Search found 310 matches

by Two Headed Mule
Thu Mar 29, 2018 12:00 pm
Forum: Personal Finance (Not Investing)
Topic: TAXES - How to handle Rental Income Loss
Replies: 10
Views: 646

Re: TAXES - How to handle Rental Income Loss

(1) Yes (2) Sort of. On a fully taxable sale, any suspended losses are "released." Since the suspended losses are ordinary, and the gain on the sale will likely be capital (including some recapture, max rate 25%), the result may well be better (but almost certainly no worse) than a simple offset of...
by Two Headed Mule
Thu Mar 29, 2018 9:56 am
Forum: Personal Finance (Not Investing)
Topic: TAXES - How to handle Rental Income Loss
Replies: 10
Views: 646

Re: TAXES - How to handle Rental Income Loss

(1) Yes (2) Sort of. On a fully taxable sale, any suspended losses are "released." Since the suspended losses are ordinary, and the gain on the sale will likely be capital (including some recapture, max rate 25%), the result may well be better (but almost certainly no worse) than a simple offset of ...
by Two Headed Mule
Mon Mar 12, 2018 4:28 pm
Forum: Personal Finance (Not Investing)
Topic: Rental Property Sale - Tax Implications
Replies: 8
Views: 854

Re: Rental Property Sale - Tax Implications

He is simply wrong about this, assuming you have calculated the numbers correctly. In the no gain/no loss situation there is no recapture. Specifically, the definition of Unrecaptured Section 1250 gain in section 1(h)(6) explicitly requires a taxable gain for the recapture provisions to apply: "The ...
by Two Headed Mule
Sat Feb 10, 2018 8:00 am
Forum: Personal Finance (Not Investing)
Topic: Rental Property Sale - Tax Implications
Replies: 8
Views: 854

Re: Rental Property Sale - Tax Implications

My guess is that the part that is confusing you is the applicable basis issue. Because you converted to rental when the fmv of the property was less than the original purchase price, there are actually two different bases to keep track of. The 90k basis is only used to figure any loss from the sale ...
by Two Headed Mule
Sat Feb 03, 2018 2:55 pm
Forum: Personal Finance (Not Investing)
Topic: Help calculating 2018 kiddie tax
Replies: 33
Views: 1808

Re: Help calculating 2018 kiddie tax

I think I could use the example similar to what was posted here but not sure if I would first Deduct the 12,000 standard deduction from 22,000 (earned plus unearned income) and then apply the estate tax rates for the $10k balance as you did with the estate tax rates. Yes. Because the son would not ...
by Two Headed Mule
Wed Jan 31, 2018 8:26 am
Forum: Personal Finance (Not Investing)
Topic: Rental Depreciation Recapture
Replies: 12
Views: 1083

Re: Rental Depreciation Recapture

Can depreciation ever be recaptured at less than 25% rate Yes -- in fact, this will become quite common in light of the new tax legislation, which lowered rates. The type of recapture being discussed is taxed at regular rates, up to a maximum of 25%. Thus, for MFJ, if the portion of taxable income ...
by Two Headed Mule
Thu Jan 25, 2018 8:33 pm
Forum: Personal Finance (Not Investing)
Topic: Rental Properties and Capital Gains
Replies: 10
Views: 1301

Re: Rental Properties and Capital Gains

Yes, the recapture amount is taxable income. Suppose the total gain from the sale is $70K, made up of recapture of10K, and the remaining gain of $60K. these amounts are "stacked" on top of your other ordinary income. Suppose taxable income otherwise is $5K (that is, work income is $50K, and the stan...
by Two Headed Mule
Thu Jan 25, 2018 8:32 am
Forum: Personal Finance (Not Investing)
Topic: Rental Properties and Capital Gains
Replies: 10
Views: 1301

Re: Rental Properties and Capital Gains

You are close. As noted above, the sale will likely result in two different types of capital gain. First is "recapture". Your inlaws were allowed to depreciate the properties over time on the assumption that they would lose value. Since they did not lose value, that tax benefit must be recaptured. T...
by Two Headed Mule
Thu Jan 04, 2018 9:44 am
Forum: Personal Finance (Not Investing)
Topic: Selling individual muni bonds- estate executor has question
Replies: 9
Views: 533

Re: Selling individual muni bonds- estate executor has question

Bond premium should have been amortized by decedent over the life of the bond (even leaving aside basis step up/step down). Doubt there is any significant (tax) loss in those bonds to be realized by estate/beneficiaries.
by Two Headed Mule
Sun Dec 31, 2017 8:31 am
Forum: Personal Finance (Not Investing)
Topic: Selling Rental Home
Replies: 3
Views: 412

