As of Wednesday, September 30, 2015
Dear Mary: I was wondering how you feel about relying on homeowners insurance for getting a roof replacement. I have had State Farm homeowners insurance since 1995 and have never made a claim. But now the 20-year-old roof on my house has suffered hail damage. Should I pay for the roof, or should I file with insurance to have it fixed? I’m concerned about the risk of having my premium increased or the insurance canceled. Any advice would be very helpful. Thanks and keep up the great work. — Mark
Dear Mark: First, make absolutely sure that the damage is more than cosmetic. If you determine that in fact the hail damage is significant enough to require repair or replacement to preclude further harm, I suggest you file a claim. Find out how much the insurance company will cover for repair and/or replacement. If they base the claim on depreciating the value of the 20-year-old roof (most likely), you may decide against going through with a claim because the damage amount they will pay is lower than your deductible. If, on the other hand, you have full replacement coverage (not likely, but possible) and this will preclude you from having to cover the cost out-of-pocket once the deductible is met, I’m pretty sure I would go for it, all things considered.
You can file a claim, receive the insurance company’s offer and at that time decide which way to go.
Dear Mary: My daughter and son-in-law did not pay up a credit card many years ago. They had been in financial trouble due to unemployment. Now they have to pay a fine with the IRS, and the IRS has set up payments for that fine. The IRS claims they are being fined for this forgiveness. What do you think?
Dear Noreen: From what you tell me, it appears that this credit card debt was charged off by the creditor. The borrowers defaulted on their debt, so the creditor did a legal maneuver and wrote it off as a bad debt against their taxes. The law requires that when this happens, the creditor must file a Form 1099 with the IRS, declaring that the amount written off now becomes ordinary income for borrowers who defaulted on the loan.
The amount written off plus accumulated interest and penalties owing at the time of the charge off is now considered ordinary income to your kids. The IRS is requiring them to pay the taxes they owe, legitimately, on money they received. This will not go away. The IRS will charge interest and penalties.
Left unpaid, it will just grow and grow. And grow. The last entity on earth anyone wants to owe money is the IRS. While they didn’t ask, I’ll offer my unsolicited advice: Do whatever it takes to pay the IRS in full, as soon as possible, if not sooner.In addition to owing taxes on the charge-off, this will go on your kids’ individual credit files as a “charge-off,” which is just one level above bankruptcy as credit reporting goes. It will remain for up to seven years and make it difficult for them to borrow in the future. And maybe that’s a good thing.
Mary invites questions, comments and tips at email@example.com, or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740.