Pricey Liz: We’re retired and dwelling in California. We’re planning on promoting our residence, which is paid for, and shifting to Tennessee in a few years. I feel we qualify for a “one time” capital good points exemption. Our house is value over $1 million and we paid solely $98,000 in 1978. We plan on shopping for a house in Tennessee for round $800,000. Will we’ve got to pay capital good points tax?
Reply: Earlier than 1997, a home-owner may defer paying taxes on residence sale good points so long as they rolled the proceeds into the acquisition of one other residence of equal or higher worth. As well as, there was a one-time exclusion for householders over age 55, who may exclude as much as $125,000 in residence sale good points.
These guidelines have been changed in 1997 with the present legislation. Now householders of any age can exclude as much as $250,000 every in capital good points on the sale of their major residence, so long as they’ve owned and lived in the home for not less than two of the earlier 5 years. As a married couple, you’ll be able to exclude as much as $500,000 of achieve — however that also leaves you with greater than $400,000 of potential capital good points.
The capital good points calculation doesn’t issue within the worth of your alternative residence or whether or not you may have a mortgage. Nevertheless, you should use the worth of residence enhancements you’ve made over time to cut back your taxable achieve — assuming you saved these receipts. The IRS defines residence enhancements as bills that add to the worth of your own home, extend its helpful life or adapt it to new makes use of. Examples would come with additions (bedrooms, bogs, decks, garages, and so forth.), heating or air con techniques, plumbing upgrades, kitchen remodels and landscaping, amongst different prices.
Enhancements don’t embody upkeep required to maintain your own home in good situation, similar to portray, fixing leaks or repairing damaged {hardware}, or enhancements which might be later taken out. Should you put wall-to-wall carpeting after which eliminated it to put in hardwood flooring, solely the price of the hardwood flooring would rely.
Lots of the prices you incur to promote the house, similar to actual property agent commissions and notary charges, additionally can be utilized to cut back the capital achieve. You could find extra particulars in IRS Publication 523, Promoting Your Dwelling. A giant residence sale achieve can have an effect on different areas of your funds, similar to your Medicare premiums, and will require you to pay quarterly estimated taxes. Think about speaking to a tax professional earlier than the sale so you realize what to anticipate.
Spousal advantages
Pricey Liz: My spouse and I’ve been married for 18 months. I’m 67, she is 66. She shouldn’t be eligible to obtain Social Safety on account of her work historical past. Is she eligible to obtain spousal advantages now, regardless that I plan to attend till age 70 to obtain mine?
Reply: Your spouse can’t begin spousal advantages till you start receiving your personal profit. Previously, somebody in your place may file a Social Safety software after which instantly droop it. That triggered the spousal profit whereas permitting the first earner’s profit to proceed rising. Congress modified these guidelines in 2015, nonetheless.
Executor duties
Pricey Liz: My greatest good friend made me her executor. She has no relations. She has listed folks to obtain cash, possessions and her home. She has left me cash as effectively. As soon as all the things is disbursed and payments paid, there will likely be leftover cash. If she desires me to have it, what must be written within the belief?
Reply: Her will ought to embody a phrase that disposes of her residuary property. After itemizing particular bequests, she would come with a phrase similar to “the remaining and residue of my property goes to” adopted by the identify of the individual she desires to have the remaining property. This clause isn’t with out its issues, nonetheless, since receiving the residuary property may tempt you to stint the opposite beneficiaries. Needless to say as executor, you may have a fiduciary obligation to all of the beneficiaries, which implies you can not put your personal pursuits first.
Liz Weston, Licensed Monetary Planner, is a private finance columnist for NerdWallet. Questions could also be despatched to her at 3940 Laurel Canyon, No. 238, Studio Metropolis, CA 91604, or by utilizing the “Contact” type at asklizweston.com.