Re: Selling Rental Home

This should qualify for the section 121 exclusion. You have to meet the "use" and "ownership" requirements to qualify for the exclusion, which means owning and using the townhouse as your principle residence for 2 of the past 5 years, but you don't have to satisfy each requirement concurrently. You ...
by Two Headed Mule
Sat Dec 23, 2017 8:52 am
Forum: Personal Finance (Not Investing)
Topic: [Pass-Thru Entities Questions Thread]
Replies: 140
Views: 10271

Re: Question about pass through income in new tax law

I don’t know the answer to that yet. I think that’s right but I haven’t seen it written anywhere yet. It's written here. :D It also works the other way. if you are otherwise subject to the taxable income limit, adding 50K of charitable contributions saves tax at the marginal rate, but also removes ...
by Two Headed Mule
Sat Dec 23, 2017 7:58 am
Forum: Personal Finance (Not Investing)
Topic: [Pass-Thru Entities Questions Thread]
Replies: 140
Views: 10271

Re: Question about pass through income in new tax law

BMTaco has done a very good job explaining how it works in various particulars. One important feature is that the deduction will, in many cases, also apply at the margins to non-business income. This is because the limit on the deduction is the lesser of (1) 20% of QBI, or (2) 20% of taxable income ...
by Two Headed Mule
Fri Dec 22, 2017 2:20 pm
Forum: Personal Finance (Not Investing)
Topic: Prepaying Business Expenses - Pass Through Deduction in 2018
Replies: 5
Views: 411

Re: Prepaying Business Expenses - Pass Through Deduction in 2018

Probably. Marginal brackets for most people next year will be lower, and in addition, the pass-through deduction effectively serves as an additional reduction in your marginal tax rate. Both factors make accelerating business deductions to this year better, all things equal. So for example, a $10,00...
by Two Headed Mule
Wed Dec 06, 2017 2:00 pm
Forum: Personal Finance (Not Investing)
Topic: Help me calculate Depreciation Recapture & Cap Gains
Replies: 7
Views: 597

Re: Help me calculate Depreciation Recapture & Cap Gains

I thought depreciation recapture is usually taxed at a special rate (25%). It's not normal cap gains. .................................................. I thought it was ordinary income rates but capped at 25%. (1) The recapture being discussed is in fact a special type of capital gain -- thus capi...
by Two Headed Mule
Sat Nov 04, 2017 12:56 pm
Forum: Personal Finance (Not Investing)
Topic: Student Loans: Best to Pay Down or Wait for Forgiveness?
Replies: 33
Views: 2591

Re: Student Loans: Best to Pay Down or Wait for Forgiveness?

Likewise, if you took out a home-equity loan or did a cash-out refinance on your home to pay off the student loans, that would lower your rate, although only interest on the first $100,000 of extra debt would be deductible. (I believe this is correct; a home-equity loan used to refinance an otherwi...
by Two Headed Mule
Wed Oct 04, 2017 12:31 pm
Forum: Personal Finance (Not Investing)
Topic: Renting to parent vs. inheriting
Replies: 13
Views: 1324

Re: Renting to parent vs. inheriting

She isn't wasting her money by not paying you rent. She's out the money no matter who she rents from. And from your perspective, you can either buy a house and earn rent from her, or not buy the house and earn a market return from someone else on that same money (visualize investing in a separate RE...
by Two Headed Mule
Sun Oct 01, 2017 9:11 am
Forum: Investing - Help with Personal Investments
Topic: Whole Life question - when to stop making annual payments?
Replies: 16
Views: 1983

Re: Whole Life question - when to stop making annual payments?

I find it hard to believe a 20 year old whole life policy is yielding so little on the cash value. Are you sure those numbers are correct, particularly since you've indicated that the dividend can pay almost all of the premium at this point?
by Two Headed Mule
Sun Oct 01, 2017 6:53 am
Forum: Investing - Help with Personal Investments
Topic: Whole Life question - when to stop making annual payments?
Replies: 16
Views: 1983

Re: Whole Life question - when to stop making annual payments?

"Which of these three approaches makes the most sense for this policy?" is not the right question. The question is which approach makes sense given your FIL's goals, which are unclear. Each option can make sense depending on what is attempting to be accomplished. For example, (c) makes sense if he d...
by Two Headed Mule
Tue Sep 26, 2017 8:22 am
Forum: Personal Finance (Not Investing)
Topic: Double checking capital gains taxes due on home sale if a rental or not
Replies: 7
Views: 1043

Re: Double checking capital gains taxes due on home sale if a rental or not

This may help get you started. Depreciation will be fully recaptured in either of your two scenarios, so the question is how the remaining 50K of gain is treated. Scenario 1: depreciation recapture of $90,900, capital gain of 50K (most likely capital, see section 1231). As you say, this is the more ...
by Two Headed Mule
Fri Sep 22, 2017 8:19 pm
Forum: Investing - Help with Personal Investments
Topic: Question re passive income
Replies: 5
Views: 745

Re: Question re passive income

Generally, yes. Both of your rentals would be considered passive activities. Under section 469, Income and losses from passive activities are aggregated, so net losses from the "home" rental could offset net income from the other rental.

