owe $150,000 on your old mortgage, a loan-to-value ratio of 50 percent. If you take out a new $225,000 mortgage instead, the ratio goes up to 75 percent, significantly increasing the chance of default, says Fannie Mae. To compensate for the greater risk, the agency (and private lenders who follow its lead) will tack on a fee of 0.5 percent of the mortgage principalin this case, $1,125. The fee jumps to 0.75 percent if the loan-to-value ratio tops 80 percent. No fee applies if the cash you get back isn't more than $2,000 or if the loan-to-value ratio is less than 70 percent.
Q: My work involves a lot of driving and my employer reimburses my car expenses at the IRS standard mileage rate, but that doesn't fully cover the costs of maintenance and repair. Can I claim the additional expense on my tax return?
A: Maybe. The IRS allowance (36 cents per business mile this year) takes all your car expenses into account, except parking and tolls. However, you're not bound by that if your employer reports the reimbursement as salary on your W-2 form. In that case, you can claim a miscellaneous deduction for the actual costs of using the car in your practice, provided you can substantiate them. Remember, though, that your miscellaneous deductions must total more than 2 percent of your adjusted gross income to give you any tax benefit.
Q: Since I'm older than 70 1/2, I take a required minimum distribution from my profit-sharing plan annually, based on the account's value the previous year. But my accountant couldn't figure my 2002 profit until this February, and I made my final contribution to my plan account then. Will this affect my required minimum distribution for 2003?
A: No. The law allows you to allocate the February 2003 contribution to 2002. (The legal deadline is the due date for filing your return, plus extensions.) But if you take advantage of that provision, you don't have to add the amount to the balance reported on the last valuation date in 2002. Use the actual 2002 value to figure how much to withdraw by Dec. 31, 2003.
Q: I'm buying a Eurailpass for travel on the Continent, but I'm told it won't cover Great Britain. Should I get a second pass or use individual tickets for train trips there?
A: The BritRail Pass, good for England, Scotland, and Wales, is likely to save you money, since individual tickets are relatively expensive. The pass will definitely pay off if you're planning a long tripbetween London and Edinburgh, say. Riding "standard" (second) class instead of first will avoid a 50 percent surcharge with little sacrifice in comfort. What's more, advance seat reservations on British lines are free if you make them in person at a train station office. Continental train systems generally charge several dollars.
Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to email@example.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.
Lawrence Farber. Money Management Q&As. Medical Economics Nov. 7, 2003;80:100.