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ASK KIM
Mind The Traveling Medigap
by Kimberly Lankford Is there an affordable medigap policy that covers us in South Dakota? California? All over the U.S.? We travel a lot.
--Name withheld Good news. Any medicare-supplement policy can be used with any doctor or hospital that accepts medicare.
That is not the case, however, if you use a medicare HMO. Such plans limit coverage to certain doctors and hospitals, except in emergencies. "If you travel a lot, a medicare HMO network is not for you," says Deane Beebe, spokeswoman for the Medicare Rights Center.
If you are in a medicare preferred-provider organization, you will pay extra for using out-of-network doctors when you travel. If your travels take you outside the U.S., consider medigap policies with federal designations C through J. They include foreign emergency coverage.
Visit Medicare.gov's "Personal Plan Finder" or see your state insurance department's Web site for medigap prices. For a personalized price list, order Weiss Ratings' "Shopper's Guide to Medicare Supplement Insurance" ($49; 800-289-9222; www.weissratings.com).
Cracking a custodial account
I'm looking for a house in a better school district, but prices are so high that we can't come up with a 20% down payment. I can solve the problem by tapping my kids' custodial accounts. Because the move is for their benefit, can I close the accounts and use the money for the house?
--J.Z., via e-mail
Nice try, but no. You can use custodial-account money for a lot of things -- pretty much anything that benefits the child. But the purchase has to be for the child's benefit alone. You can't use the money to buy a house for the family (which would be titled in your name), even with the argument that moving to a better school district would benefit the child.
"That one seems to be outside the scope of the custodian's authority," says John McCabe, legislative director of the National Conference of Commissioners on Uniform State Laws.
Acceptable uses, says McCabe, must primarily benefit the child, such as paying for education, a computer, a TV, his or her own car, transportation to college, video games, piano lessons or a guitar. But, alas, you can't put a down payment on the family home.
No prepayment of child credit
Did the IRS issue checks this summer for the child tax credit, as it did last year, or was that a one-shot deal? I didn't receive a check yet.
--John Donahue, via e-mail
Your check is not lost in the mail. When Congress increased the child tax credit from $600 to $1,000 in 2003, part of the deal was for the extra $400 per child to be shipped off to parents right away. Somewhat surprisingly in an election year, lawmakers didn't order the checks to flow in 2004. The credit is still $1,000 for each child under age 17 whom you claim as a dependent on your return, assuming your income isn't over $110,000 on a joint return (the credit phases out above that level). But there's no advance payment this year. Assuming you haven't changed tax withholding at work to account for the savings, the extra $400 per child will either decrease what you owe when you file your return or hike your refund. The IRS expects the lack of a summertime advance payment to push refunds to record levels next spring.
Escape from escrow
Do I have to pay the mortgage company extra each month so the money can go into an escrow account for my property taxes? Or can I just pay the taxes directly when they're due?
--David Parry, Cary, N.C.
The rules vary from state to state. In North Carolina, lenders can require an escrow account. In many other states, though, homeowners have the option of paying tax and insurance bills directly -- if the loan is for less than 80% of the home's value, says Patty Widerman of BB&T Mortgage and the Mortgage Bankers Association of Metropolitan Washington, D.C. Regardless of where you live, escrow accounts are required if you have a VA or FHA loan.
Note that federal law prohibits lenders from charging fees for such accounts. But in some states -- including Maryland and Virginia -- they may charge a fee if you don't use an escrow account. Some states, but not North Carolina, require lenders to pay interest on amounts paid into escrow accounts.
Rental profits
I just sold a house that I owned for 13 years and rented out for the past 11. What are my tax obligations?
--Kirk Benson, New Orleans
Brace yourself. Things are a lot more complicated than when you sell the house you live in -- in which case the profit is almost always tax-free. When you sell a rental, you probably owe tax on the profit, and figuring that profit can be a bear. Among other things, you need to tote up all the depreciation deductions you claimed during the 11 years you rented the place.
First, you need to establish your tax basis. That's basically what you paid for the house, plus the cost of capital improvements (a new roof, for instance, or installation of central air) minus all the depreciation deductions. You subtract the basis from the proceeds of the sale to find your profit.
Profit attributable to appreciation is taxed at 15% as a long-term capital gain. The part attributable to depreciation (remember, every dollar used to reduce the basis for depreciation adds a dollar to the profit side of the ledger) is taxed at 25%.
You report the sale on Form 4797 and figure the tax bill on Schedule D, both of which are filed along with your Form 1040 next spring. If the profit is significant, you may need to make estimated tax payments in September and January. | 
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