Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.

Here are ten facts from the IRS about gains and losses and how they can affect your Federal income tax return.

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property held for personal use.
5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available athttp://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Original published: Issue Number:    IRS Tax Tip 2011-35

Tags: 1040, tax, tax return, taxes

According to CNNmoney.com,  Adjustable Rate Mortgages, also known as ARMS are coming back. Adjustable rate mortgages accounted for nearly 70% of all mortgages during the housing boom. ARMs disappeared after the bust,  accounting for only 3% of the market in 2009.  Now, they make up 5% of all mortgages issued.  Freddie Mac predicts an increase to 10% in December.

No doubt that a 5/1 Arm can save homeowners considerably, I still think it’s a bad idea. The sales pitch is the same.  “This is a great deal for anyone not planning to stay in their home.” “You can get a lower interest rate.” Currently, a 30 year fixed mortgage is at 5% while a 5/1 ARM is at 3.5%.  On a $200,000 house that’s a savings of over $10,000 over the 5 year term.

As a former loan officer,  I could see the value of ARM products if home buyers were planning to stay in a home for only  seven or eight years. The difference – As a Consumer Credit Expert, I always made sure my clients knew the risks.

I asked my clients the hard questions:

What would happen if you lost your job and could not move or refinance, would you be able to handle a mortgage payment that could be $500 more than  you’re paying under the ARM?

What happened if something happened to your credit and you could not refinance?

If you find yourself in front of a  loan officer pushing an ARM, ask yourself. What happens if I can’t move or refinance when the ARM comes due? Do not be lured by short term savings.

As a Consumer Credit Expert, I educate consumers on the pitfalls of credit mistakes. Credit is important, and we can help you understand it.

Call us with your credit questions 317-527-1440

You’ve seen the ads, “Get your credit score now” “Instantly get your credit score” and so on.  Buyer beware! Not all credit scores are created equal.  Fair Issac and Company set the standard for the credit scoring model that we use in the United States.  Most lenders will use the FICO score to determine your credit worthiness.

In an attempt to compete with FICO the big three credit reporting agencies, TransUnion, Equifax, and Experian have come up with their own scores. On the surface this does not sound like a bad idea.  But, here’s the rub.  Many lenders only use the true FICO score.  So, the score most consumers buy is worthless.

I have many clients come to me not understanding why when they pull their credit they have a different score than what the lender has. Typically this is because the client bought the wrong score.  True FICO scores can be purchased from myfico.com .

I urge my clients to concentrate not on their credit score, but on managing their credit. I urge them to pay their bills on time, keep revolving credit balances  low or at  zero dollars, and do not open unnecessary lines of credit.  Unless you are looking to purchase a home, auto, or need to take out additional credit,  you do not need your credit score.

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