Money Management Q&As

December 3, 2004

Treasuries; business expenses

Does the FDIC insure Treasuries?Q If I have my bank buy and hold Treasury bills for me, will FDIC cover them?

A No. The FDIC insures bank deposits, not securities issued by the federal government. But if the securities are in your name and the bank simply acts as custodian, you needn't worry. Normally banks purchase them via book entry, meaning that the Treasury Department maintains an electronic record rather than issuing actual certificates. If the bank should fail, you can redeem the certificates at the nearest Federal Reserve Bank by presenting the confirmation of purchase or "safekeeping receipt" that the bank gave you. If you don't have either of those, you can ask the FDIC or the successor bank, if there is one, for a document showing proof of ownership. Or else, you can wait for the security to reach its maturity date and receive a check.

When you sell a home for health reasonsQ After a car accident severely crippled my widowed mother, my wife and I sold the home we'd lived in for 18 months and moved into her house to care for her. Can we claim a tax exemption for some of our $80,000 profit on the sale?

The right way to forgive a debtQ I hold a $60,000 interest-only mortgage on my son's home. He gets a tax deduction for his payments, but I have to pay tax on them as income in my higher bracket. What would our tax situation be if I tear up the mortgage?

A A debtor generally has to include a forgiven debt in his taxable income, but not when the cancellation is intended as a gift. However, the $60,000 would count against your lifetime gift tax exemption. You can avoid that if you take advantage of the annual gift tax exclusion, which is currently $11,000, by spreading the cancellation over several years. If your spouse joins you in making the gift, you can forgive $22,000 in 2004 without triggering gift tax.

Better still, if your son is married and his wife is also listed on the mortgage, you and your spouse can make the same gift to her, bringing the total forgiven in 2004 to $44,000. You could then forgive the balance next year.

Skip reimbursement at your own riskQ My employer has a policy of partial reimbursement for employee business expenses, and I could deduct the balance on my personal return. Would I be more likely to avoid trouble on an audit if I waived reimbursement and claimed the full amount as a personal deduction?

A On the contrary, you'd be risking disallowance of some of your deduction that way. The Tax Court has ruled on several occasions that out-of-pocket expenses an employer would have paid aren't deductible if an employee failed to ask for reimbursement, even if the expenses were for a valid business purpose.