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Liz Weston

Q&A: How to reduce capital gains taxes on a home sale

May 2, 2022 By Liz Weston

Dear Liz: We’re retired and living in California. We are planning on selling our home, which is paid for, and moving to Tennessee in a couple of years. I think we qualify for a “one time” capital gains exemption. Our home is worth over $1 million and we paid only $98,000 in 1978. We plan on buying a home in Tennessee for around $800,000. Will we have to pay capital gains tax?

Answer: Before 1997, a homeowner could defer paying taxes on home sale gains as long as they rolled the proceeds into the purchase of another home of equal or greater value. In addition, there was a one-time exclusion for homeowners over age 55, who could exclude up to $125,000 in home sale gains.

Those rules were replaced in 1997 with the current law. Now homeowners of any age can exclude up to $250,000 each in capital gains on the sale of their primary residence, as long as they’ve owned and lived in the house for at least two of the previous five years. As a married couple, you can exclude up to $500,000 of gain — but that still leaves you with more than $400,000 of potential capital gains.

The capital gains calculation doesn’t factor in the value of your replacement home or whether you have a mortgage. However, you can use the value of home improvements you’ve made over the years to reduce your taxable gain — assuming you kept those receipts. The IRS defines home improvements as expenses that add to the value of your home, prolong its useful life or adapt it to new uses. Examples would include additions (bedrooms, bathrooms, decks, garages, etc.), heating or air conditioning systems, plumbing upgrades, kitchen remodels and landscaping, among other costs.

Improvements don’t include maintenance required to keep your home in good condition, such as painting, fixing leaks or repairing broken hardware, or improvements that are later taken out. If you put wall-to-wall carpeting and then removed it to install hardwood floors, only the cost of the hardwood floors would count.

Many of the costs you incur to sell the home, such as real estate agent commissions and notary fees, also can be used to reduce the capital gain. You can find more details in IRS Publication 523, Selling Your Home. A big home sale gain can affect other areas of your finances, such as your Medicare premiums, and may require you to pay quarterly estimated taxes. Consider talking to a tax pro before the sale so you know what to expect.

Filed Under: Q&A, Real Estate, Taxes Tagged With: capital gains tax, q&a, real estate, Taxes

Q&A: Spousal benefits

May 2, 2022 By Liz Weston

Dear Liz: My wife and I have been married for 18 months. I am 67, she is 66. She is not eligible to receive Social Security due to her work history. Is she eligible to receive spousal benefits now, even though I plan to wait until age 70 to receive mine?

Answer:
Your wife can’t start spousal benefits until you begin receiving your own benefit. In the past, someone in your position could file a Social Security application and then immediately suspend it. That triggered the spousal benefit while allowing the primary earner’s benefit to continue growing. Congress changed those rules in 2015, however.

Filed Under: Q&A, Social Security Tagged With: q&a, social security spousal benefits

Q&A: Executor duties

May 2, 2022 By Liz Weston

Dear Liz: My best friend made me her executor. She has no relatives. She has listed people to receive money, possessions and her house. She has left me money as well. Once everything is disbursed and bills paid, there will be leftover money. If she wants me to have it, what needs to be written in the trust?

Answer: Her will should include a phrase that disposes of her residuary estate. After listing specific bequests, she would include a phrase such as “the rest and residue of my estate goes to” followed by the name of the person she wants to have the remaining estate. This clause isn’t without its problems, however, since receiving the residuary estate could tempt you to stint the other beneficiaries. Keep in mind that as executor, you have a fiduciary duty to all the beneficiaries, which means you cannot put your own interests first.

Filed Under: Estate planning, Q&A Tagged With: estate executor, q&a

Friday’s need-to-know money news

April 29, 2022 By Liz Weston

Today’s top story: Are high-deductible Medicare supplement insurance plans worth it? Also in the news: Are older workers a solution to the labor shortage, 2022 best cities for freelancers, and two of the biggest financial regrets women say they have.

Are High-Deductible Medicare Supplement Insurance Plans Worth It?
Compare premiums to check whether high-deductible Medigap Plan G and Plan F could offer savings.

Are Older Workers a Solution to the Labor Shortage?
Older workers, a large segment of the U.S. labor force, can deliver valuable benefits to businesses of any size.

2022 Best Cities for Freelancers
The pandemic has created more opportunities for remote, self-directed and freelance work than ever.

Here are two of the biggest financial regrets women say they have — and what you can do to avoid them
Fidelity’s 2022 Money Moves survey polled women between the ages of 18 and 35.

Filed Under: Liz's Blog Tagged With: best cities for freelancers, labor shortage, Medicare supplement insurance plans, money regrets, older employees, women and money

Thursday’s need-to-know money news

April 28, 2022 By Liz Weston

Today’s top story: Tweaking your tech settings to protect your privacy. Also in the news: What to do if there’s a mistake on your business taxes, how to avoid Zelle scams, and the cheapest U.S. cities with major airports to rent cars.

You Can Tweak Your Tech Settings to Protect Your Privacy
Making life difficult for Big Tech.

What to Do If There’s a Mistake on Your Business Taxes
Here’s what two small-business pros say small-business owners can do to cope with an error on a tax return.

How to Avoid Zelle Scams, Plus What to Do If You Can’t
Scams using Zelle and other peer-to-peer payment services are popular. Learn how to protect your money and what steps to take if you experience a scam.

The Cheapest U.S. Cities With Major Airports to Rent Cars
The difference in price from city to city and airport to airport can be stark. Where you rent matters.

Filed Under: Liz's Blog Tagged With: business tax mistakes, car rental, tech privscy, Zelle scams

Wednesday’s need-to-know money news

April 27, 2022 By Liz Weston

Today’s top story: Crypto could be coming to your 401(k). Also in the news: When it comes to your car contract, the devil is in the details, the Travel Nerd on what oil prices mean for your summer travel, and the majority of adults support mandatory personal finance education in schools.

Crypto May Be Coming to Your 401(k) — Here’s What to Know Now
You may soon have access to Bitcoin as an investment in your 401(k). But think about how you react to losses before jumping in.

When It Comes to Your Car Contract, the Devil Is in the Details
Avoid bogus fees and additional charges in your car contract by reading carefully before you sign.

Ask a Travel Nerd: What Do Oil Prices Mean for My Summer Travel?
Airfares are rising, car rentals will cost you. Maybe try a city with good public transit?

88% of adults support requiring personal finance education in high school, survey finds
Starting off on the right foot.

Filed Under: Liz's Blog Tagged With: 401(k), car contracts, cryptocurrency, oil prices, personal finance education, summer travel, Travel Nerd

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