Q:  Question: I'd like to sell part (25% to 50%) of the equity in my condo to a friend because I am having difficulty keeping up with the payments. Would he be able to claim a tax deduction for interest he would pay?

A:  Answer: No. You will not comply with the requirements for the residency exclusion by selling only a part of your residence so the transaction will be taxable to you to the extent you have a gain on the sale. Your friend should be able to deduct the interest expense as an investment unless he lives there as his principal residence, in which case he could qualify for the mortgage interest deduction for the purchase of a first or second home.

Q:  Question: My husband and I plan to incorporate our computer consulting business and set up a home-office. What are the tax implications when we sell our home?

A:  Answer: Any depreciation taken on the residence will be recaptured at 25% federal (plus applicable state taxes) and the residency exclusion will not apply to that portion of your gain. For example, if you have a $500,000 gain on the sale of your home, you could exclude the entire amount under the residency exclusion. If, however, you depreciated your home $50,000, you must recapture the depreciation at 25% federal and pay $12,500 in taxes; the balance of your $450,000 gain will be excluded by the residency exemption.

Q:  Question: I am interested in taking part in a net-based high-yield-investment "game". The game offers an unbelievable 200% return after only 14 days. Will I need to pay US taxes on the profits?

A:  Answer: Yes, if you are a U.S. resident or citizen. Regarding the so-called "investment," remember P.T. Barnum's famous remark, "There's a sucker born every minute!" Also, "A fool and his money are soon departed!" This sounds like an illegal pyramid scheme. There is simply no legitimate investment that would return such a whopping profit and if there was, there would no need to peddle it on the Internet. Check out all the scam watch websites before giving up any money. If you are a U.S. resident or citizen, then you are taxed on your world-wide income. If you are a foreign person, then you do not pay taxes on gains and profits. This so-called investment sounds like it is foreign source and if you are a foreign taxpayer, then you'd have no income tax obligations to the U.S.

Q:  Question: I have been doing two different jobs for the same company for four years now. The second job has always been paid as a bonus. Now the company wants to pay me with a W-9 (as an independent contractor). It this proper?

A:  Answer: No. Your company is changing your status to an independent contractor for part of your pay and such a change is improper and could be illegal. Your company must understand the tax laws with respect to independent contractors verses employees. A company cannot convert an existing employee to an independent contractor if the worker continues to perform the same services. Also, You'll pay higher payroll taxes as an independent contractor.

All contents copyright © 1995-2002 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.