konkrete-blog

US Watchdog Targets Discriminatory Lending

Mon, 23 Apr 2012 18:55:35 +0100

The new U.S. consumer financial watchdog said on Wednesday it will aggressively pursue discriminatory lending practices, including those that may not be intentional but wind up penalizing minorities or women.
The Consumer Financial Protection Bureau on Wednesday sent a notice to banks and other lenders emphasizing that enforcing antidiscrimination laws is a priority.

The agency has also drawn up a tip sheet to help borrowers determine if they are being discriminated against that will be posted on its website.

"Our economy is in the process of recovering from the worst financial crisis since the Great Depression," CFPB Director Richard Cordray said in remarks prepared for a speech to the National Community Reinvestment Coalition, which focuses on lending discrimination. "We cannot afford to tolerate practices that either price out or cut off segments of the population — such as women, the elderly, or communities of color — from the credit markets."

The agency emphasized that it views discrimination as going beyond practices that are obviously designed to treat minorities and women differently.

If a lending policy over time results in any group being treated differently, even if that is not the intent, the agency will crack down on the lender, Cordray said.

"It is important to recognize that this subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era," he said.

As an example Cordray offered a scenario in which lending officers have wide discretion to determine interest rates and fees for borrowers, resulting in minority groups or women being charged

The agency, which was created by the 2010 Dodd-Frank law to police lending products like credit cards and mortgages, also said it would pursue practices that result in a lower availability of loan products for minorities or women.

The agency has been heralded by supporters as an antidote to the lending abuses that occurred in the run up to the 2007-2009 financial crisis.

Banks have been wary of the new watchdog, warning that too many restrictions will constrain lending and prevent many consumers from being able to get loans for buying a home or other products.

Cordray on Wednesday again emphasized his point that the agency can help banks through its power to oversee competing lenders that had not previously been overseen by a federal regulator.

"The bureau will be supervising these entities in a tough but fair manner to single out the silent pickpocket and stop discrimination in its tracks," he said.(Richard Cordray )

A refresher for tax season on the some of the intricacies of claiming rental real estate income ...

Mon, 16 Apr 2012 19:42:10 +0100

Passive activity limits. Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them.

If there is active participation in a passive rental real estate activity, a loss of up to $25,000 of loss from the activity is allowed. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities.

Active participation is achieved by owning at least 10% of the rental property and making management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Examples of management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.

There are income limitations on this allowed loss. Once a taxpayer’s modified adjusted gross income exceeds $100,000 the $25,000 loss is phased out. When modified adjusted gross income reaches $150,000 no loss is allowed. For MFS returns this limit is cut in half except when the spouses lived together (in this case there is no special loss allowed). This $100,000 threshold is not adjusted for inflation and has remained the same since the Tax Reform Act of 1986 was passed. Modified adjusted gross income is AGI without taking into account taxable social security, the deductions allowed for (IRAs, portion of SE tax, interest paid on student loans, qualified tuition and domestic production activities), passive activity gains or losses, losses from both real estate professionals and publicly traded partnerships and a few other exceptions. This convoluted calculation is what tax software programs are for.

Rental real estate losses are allowed like other passive losses to the extent of gains from passive activities. When a rental property is sold all previously unallowed losses are allowed. Plus the excess of the gain over previously unallowed losses is used to allow any other passive losses. This can offer an incentive to taxpayers with large unallowed passive losses to sell appreciated rental property.

If someone qualifies as a rental real estate professional all rental losses are allowed provided they also materially participate in the particular activity. In order to qualify for this exception the following conditions must be met. First more than half of the personal services the taxpayer performed in all trades or businesses during the tax year were performed in real property trades or businesses in which the taxpayer materially participated. This requirement makes it very difficult for anyone with full time employment to qualify. There have been several tax court cases almost all ruling against the taxpayer. Second the taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which they materially participated.

In order to meet the requirements of a real estate professional rental properties can be elected to be treated as a group. This election must be made or the IRS will view the properties as separate. According to the IRS instructions a written statement with the original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. The statement must provide the names, addresses, and employer identification numbers (EIN), if applicable, for the activities being grouped as a single activity. In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. In spite of these instructions the IRS has issued Rev Procedure 2011-34 which provides guidance to taxpayers on making a late election.

There are downsides to making this election and the taxpayer will be bound by it once made. One downside is any suspended losses held from prior to making this election will not be freed up unless a complete disposition is made of all properties under the election. If any properties can be expected to generate income the election should be made with care because that income will not be allowed to offset passive activities.

The IRS has stepped up audits of real estate losses. According to a study by the GAO at least 53 percent of individual taxpayers with rental real estate activity for the tax year 2001 misreported the rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.

Business Paid Education

Mon, 20 Feb 2012 03:52:51 +0100

If you need to take a course (or courses) or class (or classes) in or to maintain or imporve your skills to maintain your status or pay level or if you need to takes these courses or classes for the purpose of meeting legal or employer requirements your employer may be able to deduct the expenses.

The business is not able to deduct expenses that enable you to be qualified for the job or that would qualify you for a new trade or business (a new job).

As with all business expenses, they must be considered "ordinary and necessary" in order to be deductible and as far as educational expenses are concerned they must also be "required". The key, as with all deductions is that you document your reasoning. The expenses must be directly related to your current employment. Just because taking the course or having this knowledge is "appropriate or helpful" does not make it "required, necessary or ordinary". Just because the employer adds a line to your employment contract stating it's a requirement does not make it "ordinary or necessary".

It is even more to your advantage to carefully document the FACTS, proving that the education is required, ordinary and necessary for your current job and not a new job, trade or business. It does not matter if you do not intend on getting a new job, or starting a new trade or business. It does not intend on your reasons for taking the new courses.

For example the tax courts have allowed taxpayers with finance degrees, management and marketing degrees to deduct the expenses related to getting an MBA, if and when the taxpayer is involved in the same aspect of the business that they were involved in prior to obtaining the MBA on the basis that the taxpayer showed that these courses "enhanced and maintained their skills".

On the other side of the coin, the tax court disallowed an aeronautical engineer the ability to deduct the cost of obtaining his commercial pilot's license even though the engineer was easily able to show that the education did improve his knowledge of aeronautical engineering. The expenses were disallowed because he was now able to get a job as a commercial pilot - it didn't matter that he didn't want to.

As with all contested expenses they are often "won or lost" based on the taxpayer's substantiation of the deduction.

Problem with todays economy

Fri, 24 Jun 2011 10:42:12 +0100