What will be the best way to deal with several changes happened within this tax year? Online or CD ? Is there available help to walk me through all steps beside the tips?

[Anonymous]

This tax year has been with a lot of changes  for my spouse and I. New Home, two cars, Pensions plan, IRA and Life Insurance withdrawal, two new jobs, mortgage, PTO from old 2015 job paid in 2016, moving, pregnancy, child delivery, medical, notice CP2000 from 2014 tax, business expenses, job expenses, 3 different locations lived in (all used in part for business) ... I mean just a lot of staffs that gives me a headache to figure out. I want to do my tax this year, and I'm looking for volunteer to help answering questions which can sometimes be challenging for me... to help me walk through

Thanks Opus 17

[Opus 17 · Accepted solution]

The difference between CD and online function is that online hides the internal forms and worksheets, which can make troubleshooting difficult.  But, online has cloud backup.  And if you call customer support, online can see your file as you work on it and can show you what to do.  The CD program gives you more control over your data and you can make manual adjustments if needed.  But there is no backup, you are responsible for your own backups if something happens to your computer.  There are two procedures for customer support to look at your file when you are using the desktop version, but it is a bit more complicated, and one of the methods may not work with Mac.

Price-wise, online and CD are similar if you are only filing one return, the CD program is probably cheaper if you buy from a third party retailer like Amazon, Staples or Costco.  Amazon and Staples also sell digital downloads if your computer doesn't have a CD player.  The desktop version is definitely cheaper if you need to do more than one return.  If you filed last year using the online version, there is a way to download your 2015 file to your computer to get a head start by pre-loading last year's info.

Turbotax Deluxe on CD or download will have all the forms you need for your situations.  Turbotax Premier on CD or download includes a higher level of telephone support ("answers from CPAs, a $19.99 value").  

Of course this forum is always free, although not every question gets answered due to volume (5000 questions per day).  Be patient, and if no one answers your question after 24 hours, ask it again so it goes to the front of the line.

Otherwise, take your time and go through all the steps one at a time, and don't be afraid to ask for help.

[Anonymous]

Thanks Opus. I appreciate it. The first question that comes, is , the life insurance income taxable? In fact, my wife had her mother opening a life insurance on her. After few years she closed it, so she could use the money for home purchase. I called in and asked few question to the representative and they've said that money she received after closing the life insurance policy is not taxable. I still have few doubts on it, and wanted to make sure what she's said is accurate to avoid IRS issues later on... what do you think? (the money received was less than $555)

[Anonymous]

the second question will be for the CP2000 tax 2014 notice received. I was told by an IRS agent, that since it as not a bill, they would deduct it on the time of tax filling for 2016. So how do I integrate this amount or whatever in the tax filling?

[Anonymous]

the third question is, I received a 1098 from the lender. But, I did not see the properties taxes on it. So where and how do I find it, and what are the usual deductions known practices I could use for our new home purchase in 2016 ?

[Opus 17]

Life insurance -- trust the company.  Some types of life insurance may be treated as investments in which the growth is taxable.  The company would be mailing you a 1099-R or 1099-B form.  If they say its not taxable, it's not.

CP2000 -- if you agree completely with the results of the CP2000, then you can let the IRS take the money from your refund.  You don't add it to your 2016 tax return, just expect that your stated refund will be reduced by the amount of the notice.  However, the tax owed on the CP2000 is not necessarily correct.  The IRS knows about income that you did not report but they don't know about offsetting credits you might have.  You may want to prepare an amended return for 2014 just to see if you agree with the IRS.  If you agree you can let them take part of your refund.  But if you disagree, you would mail them an amended tax return and a letter of explanation along with a check for what you believe to be the correct amount of tax owed.

[Anonymous]

Thanks on this note

[Opus 17]

Most closing costs are not deductible.  Instead, they are added to the cost of the house and may reduce your capital gains when you sell.  These closing costs are deductible in the year you closed (2016):

1. Daily mortgage interest from the day you closed to the end of the month.  Shown on your closing document, it may not be included in your 1098. 

