Answers to your Tax Season questions

I purchased an old, rundown vacant home in 2000.  I fixed it up (it was 120 years old) and sold it for a profit. I'm liable for capital gains tax I guess, however which form do I need to figure out my tax??? J.V. via e-mail.

If this house project is a one-time-only situation and not something you do on a regular basis, you should report your sale on Schedule D, Capital Gains and Losses. The cost of the house that you report on this form will be increased by the cost of improvements you added, and the total will be deducted from the sales price (less any commissions and other selling expenses) to determine your gain.  

You will only benefit from the lower capital gain tax if you owned the home for more than a year. If that is the case, you will compute the tax on the gain right on the Schedule D. Otherwise, all of the profit is taxed at your normal rate of income tax.  

If you are in the business of fixing up older homes, and this is an ongoing activity for you, there are different rules that apply to you as a business owner. If that is the case, I recommend you speak with a tax professional who can help you maximize your tax savings.  

I filed my 1040 electronically this year (2000) and received a refund that was $900 more than I expected. I used TurboTax to calculate my tax. Did TurboTax make the error or the IRS? Should I assume the IRS is correct? B.V. via-email.

What a nice surprise, to receive an unexpected check in the mail from the IRS! Chances are good that the IRS made a correction on your return and the resulting refund is yours to keep.  

However, you should keep an eye on your mailbox for the next couple of weeks.  

Whenever the IRS makes a change to a tax return they send a notice describing the change that was made. You will see the reason for the change in this notice. If you have any questions about the change, there will be a telephone number on the notice that you can call and you will be able to find out more information.  

If you disagree with the change and feel the IRS sent you the money in error, the proper procedure is not to cash the check, but to write VOID on the back of the check and return the check to the IRS with the notice and your explanation of why the check was issued in error. Include any copies of forms or schedules from your tax return that might add support to your explanation. If a smaller refund is due to you, a new check will be written.  

If you have already cashed the check, and you find that you were not entitled to the money, you can write a check of your own and send it back to the IRS along with a copy of the letter and your explanation. You will not be charged any interest on this payment if it is done in a timely fashion.  

I had a Medical Savings Account this year, however my employer did not contribute. I contributed to the account as a pre-tax deduction. Is this an MSA that I can get a tax credit for? C.H. via e-mail.  

Although your contributions don't qualify for a tax credit, which is a direct reduction of your income tax, contributions to certain Medical Savings Accounts qualify for a deduction on line 25 of page one of your tax return. To qualify as a deductible MSA, your employer must have an average of 50 or fewer employees. Also, the account must be a high-deductible account and you must have no other health coverage (however certain health plans for specific coverage, such as disability, dental, or eye care plans do not disqualify you from owning a deductible MSA).  

To qualify as a high-deductible account for the year 2000, the annual deductible of your MSA health plan must be between $1,550 and $2,350 for single coverage or between $3,100 and $4,650 for family coverage.  

If you are uncertain, your employer should be able to tell you if your MSA account qualifies as a deductible account.  

If you qualify for a deductible MSA, you may deduct contributions to the MSA up to 75% of your annual deductible, prorated for the number of months in which you participated in the plan. Also, you may not deduct more than you earned during the year.