How do I protect myself from identity theft?
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- Identity theft protection services cannot prevent fraud, but consumers can take practical steps to reduce their vulnerability to criminals.
- Credit freezes at major bureaus and strong online security practices offer better protection than monitoring services alone provide.
- Regular monitoring of financial accounts and limiting personal information shared on social media are essential defensive measures.
Dear Liz: I am regularly notified by my identity theft protection service that there has been a data breach somewhere where my data is stored. I don’t know what in the world I’m supposed to do about this. I try to follow all the recommended precautions, but I also wonder: now that all Social Security data is somewhere in the cloud under some mystery person’s control, is it even worth trying to keep up?
Answer: You’ve discovered the oxymoron inherent in an identity theft protection service. Such companies can’t actually protect you from identity theft, and knowing your data has been compromised is of limited value if you can’t actually do anything to prevent its misuse.
Focus instead on what you can do to make yourself less of a target. Start by freezing your credit reports at the three major bureaus: Equifax, Experian and TransUnion. Credit freezes are free and make it hard for identity thieves to open new credit accounts in your name. You can easily and quickly “thaw” your reports temporarily if you need to apply for credit.
You’ll still need to monitor your credit reports for suspicious activity, and you can request free reports from AnnualCreditReport.com. (Type that name directly into your browser. If the site asks for a credit card, you’re in the wrong place.)
Get serious about online security. Create unique passwords and use multi-factor authentication wherever it’s available, but especially on financial, email and social media sites. Consider using a virtual private network to further protect yourself. Erase all personal data from phones and other gadgets before discarding.
Prevent tax refund fraud by getting a free Identity Protection PIN from IRS.gov. You’ll need to use the PIN to file your tax return, but that should prevent someone else from ginning up a false return and claiming a refund using your ID.
Limit the information you share on social media and elsewhere. Keep your birthday, your pets’ names and your children’s names private. Learn how the privacy features work on the sites you use. Look for options to disable location sharing, limit access by strangers and manage which third-party apps can access your account.
Finally: monitor, monitor, monitor. Regularly review every financial account for suspicious transactions and report any you find immediately. Check medical statements and health insurance records for unauthorized activity as well.
Dear Liz: I thought I understood about taxes and house sales, but I am now confused. It seems like the previous rules were that home sale profits could be rolled from one house to the next and one would take a one-time exemption for up to $500,000 or so, with capital gains only due on the amount above that amount. Now the latest rule is that house sales are calculated on each sale, but still based on purchase price plus improvements as the basis. Or is it?
Answer: You are confused, but you’re not alone. Many people remember the old rules, and some think they’re still in effect.
The basic way that capital gains are calculated hasn’t changed. The homeowner’s tax basis — which is the amount they paid for the home, plus qualifying improvements — is subtracted from the net sale price to determine potentially taxable capital gains.
Before the Taxpayer Relief Act of 1997, homeowners could defer capital gains on home sales if they bought a replacement house of equal or greater value. At age 55, they could take a one-time exemption that protected $125,000 of home sale gains from taxation. This allowed many if not most people to downsize without owing big tax bills (the median home price in 1997 was less than $150,000).
The rules today are quite a bit different. Home sellers can exclude up to $250,000 of capital gains, or $500,000 for a married couple, as long as they owned and lived in the home at least two of the five years prior to the sale.
Note, however, that the exclusion amount hasn’t changed since 1997. The median home price in the U.S. is over $400,000, and “starter” or entry-level homes top $1 million in over 200 cities, according to real estate site Zillow. That means many more longtime homeowners face capital gains taxes when they sell their homes.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
