A Back-to-School Tax Break and More on Reverse Mortgage Rules

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Attention Teachers! This is far better than a shiny red apple: the IRS wants to give you a tax deduction. If you personally paid for any school supplies this year, you can reduce your taxable income by the amount you spent -- up to $250.

To be eligible, you've got to work at a public or private school for at least 900 hours during the school year. In fact, you don't even have to be a teacher to be eligible for the deduction: your job could be as an instructor, counselor, principal or classroom aide.

According to the IRS instructions booklet for Form 1040, the deduction is for out-of-pocket ( i.e. unreimbursed) "standard classroom supplies." This would include anything that's considered "necessary" or "common and accepted" in your field of education. Obviously, books pass the test. But so would craft supplies purchased by an art teacher and sports equipment bought by a gym instructor. Computer equipment and software used on the job also qualify.

So hang onto your receipts. You'll need them when you're filling out this year's tax return. Enter the total (again, up to a maximum of $250) under "Educator Expenses." This is line 23 of Form 1040.

Just don't get used to this deduction -- it's gone next year. In fact, it's only been around for two years. The Job Creation and Worker Assistance Act passed by Congress last year authorized the deduction for 2002 and 2003 only. But you might as well take advantage of it while you can.

But be careful: you do not get this deduction if you are teaching your kids yourself, i.e. home-schooling.

Anything that helps you reduce your taxes gets an A+ from me!


Hi, Gail-

I found your column on reverse mortgages (here and here) intriguing. I presently own and live in New York and want to relocate to Florida where all of my children are now located. Can you get a reverse mortgage on the purchase of a new home?



Dear Don -

The answer is "probably." The first issue is, how old are you? You must be at least 62 years old in order to apply for a reverse mortgage. Second, the home must be more than a year old. So if you're contemplating a reverse mortgage, stay away from new construction.

If you pass these hurdles, the next step is to look at how much equity you have in the home. Keep in mind that any existing liens on the property must be paid off before you get any money from the reverse mortgage. If you buy a home in Florida and take on a big mortgage, by law, the first thing the reverse mortgage must do is pay that off. Then you get access to the amount that remains.

Let's walk through an example. According to Darryl Hicks, Associate Director of the National Reverse Mortgage Lenders Association, there are four factors which determine the amount of money someone can get via a reverse mortgage:

-The borrower's age.

-The fair market value of the home.

-Current interest rates.

-The county in which the home is located.

Reverse mortgages are regulated by the federal government and, as a result, the government sets lending limits. These vary from county to county. (This is similar to the limits on FHA loans.) Hicks says the reverse mortgage amount currently ranges from $154,896 in rural and less expensive housing areas to a maximum loan of $280,749 in metropolitan areas with high-priced housing.

Let's say you buy a house in Florida for $175,000. You finance your purchase using $135,000 from the sale of your New York home, plus a $40,000 mortgage. Now, let's assume you qualify for a reverse mortgage of $155,000. After the first mortgage is paid off, the remaining value of the reverse mortgage is $115,000. This is the amount available to you.

Of course, if you own the home free and clear, this is not a problem. In that case, you would receive regular income payments based on the full amount -- $155,000.

As an alternative, you could pay off the first mortgage on your home yourself using, say, money you've got sitting in the bank.

Reverse mortgage lenders are strictly regulated by the federal government. They've got software which can tell you exactly how large a mortgage you can qualify for. But you can get a pretty good idea yourself by visiting the industry website: www.reversemortgage.org. Click on the "calculator" icon and then fill in the blanks.

Keep in mind, a reverse mortgage is a special type of home equity loan available only to seniors. By law, before you can enter into a reverse mortgage agreement, you must receive counseling from an independent third party so you fully understand what you're doing. You have a choice as to how you receive the loan value: take it as a lump sum, make periodic withdrawals of varying amounts, or annuitize the amount and receive a regular monthly check from the lender.

Remember, even if you have exhausted the reverse mortgage, that is, if you've drawn down the full value, you can never be forced out of your home. The lender must wait to be repaid until you either sell the home, permanently move out, or die. One of the most common reasons seniors take out a reverse mortgage is to pay off their existing mortgage and eliminate the monthly payment required.

Hope this helps!


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