Checking Into FHA Insurance Refunds

QUESTION: I recently saw a man on television talking about getting a refund on FHA mortgage insurance. Maybe I am eligible for one. Could you please supply me with any information about this and the address I need?--K. T.

ANSWER: You’re right; you could be eligible for a partial refund on the mortgage insurance you were required to purchase when you got your FHA mortgage. The key is whether you still have that mortgage loan. If you either sold your home or paid off the loan entirely, you are potentially eligible. The details are quite involved, and only the FHA knows for sure whether you are owed money. So contact the FHA for a precise answer on your case.

The address is: Distributive Shares Branch, Department of Housing and Urban Development, 451 7th St. SW, Washington, D.C. 20410. Be sure to include your FHA mortgage loan case number in your correspondence for a prompt and personal response.

For more general information, you may also write to the above address and request FHA documents titled: “Homeowner’s Fact Sheet: One-Time Mortgage Insurance Premium Refunds and Distributive Shares” and “Homeowner’s Fact Sheet: Mortgage Insurance Premium Refunds and Distributive Shares.”

Q: I will be reaching the age of 70 1/2 in 1988 and understand that I must withdraw some minimum amount from an individual retirement account. I have asked the local banks, stockbrokers and the IRS via its “800” phone number, but no one can tell me how you figure this minimum amount that must be withdrawn and acknowledged as income for 1988.

Assuming a total IRA accumulation of $25,000, what is the formula or ratio to arrive at the minimum withdrawal for 1988 and, possibly, for subsequent years? --E. F. D.

A: Ask no more. The Internal Revenue Service office in Los Angeles has responded. According to spokesman Robert Giannangeli, the minimum withdrawal amount is determined by dividing the life expectancy of the IRA account holder into the account balance at the end of the calendar year before the holder turns 70 1/2. (If there is a separate beneficiary for the account, the minimum withdrawal amount is determined by a formula based on the life expectancy of both the account holder and beneficiary. The formula is explained in IRS publication No. 590.)

In the above case, let’s assume that E. F. D., who turns 70 1/2 this year, does not have a beneficiary and that his IRA contained a total of $25,000 on Dec. 31, 1987. According to IRS life-expectancy tables, E. F. D. has 16 years in which to withdraw his money and therefore must make a minimum withdrawal of 1/16th of the IRA total, or $1,562.50. Also, be aware that IRS rules give you until April 1 following the year you turn 70 1/2 to make the withdrawal.

For more information, ask for IRS publication No. 590, titled: “Individual Retirement Arrangements.” The IRS toll-free number is (800) 424-3676.

Q: Over the last eight years, I have put about $7,000 into certificates of deposit and zero-coupon Treasury bonds for my 9-year-old granddaughter. With the good yields of the last several years, this nest egg has grown to the point that her reported income for 1987 will be more than $1,000.

As a result of the new tax law, my granddaughter will have to pay taxes at her father’s rate on the amount over $1,000. My question is: Since her father still furnishes her total support, can he still claim her as a dependent on his return?--H. D.

A: Yes, her father may still claim his daughter as a dependent even though she is paying her own income tax because he is, in fact, providing her support.

The Tax Reform Act allows children under 14 to receive up to $500 of tax-free unearned income--that is, income from interest and dividends. The amount between $500 and $1,000 is taxed at the child’s rate of 11%, while the remainder is taxed at the highest rate paid by the parents.

Q: To get our son started on his own, my wife and I jointly bought a townhouse with him. He is 50% owner and so are we. He lives in his half and we rent our half out. My question is: Should we claim this as a rental or a second home on our tax returns? The property was purchased in 1987, and all expenses are shared 50-50.--A. K.

A: If you rented out your half of the townhouse for more than 14 days last year, the IRS says you must treat the property as income real estate and report the rent as rental income. At the same time, however, you may treat any expenses from the property as the cost of owning and renting it. The IRS refers you to Schedule E in the standard tax booklet. You should complete this and file it with your tax return.