Q&A: A dirty problem

Dear Liz: I bought a house four years ago. The previous owner allowed a gentleman to plant flowers every spring and tend them all summer. I allowed the man to continue after I bought the house. He waters the flowers using my water and I help weed every year. He came to me last week and said he was getting too old to tend to the flowers and wanted to sell me the dirt for $1,000. This was never addressed when I bought the house. Presumably the guy did bring in special dirt, but removing it would damage the property. What should I do?

Answer: The dirt goes with the real estate you bought and has long since become part of it, said real estate expert Ilyce Glink of ThinkGlink.com. Without a written agreement, the man was simply doing work for free.

That said, his labor and the flowers he bought enhanced the curb appeal of your home and arguably its value, said Glink, author of “100 Questions Every First-Time Homebuyer Should Ask.” Consider offering him $500 as a compromise or “retirement gift” to thank him for his efforts.

Q&A: State pensions’ effect on Social Security

Dear Liz: Recently someone wrote to you about plans to receive a state pension and apply for Social Security benefits. You said if the person’s job didn’t pay into Social Security, the Social Security benefit might be reduced because of the state pension. I have a state pension from a job that did not pay into Social Security and was under the impression that I would not be eligible for Social Security benefits. Am I wrong about that?

Answer: If you previously worked at a job that paid into Social Security, you may be able to receive both your state pension and a Social Security retirement benefit. Your Social Security benefit is typically reduced, but never eliminated, because of pensions received from jobs that didn’t pay into the system.

This reduction, known as the windfall elimination provision, does not apply to people who worked for 30 years or more in jobs that paid into Social Security. Its effect is greatest on people who worked less than 20 years in such jobs. Between 20 years and 30 years, the impact declines year by year.

Your state pension also affects — and can eliminate — any spousal or survivor benefits you might have received based on a current or former spouse’s Social Security work record. This separate provision is known as the government pension offset. You can learn about both the windfall elimination provision and government pension offset on the Social Security site, www.ssa.gov.

Friday’s need-to-know money news

bankruptcyToday’s top story: Dispelling bankruptcy myths. Also in the news: The dangers of credit card checks, the fine print of your car and home insurance, and why many Americans still struggle with credit.

5 Bankruptcy Myths Dispelled
Bankruptcy mythbusting.

Don’t Cash That Credit Card Check Until You Read This
Proceed with caution.

Is it covered? Check your car/home insurance IQ
Examining the fine print.

Many Americans Continue To Struggle With Credit
Access remains a problem.

Using debt strategically: Join us!

I’m hosting NerdWallet’s first Facebook Live video, “Using Debt Strategically,” on Thursday starting at 7 p.m. Eastern/4 p.m. Pacific. I’ll be discussing ways to prioritize your debt and pay it off faster while building your overall wealth. Whether you’re struggling with debt or just trying to be smarter with it, I can help answer your questions. Like NerdWallet on Facebook for updates and alerts on this event: nerd.me/facebook.

Thursday’s need-to-know money news

shutterstock_38185810-2Today’s top story: Why university checking accounts don’t make the grade. Also in the news: Financial steps to take in your 30s, personal finance calculators, and the savings habits of the super rich.

University Checking Accounts Don’t Make the Grade
High overdraft fees are a dealbreaker.

7 Important Financial Steps to Take in Your 30s
Time to start thinking past tomorrow.

15 Personal Finance Calculators Everyone Should Use
It’s all about the numbers.

The Super Rich Start Saving Super Early
Learning from the masters.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to improve your online banking security. Also in the news: Avoiding overwhelming student debt, getting the most out of your 401(k) plan, and 12 cheap ways to keep your kids busy this summer.

5 Ways to Improve Your Online Banking Security
Protecting your information.

8 College Planning Tips to Avoid Overwhelming Student Loan Debt
There are alternatives.

401(k) Fatigue? Here’s How to Get the Most Out of Your Plan
Don’t leave money on the table.

Summer is coming: 12 cheap ways to keep your kids busy
Summer doesn’t have to cost a fortune.

Debt Forgiveness Always Has a Catch

iStock_000076779733_Small-570x225The Credit Card Debt Forgiveness Act and the Obama Student Loan Forgiveness Program don’t exist. The IRS won’t erase your tax debt just because you say you can’t pay it.

Even when debt forgiveness options are available, they can be loaded with traps such as hard-to-follow rules, unexpected tax bills and damage to your credit scores.

You need to know all this because there’s a thriving industry of scam artists telling you otherwise. In their ads and email come-ons, the bad guys try to convince people drowning in debt that there are ways to escape without serious consequences.

In my latest for NerdWallet, which debts can be forgiven and the catches that come with forgiveness.

Tuesday’s need-to-know money news

Financial-PlanningToday’s top story: How life insurance companies learn all of your secrets. Also in the news: How to avoid overwhelming student loan debt, questions parents should answer before paying for a wedding, and financial tips to ease the transition from military to civilian life.

How Life Insurance Companies Learn Your Best-Kept Secrets
It’s all in the data.

8 College Planning Tips to Avoid Overwhelming Student Loan Debt
Starting off on the right foot.

Paying for a Wedding: 5 Questions Parents Should Answer Now
Forget about any fancy purchases for a while.

8 Financial Tips To Ease The Transition From Military To Civilian Life
Coping with big changes.

Monday’s need-to-know money news

common-retirement-mistakesToday’s top story: College counselors spill financial aid secrets. Also in the news: How to tell if you’re on track for retirement, why new grads have a huge retirement savings advantage, and the 401(k) mistakes that could cost you a bundle.

College Counselors Spill 6 Financial Aid Secrets
Get the inside scoop.

Do the Math to Tell If You’re on Track for Retirement
Checking your progress.

New grads have a huge retirement savings advantage
How much will you have in 40 years?

The 401(k) Mistakes That Could Cost You a Bundle
Pay close attention.

Q&A: Spreading out the tax hit from capital gains

Dear Liz: We are in the lowest tax bracket. If we sell a capital gains asset worth several hundred thousand dollars, does that put us in a higher bracket and we pay 20% or do we remain in the lower bracket and pay 15%?

Answer: In the two lowest federal income tax brackets, the capital gains rate is actually zero. For a married couple filing jointly, taxable income below $18,550 in 2016 would put you in the 10% tax bracket, while income between $18,550 and $75,300 would put you in the 15% bracket. Both 10% and 15% income tax brackets pay no federal tax on long-term capital gains.

But capital gains count as income in determining your tax bracket. So a big capital gain can push you into a higher bracket, which means you would pay a higher capital gains rate.

Let’s say your normal taxable income is $75,000. You sell an asset with a $25,000 capital gain. Now you’re in the 25% tax bracket with taxable income between $75,300 and $151,900, which means your long-term capital gains rate will be 15%.

A really big gain would put you in the top 39.6% bracket, which applies to taxable income above $466,950. In that bracket, your capital gains rate would be 20%. Also, an additional 3.8% surtax applies for taxpayers with adjusted gross incomes over $250,000 for married couples and $200,000 for singles. The surtax is applied to the lesser of the taxpayer’s net investment income or the amounts over those limits.

There may be ways to alleviate or spread out the tax hit. You could sell losing investments to offset some or all of the gain. Another option for some assets is to sell a portion at a time over several years, or use an installment sale. A tax pro can walk you through your options.