Money Management Q&As

August 5, 2005

Retirement fund limits; SUV roadblocks; old stock certificates.

How much can go into your retirement plan?

Q: My solo corporation has a profit-sharing plan that includes a 401(k). What's the most I can contribute for myself this year?

A: If you're not yet 50 years old, you can defer up to $14,000 of your salary to a 401(k), $1,000 more than in 2004. And the maximum compensation base for your corporation's contribution to your profit-sharing account can be $210,000, a $5,000 increase over 2004 limits. However, the combined amount contributed on your behalf can't top $42,000. (The limit was $41,000 last year.)

Cable service for a rental building

Q: A cable company has offered to provide exclusive service at a low rate for an apartment building I own. The availability of inexpensive connections could help attract tenants, but I'd have to bar them from using any other cable company. Could that get me into trouble?

A: Probably not. Federal law doesn't require a landlord to give tenants their choice of cable services, nor do the statutes in most states. Under some state laws, a cable company must allow its customers access to any Internet service provider they prefer, but that doesn't prevent you from entering into an exclusive contract with the company to wire your building.

Mortgage deductions in a divorce

Q: Under our divorce agreement, my wife and I split ownership of our house. We're both still on the mortgage, but I've been making all the payments. Since I own only half the house, can I deduct only half the interest?

A: No, you can claim all of it. In a recent ruling, the IRS held that half the interest payments are alimony-deductible as an adjustment to your gross income-since they're made on behalf of your ex-spouse to satisfy her debt. You can claim the other half as an itemized deduction, because you're paying it on your share of the mortgage debt. If you also pay all the property taxes on the house, treat them the same way.

Setting up a trust for a minor

Q: My sister died recently, leaving a 15-year-old daughter, and I want to set up a trust for her. Can I make annual gifts to it without reducing my estate tax exemption?

A: Yes, if you limit the gifts to $11,000 a year ($22,000 if your spouse consents) and the trust qualifies as a "minor's trust." It must be irrevocable, your niece must be the only beneficiary, and she must have the right to take the entire trust fund at age 21, although the trust can continue for a stated period beyond that time if she waives her right after being duly notified of it. Since she's over 13, trust income distributed to her will be taxed in her bracket even if her other parent is still alive.

Tax roadblocks for new SUV buyers

Q: We've finally decided that a sport utility vehicle is the most efficient means of moving medical equipment back and forth between our main office and a satellite. A car salesman told us last year that we could disregard the annual ceiling on passenger automobile depreciation and write off the full cost if the vehicle's gross weight exceeds 6,000 pounds loaded. Is this true?