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August 2019

Selling a Property? Save on Taxes with These Useful Tips

One of the most frequently asked questions we get as tax advisors is related to saving on taxes when selling a real estate property. Even when there are several ways to do this, most taxpayers aren’t familiar with all the different options they have available. That’s why we have gathered four very common, effective, and easy strategies that will allow you to save on taxes when selling a real estate property, including paying the capital gains tax, processing an installment sale, choosing a 1031 exchange, and looking for Opportunity Zones.

The very first strategy we will go over consists in paying the capital gains tax as soon as we sell a property. Even when this might not sound as a tax-saving strategy, it can help us get this balance out of the way from the get-go, leaving the rest of the money for our personal projects. There is an advantage that comes from paying the capital gains tax upfront, though. Most of the times, capital gains rates are lower than the regular income tax rate, ranging from 0 to 20 percent during the last couple of years. In comparison, income tax rates might reach 37% at the highest, so it is worth running the numbers and seeing which one would be better for us.

Whenever we sell a property, one of our main concerns comes from the possibility of significantly increasing our income for that tax year, which would move us from one tax bracket to a higher one. One of the best strategies we can implement when selling a real estate property and save on taxes is by opting to go for an installment sale. This type of sale can benefit both the seller and the buyer, as you would be significantly reducing the chances of ending up on a higher income tax bracket, while allowing the buyer to make smaller payments over a period of time, including interests of course. Before opting for this option, make sure you are aware of all the legal considerations you need to take regarding the security of the payments from the buyer.

If we are looking to sell our property in order to buy another one, we should consider going for the 1031 Exchange, also known as a like-kind exchange. This way, you would be able to sell one property and then buy another one of equal or greater value at the same time. As a result, the property sale taxes would be either deferred indefinitely or until we sold the second property. One of the greatest advantages of like-kind exchanges is that we can do this several time, or exchange one property for multiple ones and vice versa, as long as we stay within the limits of the IRS.

Now, if we are looking to invest the money we receive from selling a property, we should really consider doing so in what we know as Opportunity Zones, also referred to as OZs. These areas are parts of towns or cities that have struggled economically and that allow investors to be part of jumpstarting these communities. When we buy or sell properties located at an Opportunity Zone, we could reduce taxable gains and even have access to tax-free growth opportunities, reinvesting capital gains in properties within designated OZs. The best part is that we don’t need to reinvest the entire sale proceeds on OZ properties, only the gain amount, as long as we do this within the first 180 of selling our property.

4 Useful Tax Deductions for Senior Citizens and Retirees 

Whenever we reach the age of retirement, we need to be more careful with our finances than when we were still employed, whether it was by someone else or if we had our own business. When it comes to tax planning, there are several deductions that senior citizens and retirees alike should be aware of, as they could take advantage of these deductions and reduce their tax bills. Some of these useful deductions include medical and dental expenses, charitable contributions, retirement plan contributions, and selling your house.  

Regardless of our age, medical and dental expenses are a part of our everyday life, as we need to get general check-ups, treatments for common or serious conditions, and nobody is immune to the occasional dental cavity. However, we all reach an age on which we must be more mindful of our health and paying a visit to our doctor becomes more and more common. Even when this means that we will be spending more on medical bills, we are able to take advantage of this tax deduction on our income. For 2019, the IRS allows taxpayers who itemize their deductions to include the total of our medical bills that exceed 10% of our adjusted gross income. 

For many retirees and senior citizens, this is the perfect time to give back to their communities, and it is quite common for them to support different local, state, national, and even worldwide organizations. This brings many benefits, as you are able to lend a helping hand to those who need it the most while being able to reduce your tax bill quite a bit. Just as it happens with medical and dental expenses, in order to take advantage of this charitable contribution deduction, we need to itemize our deductions instead of choosing the standard deduction. Also, we need to remember that all our cash contributions must remain below 60% of our adjusted gross income in order to qualify for the deduction.  

Part of preparing for the future includes making contributions to a retirement plan that will allow us to be financially stable when we are ready to enjoy our golden days. Whether we decide to open a traditional IRA, a Roth IRA, or a 401(k) plan, we are able to make tax-deductible contributions to those accounts. Depending on our age, we will have different contribution limits, but those over 50 have higher limits than those who haven’t reached that age yet. Just remember that you’ll pay taxes on the contributions that you make, but whenever you start withdrawing money from these accounts, interests and income generated are tax-free. 

