Passes for Travel Workers Tax-Free as Fringe Benefits

QUESTION: Why is it that cruise and airline employees can get away with not paying taxes on their “perks,” such as the free cruise and airline travel? This often amounts to far more than the bonus paid to white-collar workers, which is taxed. The tax laws are most unfair!--L. S.

ANSWER: Millions of taxpayers would probably agree with you, especially as April 15 fast approaches. But the fact of the matter is that the Internal Revenue Service treats free and reduced-rate travel passes for airline and cruise staff workers as a routine fringe benefit of their employment, not a special bonus.

Although the distinction between the two may elude you, here’s how the IRS views it. According to IRS spokeswoman Shirley Nakagawa, the key difference is that the free trips--even though they have a true cash value--are considered a normal fringe benefit of employment, such as medical insurance or even employee discounts at retail establishments. Bonus payments are considered the direct result of services performed.

Admittedly, Nakagawa says, the line is a fine one and not easily recognized by the general public. And, in the end, it may all boil down to other considerations. “I guess the travel workers must have a strong lobby,” Nakagawa shrugs.

QUESTION: In the Spring of 1986, I contracted to have a house built. Due to cost overruns and my financial situation, I never moved into it and put it up for sale. It didn’t sell for well over a year and in desperation I finally auctioned it off with a net loss of $25,000. Can I deduct any or all of this on my 1987 tax return? --R. S. L.

ANSWER: Unfortunately not, the IRS says. Here’s why: Your intent--and this is the key factor--was to move into the house and use it as your personal residence. The IRS does not allow deductions for losses on the sale of a personal residence.

QUESTION: The law under the revised tax bill provides that taxpayers who are covered by a company pension plan are limited on deductibility of an IRA. Does a company pension plan include public employees, such as schoolteachers, who are part of a governmental retirement system apart from Social Security? --R. O. B.

ANSWER: The answer is a simple “yes.” When it comes to determining how much tax deferred money you can contribute to an individual retirement account, federal, state and other public employees with their own retirement plans are treated exactly the same as employees in the private sector.

QUESTION: I’m having some problems with the numbers in your column last week on reverse annuity mortgages. In your example, you cite a loan of $150,000 at 10.5% interest over a 10-year period producing a monthly income of $430.51. That income seems low. Do you have a comment? --W. B. P.

ANSWER: The figure seems too low because it is too low. It was erroneously calculated. We rechecked with our initial source, Ann Winchester, vice president for community and program administration at First Nationwide Savings in San Francisco. Her recalculations show that a reverse mortgage for $150,000 at 10.5% for 10 years with initial fees of $3,450 would pay the borrower $659.20 a month.

If the monthly payment still seems low, remember that the borrower pays no monthly interest for the life of the loan. Rather interest accrues over the life of the loan and is basically deducted from the borrowed amount.

Again, remember that reverse annuity mortgages are not for everyone. For more information, send a self-addressed, stamped envelope to the Center for Independent Living, 4429 Cabrillo St., San Francisco, Calif. 94121