Advanced Underwriting Consultants

Question of the Day – June 10

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Here’s the question of the day.

Question:  My client is widowed and wants to sell his primary residence.  His basis in the property is $250,000, and he expects to net $550,000 from the sale.  Can he defer paying capital gains tax on the transaction if he plans to buy a new primary residence?

Answer:  No.

The ability to continue to roll over primary residence capital gains from one property to the next ended in 1997, and was replaced by the $250,000 exclusion ($500,000 for married couples) of capital gains on disposition of a primary residence.

Here’s a link to a website where the rule is explained by a CPA.

http://cpa-services.com/special_sal.shtml

So if your widowed client sells his primary residence and recognizes a $300,000 gain, the first $250,000 will be exempt from tax, and the other $50,000 will be subject to capital gains tax.  Your client must check with his own tax advisor to double-check his own numbers and whether he is eligible for the exemption.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day. 

Question of the Day – March 6

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question:  Can my client deduct the investment fees charged inside her variable annuity from her income taxes?

Answer:  No.

If investment fees are paid in cash or otherwise taken from an already-taxed source, they are potentially deductible—if the taxpayer itemizes, and to the extent all deductible miscellaneous expenses exceed 2% of AGI.

If the fees are deducted from an untaxed source—inside an IRA or nonqualified deferred annuity (NQDA) contract, for example—they are NOT tax deductible.  See Revenue Code Section 212.

Even though the internal amounts charged in an IRA or NQDA (including VAs) are not tax deductible, the IRS allows such amounts to be deducted from the pre-tax account without being included in the client’s taxable income.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.