European Stars And Stripes (Newspaper) - March 6, 1989, Darmstadt, Hesse                                Tax time for kids of dependents or first time filers by the associated press tax overhaul is making taxpayers or at least first Tima return filers of Many younger americans. The 1986 Law while towering Rajas and raising exemptions bars a child irom taking any exemption if he or she can be claimed As a dependent by a Parent or someone else. In Many cases it reduces the Standard. Deduction Lor dependents and it requires any dependent with interest. Dividends or other unearned Rooma totalling v As Little As $50110 file a return. Each personal exemption Means a $1,950 reduction in 1988 income subject to taxation for most taxpayers.  a saving of $292,50 in taxes for those in the 28 percent lax bracket it is a saving o up to $546. Five tests must be met for you to claim a person As your dependent the dependent Musl be a resident or citizen of the United slates or a resident of Canada or Mexico. He or she must nol have tiled a join Velum with a spouse. The dependent must to your child grandchild Parent grandparent brother sister Nephew Niece Uncle aunt son or daughter in Law a renin la brother or. Sislene Law or any person who is a member of your. Household and lived with you throughout the your. The dependent s Gross income Tor 1988 must have been less than$11350. This does not apply to your dependent child who either was under 19 Al the end of the year or was a full time student. You Musl have furnished More than hah the dependent s support during the year. There Are except Lions if you Are divorced support includes food lodging clothing education medical care transportation Loys and pocket Money among other things. Wall those conditions Are Mot you May take an exemption lot a dependent. But hat dependent cannot Lake an exemption on his of her personal tax return even  Don t actually claim it. So How Are your family s taxes affected if your 17-year old daughter had a part Elmo Job and a Small savings account last year she earned $2,500 in the Job and $200 interest. You. The Parent Are allowed to claim her As a dependent. For that reason and because her Gross income exceeds $500, she must file a return As Well. Her Standard deduction is Hor total earned income or $3,000 the usual Standard deduction Lor a single person whichever is smaller. Since her earned income wages tips fees and the like was $2,500, that also is her Standard deduction she should Lite the simplest form 1040ez, Only $200 of her income would be Larabie and her tax liability from the. Tax Able on pags37 to the inside Lions would be$32, in the unlikely event that your daughter had itemized deductions exceeding $2,500, it would be to her advantage. To itemize rather than Lake the Standard deduction. She then would have to Lite form 1040 and schedule a rather thanks Fez. If she had no unearned income such As interest and. Dividends she would not have to tile a return uni ass her earned income exceeded $3,000. But she should file to get a refund of any income tax that was withheld from he earnings. .-.-. In any Case the Standard deduction Tor a person who can be claimed As a dependent of another May nol exceed $500 or the dependent s earned income up to $3,000 whichever is greater. The real complications occur when your child is under 14 and has unearned income of More Man $1,000, in that Case some of the child s income will be taxed Al your presumably higher maximum tax rate you should read Iho instructions for form 6615, which May have to be attached to your child s return. This new provision is aimed at deterring the avoidance of tax by a Parent s shifting of income producing property to a child. Remember that you must list on your lax Velum the social Security number of any child age 5 or Olife Rstom you claim As a dependent new rules for deducting interest by the associated press for the second time in two years Congress has changed the rules or deducting interest on a Home mortgage most taxpayers Mil find the new version More advantageous but they also win be Able to deduct less. Consumer interest. In general you May deduct interest on up to $1 million borrowed to buy build or improve your principal Home and second Home and of a additional $100,000 for a Home equity loan whose proceeds May be used for any purpose but some conditions and definitions make the rules considerably More Complex 7- under the 1986 lax overhaul Only 40 percent of interest paid in 1986 on credit cards Auto Loans education Loans and similar consumer borrowing May be deducted. That is Down Rorri 65 percent  1987. There Are similar re sirants on investment interest with an added attraction if your 1988 investment income was too Low to allow you to deduct All your investment interest you May be Able to carry it Over and write it off in a future year. Yaj. J. A a but Back to mortgages ,. Ii your outstanding mortgages were taken out before oct. 14, -1 987. All the interest on one or two Homes is deductible and the $1 million limitation does not apply. Qualifying Loans include Money borrowed to buy or improve a Home As Well As Home equity Loans which usually Are incurred after a person has lived in a Home. Ii you borrowed to buy build. Improve or refinance o Home Aller ocl. 13, 1987i. The Law draws a distinction Between acquisition debt and Home equity debt. Acquisition debt this is Money borrowed to buy build or substantially improve a first or second Home interest on up to is million May be deducted but that total is reduced by the amount of any outstanding Mart Gage that was taken but before oct. 14, 1987. Vou must be Able to prove that a loan was actually used or such purpose the internal Revenue service will accept As proof evidence of acquisition costs incurred we than 90 Days before or  a loan was closed. Home equity debt interest of up to $1 00,000 of debt is fully deductible even though the proceeds of the loan Are used for non housing purposes the loan must be secured by a mortgage on your Home. There is one catch you May not deduct interest on Money borrowed to make investments such As municipal Bonds whose interest is tax exempt the maximum deductible equity loan is the value of your Home Vnus any outstanding acquisition debt or $100,000, whichever is smaller for purposes of a tax deduction your principal Home May be a cooperative unit condominium Houseboat or trailer. The second Home is a vacation Home or other place Hal you May or May nol rant out part of the time if it is rented out you must use it at least 14 Days a year or 10 percent of the number of Days it is rented 11 your mortgage interest payments for 1988 totalled $600 or More the company or person holding the mortgage is required to Send you a form 1038 by Jan. 31 showing How much interest you paid. The Lender also sends a copy to the irs. Mortgage Points May be deducted if they Are normally charged in your area As a Cost of gelling a loan and if they Are viewed As interest not As service charges. They May be fully deductible in the year paid Only on Roans to buy or improve your principal Home otherwise they must be written off gradually Over the life of the loan however the tax Cour recently upheld hairs position that Points paid to refinance a mortgage Are not deductible. To be deductible Points should be paid by separate Check and not simply withheld from the proceeds of the loan. If your income and deductions Are High enough you May be subject to the alternative minimum lax a Flat 21 percent Levy which could a Lule the value of your mortgage deduction. Form �251 and its instructions Lei you know if you Are subject to Tho minimum lax. Publication 545 spelts out the rules for interest deductions. Publication 936 gives the specifics on the mortgage interest deduction. Is tax facts table of comparisons individual tax rats personal exemptions moving of Kente co Naumor interest charitable contributions capital gains medical expenses miscellaneous tix Pena unearned income of children h years o age and under 1986 15 Tan brackets ranging irom 11% to 50% $1 ,080 extra exemption if Over 65 or Blind fully deductible fully deductible deductible to Bolh item Teers and non item leers 60% exclusion applies deductible above a of adjusted Gross income fully deductible income taxed at Chud s tax rate 1987 5 tax brackets ranging from 11% to 38.5% $1,900. Can be taken Only As an " itemized deduction 65%of interest charges considered deductible deductible Only for those who itemize taxed As Ordinary income deductible   adjusted Gross income generally deductible Only if these expense exceed 2% of adjusted Gross income any income Over $1 ,000 is taxed at top marginal lax rate of Chiu s parents 1988 for most taxpayers two rates apply either 15% or 28% "s1,950 unchanged 40% of interest charges. Considered deductible unchanged unchanged unchanged unchanged unchanged source ass a tax & financial planning guide f