2. Property taxes.  Generally, the seller has prepaid a year's worth of property taxes and you will give a credit to the seller for the amount of tax that is allocated to the days you will own the home.  That property tax credit is deductible as if you paid it directly to the city or county.  This will also not be on your 1098.  Your 1098 will only show any taxes paid in 2016 from your escrow directly to the taxing authority.  If you have these taxes you can include them along with the tax adjustment mentioned above.

3. Mortgage insurance premiums.  If you paid a lump sum premium for mortgage insurance from the VA or the Rural Housing Authority (called a funding fee) that is deductible in the year you close.  Other lump sum mortgage insurance premiums must be spread out over 84 months (7 years) and deducted when you make your monthly mortgage payment.  So if you made 4 payments in 2016 you would deduct 4/84th this year.  Mortgage insurance paid at closing is supposed to be allocated over 84 months and included on the 1098, but not all banks are doing this.  If you can tell that your lump sum PMI is not being allocated, you can add the allocation yourself in turbotax.  You will have to keep track of the rest of the deduction yourself, turbotax doesn't track it for you.  The Mortgage insurance deduction also has an income limit so not every one will qualify. 

4. Mortgage "points." Origination fees or points are considered a form of mortgage interest and must be deducted over the life of the loan, unless you meet certain tests.  If you paid points, turbotax will ask you questions to see if you can deduct them all at once (in the year you closed) or if you have to spread them out.  Origination fees are considered points if they are a percentage of the loan amount (not a flat fee) and if they are not assigned to any specific services like document processing, attorney fee, or other specific costs.

[Anonymous]

hmm I see. So in this case scenario how to use my final closing disclosure to file my tax?

[Anonymous]

Hello Opus 17.

I wondered if you could help me out with this : (my response forwarded)

Hello Carl, thank you for explanation. Most of what you've said I got them, because already knew them.
What I'm looking for is a kind of breaking down with specific line from the closing statement. For example, I read this article that says: "The buyer of a principal residence may deduct interest, loan origination fees (typically referred to as “points,” also note that the IRS allows the buyer to deduct these even if they came out of the seller’s funds) and real estate taxes. The buyer can also increase their basis in the property for amounts paid to attorneys in connection with obtaining the property, commissions, title fees, survey fees, recording of deed fees, pre-sale real estate taxes, back interest owed by the seller and paid by the buyer, transfer taxes, tax service fees, title policy fees, title insurance and utility service installation." ... When I looked on the IRS site, they say :"Items added to basis.   You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
  The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions."...

So to wrap it up, when  I look on my closing statement which looks like this – <a rel="nofollow" target="_blank" href="http://files.consumerfinance.gov/f/201207_cfpb_sample-closing-disclosure_no-seller.pdf">http://files...> – I see things under Loan Costs such as (lines where fees are marked paid by borrower and I suspect being deductible but not 100% sure and needed confirmation)

> Origination Charge
A. 02 - Origination Fee

> Services Borrower Did Not Shop For
B. 01 Appraisal Fee
B. 02 Credit Report/AUS
B. 03 Flood Det.
B. 04 Flood Life of Loan Coverage.
B. 05 Mortgage Insurance Paid in Cash (Already reported in 1098)
B. 06 Tax Certification Fee
B. 07 Upfront Mortgage Insurance Premium (Already reported in 1098)

> Services Borrower Did Shop For
C. 01 Title-Abstract or Title Search
C. 02 Title-Deed Prep. fee
C. 03 Title-Express Mail/Courrier Fee
C. 04 Title-Lenders Title Policy
C. 05 Title-Settlement or Closing Fee
C. 06 Title-Title Examination Fee
C. 07 Title-Title Insurance Binder

> Other Costs - Taxes and Other Gov. Fees
E. 01 Recording Fees
-Deed:
-Mortgage:
E. 02 Transfer Taxes to W. Clerck of the C.

> Prepaids
F. 03 Prepaid Interest (Already reported in 1098)

> Initial Escrow Payment at Closing
G. 03 Property Taxes

> Other
H. 04 One time supplemental Tax to W. C Clerk