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Selling your home? Don’t share the profit with Uncle Sam

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Itching for a change of scenery? Whether you plan to sell your home because of retirement, a job change,

or a desire to downsize or move to a larger home, you may be eligible for a very attractive tax break.

If your home has appreciated in value, you may be able to exclude all or part of your profit from the sale of your home on your federal income tax return. Eligible individuals may exclude up to $250,000 of gain from their income, while married couples who file jointly may be able to exclude up to $500,000 of gain. Just be sure you familiarize yourself with the rules before you sell your home.

Who and What Qualifies?

Your home can be a house, a cooperative apartment, a condominium, or another type of residence. To qualify for the exclusion, you must have owned and used the home as your principal residence for at least two years (a total of 24 full months or 730 days) during the five-year period ending on the date of the sale. The tax law allows you to utilize the exclusion multiple times over your lifetime as long as you meet the applicable requirements. However, you may not use it more than once every two years.

You can have only one principal residence at a time. That means that if you own two homes, the home you use for the majority of the year would generally be considered your principal residence for that year.

In the case of the $500,000 exclusion for a married couple filing jointly, only one spouse must meet the ownership requirement, although neither spouse may have excluded gain from a previous home sale during the two-year period ending on the sale date. Both spouses must meet the residence (use) requirement in order to qualify for the $500,000 exclusion.

Ownership and Use Do Not Have to Be Continuous

Your ownership and use of the home do not necessarily have to coincide. As long as you have at least two years of ownership and two years of use during the five years before you sell your home, the ownership and use can occur at different times. For example, you can move out of the house for up to three years and still qualify for the exclusion.

A Reduced Exclusion Is Possible

If you are unable to meet the qualifications for the full $250,000/$500,000 exclusion, you may be eligible for a reduced exclusion under certain circumstances. These are:

  • You have to sell your home because of a change in place of employment;
  • You must move for health reasons; or
  • You must move because of other qualifying “unforeseen circumstances.”

The amount of the reduced exclusion is generally based on the portion of the two-year use and ownership periods you satisfy.

As you can see from this general summary, the rules for the gain exclusion can be complex.

How do I measure the gain before any possible exclusion? The calculation of the basis of a home varies depending on how the home was acquired. Did you purchase your home? Substantially improve your home? Receive all of the home or an interest in the home by inheritance or gift? All these factors effect how to calculate the basis of your home to measure the capital gain. We can provide more details regarding how to qualify for this valuable tax exclusion and how to calculate the gain on the sale of your home. Please contact us when contemplating selling your  home.

Above-the-Line Deductions: Can You Benefit?

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Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions  that can be claimed

Tax Savings

in arriving at adjusted gross income (AGI) –referred to as “above-the-line” deductions — are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.

For example, for those with substantial medical expenses, the medical expense deduction on Schedule A- Itemized Deductions, is limited to 10% of your AGI. By lowering your AGI, you are increasing your medical expense deduction.

Here are some of the above-the-line deductions available for the 2019 tax year.

Traditional IRA contributions. Contributions of up to $6,000 ($7,000 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2019 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.

Extra Tax Tip for IRAs– for self-employed individuals eligible for a Qualified Business Income Deduction, (QBI) a contribution to an IRA will not reduce your qualifying business income. In contrast, contributions to other retirement plans do reduce your qualifying business income and therefore the corresponding QBI deduction.

Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors also deduct their trade or business expenses above the line on Schedule C.

Hidden rental property expense– frequently taxpayers do not provide us with the cost of the rental property insurance. It is usually paid via the escrow account if there is a mortgage on the property. Although you don’t pay this directly, it is being paid with your funds and should be deducted. Review your escrow account for other deductions.

Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phaseouts apply to those at higher levels of modified AGI.

Health savings account (HSA) contributions. The 2019 deduction limits are $3,500 for those with self-only coverage under an eligible high-deductible health plan and $6,900 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.

Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.

Seminar Invite: How to Preserve Assets in Nursing Home Situation or Long Term Care Situation

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Urbach Avraham, CPAs

INVITES YOU TO A
Complimentary Seminar on “How to Preserve Assets
When Faced with a Nursing Home or Other Long-Term Care Situation”

 

Tuesday, July 9, 2019 from 8:00 a.m. to 9:45 a.m.
At 1581 Route 27, Suite 201, Edison, NJ 08817

As a service to our clients, we are pleased to host guest speaker,

Michael K. Feinberg, Esq. of Greenbaum, Rowe, Smith & Davis

Michael will discuss:

• How to preserve assets
• Can we keep our house? Our IRA accounts?
• Debunking the many myths about Medicaid

Michael Feinberg is a partner at Greenbaum, Rowe, Smith & Davis, LLP in Woodbridge, NJ. He is the current Co-Chair of the Elder Law Section of the Middlesex County Bar and is listed in NJ Super Lawyers in the Estate Planning and Probate Practice area. Michael concentrates in tax, estate planning, estate administration, elder law and tax controversies. Mr. Feinberg is a frequent lecturer on, and author of, various estate planning and elder law topics. He specializes in planning for incapacity and the availability of government benefits, while maximizing asset preservation.

