Question: I am selling my house next month. I have been living in it for three years, and I anticipate that I am going to make about $100,000 in profit. Is this taxable?

Answer: Probably not. The IRS allows homeowners to exclude $250,000 of gains from the sale of a primary residence as long as you have been living in the home for 2 out of the last 5 years. If the home is owned by more than one person, such as a husband and wife, or two domestic partners, each owner is allowed the $250,000 exclusion, as long as they have lived in the home for two years of the last 5 years.

Question: I have a disabled child who is now 18. He still lives at home and I take care of him. Can I still claim him as a dependent?

Answer: Yes! A child can be your dependent at any age if you support him/her, regardless of disability. But disabled children allow taxpayers to get many additional tax breaks. If your child has AD/HD, or other physical, mental, or emotional impairment, you may qualify for additional tax benefits. Preschool, tutoring, or special education for a disabled child now qualifies as a medical expense. This can include testing by a speech-language pathologist, psychologist, neurologist, or other person with professional qualifications. All the materials, books, etc, also qualify. Parents can even attend disability-related conferences and deduct the cost as a medical expense, or have it reimbursed by their Medical Flex accounts. (Revenue Ruling 78-340, 1978-2 C.B. 124.).

This is a great benefit for state employees, because they can now use their Medical Reimbursement account to pay for these services for their disabled children. All of the expenses become essentially tax free, saving most taxpayers with disabled children thousands of dollars a year. Also, a taxpayer who qualifies for the Earned Income Credit will continue to qualify for this credit regardless of the child’s age if the child is disabled.

Question: I just sold my old car. I paid $20,000 five years ago and just sold it for $7,000. Do I have to claim this money on my taxes?

Answer: No. If you are selling any personal property at a loss, you do not have to claim any of the money you receive. You only have to claim income if you have a gain. For example, if you purchased a Harley Davidson motorcycle for $15,000, and then a collector bought it for $16,000, you would have to claim $1,000; which is the profit that you made over and above what you originally paid.

Question: I just sold my house in a “short sale”. Originally I bought the house for $500,000, but I couldn’t keep up with the payments and now I am forced to sell the house for less money. The house is going to sell next month for $450,000. What are the tax implications of my short sale?

Answer: I’m sorry that you lost your home. You should see a qualified tax professional—this is a very bad tax situation. When a mortgage lender agrees to a short sale for less than the mortgage balance, the IRS reasons that because you won't have to repay that $50,000 loss the lender incurred, it is the same as if you received $50,000 income. “Debt relief” is taxable to borrowers.

There's a very important exception to this rule. Although lenders must send 1099-C forms reporting taxable income whenever cancelled debt is $600 or more, the tax bill itself is forgiven if the homeowner is bankrupt or insolvent. Insolvency means your debts (including that mortgage) exceed the value of all your assets. If you had no assets at all, none of the $50,000 of debt relief would be taxable.