Selling our house and moving to a smaller place once our children have moved to their own place makes a lot of sense, as it can help us reduce the amount of work needed to keep our house clean and tidy, as well as reducing the expenses of having such a property. Even when it might be hard for some to make this decision, we should remember that the profit we get from the sale is completely tax-free, and if we lived there for a long time, we probably have substantial equity, which means we should earn a large profit. Just make sure you have lived there for at least 2 out of the 5 years before the sale, and that your profit doesn’t exceed $250,000 for single taxpayers and $500,000 if you’re married filing jointly so that the profit can remain non-taxable.  

Aspects to Keep in Mind About the Different Types of Car Taxes

Whenever we are buying, leasing, or owning a car, we are subject to different types of taxes that depend on both state and local laws, as well as the type of vehicle we own. The state on which our car is registered or where it is used can also determine the taxes we would owe. Therefore, it is important to understand how car taxes work, as it would help us become more aware of any tax balance that would be generated. This is what you need to know about the different types of car taxes and how it might apply to you.  

To begin with, we should be aware that there are two different types of car taxes we might have to pay when we lease, buy, or own a car. The most common type of tax we might have to pay when we purchase a car, whether new or used, is a sales tax. These taxes may vary from one state to another, having a 7.5% sales tax in the state of California, with local governments being able to charge an additional tax of up to 2.5% on top of the state sales tax.  

The second type of car tax we are likely to owe is the property tax, which is charged about half of the states, but California is not one of them. California used to charge this property tax on vehicles, but in 1935 this system was replaced with the annual registration fee. Whether we are subject to a state property tax or a registration fee, we should keep in mind them both are based on the current value of our vehicles, and in the case of California, car owners are subject to a 1.75% rate.  

If we want to calculate the amount of sales tax we will be subject to, we need to consider how several factors might affect the ending balance. Your vehicle’s purchase price will definitely affect the total sales tax we would have to pay, but there are other factors to consider, including the category of the vehicle. Also, we need to remember that every city and municipality can charge additional sales taxes, so it’s always best to consult with our car dealer before actually purchasing a vehicle.  

When it comes to calculating the property taxes that we owe for our car, the rules for assessing the value of our car will be determined by the state or municipality that charges this tax. In the case of California, the Department of Motor Vehicles is in charge of determining such rules and of assessing the value of your car, too. There is an online tool available for car owners to request an estimate of their property tax and registration fee, and you can consult this on their official website.  

What You Need to Know About Taxes on Micro-investment Earnings 

It is not uncommon to come across ads for apps like Stash, Acorn, Rize, and Robinhood, promising significant earnings resulting from small investments. This makes investing look easy and attractive, as we all might be looking for ways to get extra cash and increase our income. However, those who are new to the world of investments, and micro-investments in particular, need to be aware of the extra paperwork that might be needed for their earnings. There are several forms you might be needing, depending on how much you earned and what you did with those earnings. Here are some of the most common ones.  

One of the most common forms we should expect regarding our earnings from micro-investment apps is Form 1099-MISC. We will need this form if we earned any kind of cash bonuses or awards from any micro-investment app totaling $600 or more. These earnings will be taxed as income, so keep that in mind. We should also remember that this form has a different deadline than that of our income taxes, being January 31st of next year, so prepare beforehand and avoid missing the date.  

Another form you should be aware of is Form 1099-B, which you will receive in case you sold any of your investments during the tax year. This is because, every time you sell investments, you need to pay taxes on the profit, which is called capital gains. On the other hand, if you sell investments that represent a loss, you need to report such losses to the IRS. However, this might reduce your taxable income, and the tax rate may vary, depending on how long you had a given investment.  

If we have experience with investments, or if we were really lucky, our investments might do so well that a portion of them could be shared with other investors. If such was the case, we should be expecting to receive Form 1099-DIV for all investment dividend earnings that we withdraw. For these cases, the tax rate we may owe would depend on the level of our income and on how long we held such investment. We should also expect Form 1099-INT if we earned interests of more than $10 through any institution, including micro-investment apps.  

Even when the tax implications that come from micro-investments might sound too complex for us, we should not feel intimidated or confused by them. The amount of taxes that we would owe to the IRS depends greatly on our tax profile, and the chances of our investment earnings pushing us to a higher tax bracket are bare. Instead of being afraid, we should consult our finances and investment earnings with a professional tax consultant that can guide us through the process and helps us stay compliant with IRS rules and regulations.  


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