Please RSVP to Pamela at  mailto:pma@ua-cpas.com

Bagel breakfast will be served!

Special Needs Trust Seminar

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Urbach & Avraham, CPAs

INVITES YOU TO A

Complimentary Seminar on Special Needs Trusts  

for your Disabled Family Member

Wednesday, May 22, 2019 from 8:00 a.m. to 9:45 a.m.

At 1581 Route 27, Suite 201, Edison, NJ 08817

As a service to our clients, we are pleased to host guest speaker,

Shirley B Whitenack, Esq. of Schenck, Price, Smith & King, LLP 

Shirley will discuss:

  • Brief overview of Special Needs Trusts
  • First and third-party Special Needs Trusts
  • Sole benefit of trusts- allows seniors to give money to a
    disabled person without incurring a Medicaid penalty-
    both elderly and disabled person can receive Medicaid benefits

Shirley Whitenack is a partner at Schenck, Price, Smith & King in Florham Park, NJ. She helps NJ families with elder and special needs law, estate planning and administration and trust & estate litigation. She is a Past President of the National Academy of Elder Law Attorneys and a member of the Special Needs Alliance, an invitation-only group of special needs planning attorneys. Shirley publishes and lectures on topics related to guardianship, elder and special needs law, planning for incapacity and availability of government benefits, Supplemental Security Income (SSI) and Social Security Disability (SSD), Medicaid planning and estate and trust litigation.

Please RSVP to Pamela at pma@ua-cpas.com

Bagel breakfast will be served!

 

Complimentary Seminar on Medicaid and Long-Term Care

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Urbach & Avraham, CPAs  INVITES YOU TO A

Complimentary Seminar on Medicaid

Elder Care

And Long-Term Care/Nursing Home Care

Wednesday, March 27, 2019 from 8:00 a.m. to 9:45 a.m.

At 1581 Route 27, Suite 201, Edison, NJ 08817

As a service to our clients, we are pleased to host guest speaker,

Mark R Friedman, Esq. of Friedman Law 

Mark will discuss:

  • Brief overview of basic estate planning documents
  • Long term care in a nursing home
  • Will the government take my money? Medicaid eligibility
  • Should I put my house in my kid’s name? How gifts affect Medicaid

Mark R. Friedman is an attorney practicing with FriedmanLaw in Bridgewater, NJ. He helps NJ families navigate the complexities of Medicaid, long-term care, nursing homes and asset protection. He serves on the Executive Committee of the NJ State Bar Association’s Elder and Disability Law Section, and  lectures the public and other lawyers on legal issues affecting seniors and people with disabilities.

Please RSVP to Pamela at pma@ua-cpas.com

Bagel breakfast will be served!

 

Don’t Forget About the Medical Expense Deduction

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The Tax Cuts and Jobs Act of 2017 lowered the threshold for the deduction of medical and dental expense.

Medical Expense Deduction

The new law permits taxpayers to deduct unreimbursed medical expenses that are in excess of 7.5% of their adjusted gross income (AGI), down from 10% previously. This change, unlike others, was made retroactive to January 1, 2017. To be deductible, the expenses may not be reimbursed by insurance or elsewhere. For example, a family with AGI of $60,000 would have to spend more than $4,500 on unreimbursed medical expenses to qualify for any deduction. That floor rate may seem high, but with the increases in medical costs in recent years, expenses can add up quickly. Many families have no, or little, coverage for vision care or dental care. And an unexpected illness or accident can lead to thousands of dollars of unreimbursed expenses.

Out-of-Pocket Expenses

Only out-of-pocket costs can be deducted, that is, expenses not paid for by insurance or an employer. And expenses that are paid with money from tax-advantaged accounts (such as health savings accounts or flexible spending accounts) are not deductible either. Nor are any health insurance premiums automatically drawn from your paycheck on a pretax basis.

Nonetheless, the list of medical expenses that can qualify for the deduction is quite long. Medical insurance, long-term care insurance, doctors’ bills, tooth repairs, eyeglasses and contact lenses, hearing aids, laboratory fees, oxygen, psychiatric care, stop-smoking programs, surgery, medical equipment and X-ray costs, for example, can all qualify. Medical travel and lodging also qualify for the deduction. In addition, the expenses of dependent family members can also qualify for deduction.