Have a tax question? Ask us here.

        Here are more answers to your tax questions, courtesy of Chuck Stevens of Cooney Faulkner & Stevens LLC:

        My IRA held mutual funds in the year 2000. No disbursement will be taken for another four years. Do the capital gains have to be reported each year and, if so, what about the losses sustained?

        Because investments within an IRA grow tax deferred, no current taxes result from the capital gains within the IRA. Similarly, no deduction is available for capital losses sustained within the IRA.
       

Adoption credits

        Are legal fees associated with an adoption deductible?

        Good news: You may be eligible for an adoption credit of up to $5,000 ($6,000 for special-needs children) for qualified adoption expenses. Qualified expenses include legal fees, court costs and other reasonable and necessary expenses directly related to the legal adoption of an eligible child. Eligible children are either under 18 years old or mentally or physically unable to care for themselves. The credit is phased out for taxpayers with adjusted gross income between $75,000 and $115,000, and any unused portion can be carried forward for five years. To obtain the credit, file Form 8839, which you can obtain by visiting the IRS Web site at www.irs.gov.
       

Rehabbing homes

TAX CHAT

Have a tax question? You can ask our experts — Tom Cooney and Crystal Faulkner — directly today from noon to 2 p.m. in a chat on Cincinnati.Com. We'll have another tax chat at the same time on March 17. If you can't join us today or then, use this form to post a question. Or call 381-2800, extension 1713, with your question. Answers will be published Saturdays in the Enquirer.

        I purchased and sold a fixer-up house. It was never rented or occupied. I understand I must use the Schedule D Part 1 to show the gains or losses. To find my basis column E (my cost to rehab), can I deduct the property tax and insurance I paid, the interest on the loan for the house, the gas and electricity, and water used while it was being rehabbed?

        If you are in the business of rehabbing and selling houses, some of the expenses would be deductible on Schedule C, and the sales proceeds would be reported as income on Schedule C. If the house was purchased for investment purposes, some of the expenses may qualify as investment expenses deductible on Schedule A. The gain or loss would be reported on Schedule D and is calculated by subtracting your basis in the property from the proceeds you received.
       

401(k) withdrawals

        I used the proceeds from a full distribution from a previous employer's 401(k) plan for the down payment on the purchase of my first home used as my primary residence. Is the 10 percent penalty for early withdrawal avoidable in this circumstance?

        Unfortunately, early distributions from a qualified retirement plan such as a 401(k) do not have exceptions for first-time home buyers. Assuming you are under age 59 1/2, you will likely owe the 10 percent.
       

Deducting local taxes

        I live in West Chester and work in Northern Kentucky. Are the local taxes I pay deductible?

        Assuming your itemized deductions exceed the standard deduction, you are able to deduct your state and local income taxes. These are claimed on Schedule A of Form 1040.
       

IRA losses

        I have a traditional IRA whose value went from $19,000 to $300 last year. Do I have any tax deduction for the loss? Also, I am 58. Would it behoove me to change this IRA to a Roth IRA?

        You are not eligible to claim a capital loss for assets held within an IRA. If your adjusted gross income is less than $100,000, it may make sense to convert to a Roth IRA. Some considerations include the time line until you begin making withdrawals and your outlook on the performance of your investments within the IRA. Generally, the longer your time line and the greater your performance expectations, the more it makes sense to convert.
       

More on IRAs

        In 1999, my wife and I filed married jointly. I'm covered by an employer pension plan. My wife is not. We both had earned income above $2,000. At what level of adjusted gross income is her $2,000 IRA deduction limited or phased out? The IRS says there's not a limit on spousal IRA deductions. Is this correct and is it the same for the year 2000? What about if we filed married separately?

        Because you are covered by an employer pension plan, your deductible IRA contribution is phased out between $51,000 and $61,000 in 1999 and $52,000 and $62,000 in 2000 if filing jointly. Because your spouse is not an active participant, her deductible contribution is phased out between $150,000 and $160,000 in 1999 and 2000 if filing jointly. If you file separately, the contribution is phased out between $0 and $10,000.
       

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