Personal Finance
Q&A: tax deductibles
March 16, 2001: 10:29 a.m. ET

Tips on filing dependency deductions; why funeral expenses aren't deductible
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NEW YORK (CNNfn) - Are funeral expenses deductible on an individual income tax return? And if your child has filed already, will the IRS deny your dependency deductions?

Got questions about filing your return? Here's your chance for some free advice. CNNfn has organized a panel of outside experts to answer your questions throughout the filing season. Send your questions to: Not all questions can be answered and any information you provide may be used by one or more AOL Time Warner properties. This week's answers are provided by Cindy Hockenberry, an enrolled agent with the National Association of Tax Practitioners.

Question: Since I owe child support arrears, my state is intercepting my federal refund. Can I have my refund credited (applied) for next year's return (when my income will substantially increase and I will no longer qualify for EIC), and still forgo paying any part of my refund legally?

- William

Answer: Applying any refund you get towards next year's tax liability won't help you out. The IRS will take it and apply it to an outstanding federal debt, including past due child support. The only option you had that may have helped you would have been applying for the Advanced Earned Income Credit.

This is something you do with your employer by filling out a new W-4. If you will qualify for the earned income credit in 2001, you may consider this option.

Question: My mother passed away over a year ago and willed her home to me. I have been paying the mortgage which is still in her name only. Can I deduct the interest expense on the mortgage on my tax return even though the mortgage is in my deceased mother's name?

- Fabian

Answer: Yes, you are allowed to deduct the mortgage interest you pay even though the debt is not in your name. You are paying the debt to protect your interest in the property, therefore the interest you pay is deductible on your return.

Question: OK, I have received 2-year 2000 mortgage interest forms from mortgage companies on loans for properties that were sold in 1999. Apparently the bank didn't apply some of my payment until 2000 for some reason. How do I deduct the interest (I am not itemizing this year) against the income from the buildings (in tax year 2000 I had no ownership interest or expenses).

Can I file a 1040X for 1999 with these forms reading year 2000? Is there a "miscellaneous line" somewhere on the form I can put this interest in?

- John

Answer: If you paid the interest in 1999, you can deduct it on your amended 1999 tax return. However, I would question the bank as to why they issued a 2000 mortgage interest statement. If none of the interest was paid in 2000, then the Form 1098 is incorrect. Until a 1999 form is issued to you, you will not be allowed to amend your return. The interest paid can only be deducted on Schedule A for the year in which the interest was paid.

Question: Is their any tax deductions than can be taken for the expense of a burial of your spouse?

- Robert

Answer: No. Funeral expenses are not deductible on an individual income tax return. They are considered personal expenses. The cost of a funeral is all owed on an estate return, Form 706 if one is required as a reduction of the decedent's gross estate.

Question: We are raising our grandchildren and meet all of the 5 dependency tests but our daughter has already filed her return and claimed the children. What are we in for when I file and claim them? We can prove (easily) our claim.

- Chuck

Answer: The IRS will deny the dependency deductions on your tax return if your daughter has filed first. You will have to submit proof that your grandchildren meet all five of the dependency tests before they will allow you to deduct the personal exemption amount. graphic