Mule
by Two Headed Mule
Mon Jul 31, 2017 7:11 am
Forum: Personal Finance (Not Investing)
Topic: Tax on profits from de-condoifying
Replies: 1
Views: 349

Re: Tax on profits from de-condoifying

Suspended passive losses from all passive activities are effectively in one pot. Passive income in a given year from any source will free these losses to the extent of passive income. So assuming these are all passive activities (almost guaranteed unless you are real estate pro) losses from the othe...
by Two Headed Mule
Wed Jun 28, 2017 1:47 pm
Forum: Personal Finance (Not Investing)
Topic: Tax Liability on Selling Former Residence (Now Rental)
Replies: 14
Views: 1204

Re: Tax Liability on Selling Former Residence (Now Rental)

I'm going to disagree with Mule on this one, but I also don't agree with the sources provided by jimb. There are two issues. One is the effect depreciation has on adjusted basis. The other is how much of the gain upon sale attributable to depreciation is "recaptured" in calculating tax. Reg. 1.1016...
by Two Headed Mule
Wed Jun 28, 2017 11:52 am
Forum: Personal Finance (Not Investing)
Topic: Tax Liability on Selling Former Residence (Now Rental)
Replies: 14
Views: 1204

Re: Tax Liability on Selling Former Residence (Now Rental)

There are also instructions in various IRS tax worksheets similar to this one in publication 523: "...Did you qualify for depreciation? If you used all or part of your home for business or rental between May 6, 1997 and the date of sale, total all the depreciation deductions you could have taken be...
by Two Headed Mule
Wed Jun 28, 2017 8:46 am
Forum: Personal Finance (Not Investing)
Topic: Tax Liability on Selling Former Residence (Now Rental)
Replies: 14
Views: 1204

Re: Tax Liability on Selling Former Residence (Now Rental)

In a lot of cases, depreciation will be "recaptured" as ordinary income not to exceed 25%, so that part of the "gain" is not eligible for cap gain rates. What happens if someone failed to take the depreciation deduction along the way? I seem to recall something about the recapture occurring anyway,...
by Two Headed Mule
Mon May 29, 2017 1:50 pm
Forum: Investing - Help with Personal Investments
Topic: Pay Down 401k Loan vs Mega Backdoor Roth
Replies: 13
Views: 1704

Re: Pay Down 401k Loan vs Mega Backdoor Roth

No Loan: 401k starting balance (bond portion) on 1/1/2016: $100,000 Bond fund yields 2%: $2,000 401k ending balance on 12/31/2016: $102,000 With Loan: 401k starting balance on 1/1/2016: $50,000 Loan balance on 1/1/2016: $50,000 Bond fund yields 2%: $1,000 Loan interest 4.25%: $2,125.00 Ally savings...
by Two Headed Mule
Sat May 27, 2017 1:35 pm
Forum: Investing - Help with Personal Investments
Topic: Pay Down 401k Loan vs Mega Backdoor Roth
Replies: 13
Views: 1704

Re: Pay Down 401k Loan vs Mega Backdoor Roth

Mathematically (and leaving aside other considerations like separation from employer, etc.), paying off the loan and making the mega roth contribution are quite similar. You "own" a certain fraction of your traditional 401(k) and the government "owns" the rest (equal to your withdrawal tax rate in r...
by Two Headed Mule
Fri May 12, 2017 8:27 am
Forum: Personal Finance (Not Investing)
Topic: My plan to use policy loans to fund first five years of retirement
Replies: 61
Views: 4787

Re: My plan to use policy loans to fund first five years of retirement

Just to give you all an idea of the hard numbers. One policy I've had for 26 years. If I die today, the amount of the death benefit would represent a 9% annualized increase, all tax free. Actually more than that if you subtract the term premiums that would have been in place in the absence of the p...
by Two Headed Mule
Wed Apr 19, 2017 1:53 pm
Forum: Personal Finance (Not Investing)
Topic: Does AMT erode value of suspended passive losses?
Replies: 5
Views: 807

Re: Does AMT erode value of suspended passive losses?

This strikes me as a pretty unusual result. It is essentially indicating that there is no passive loss carryover for AMT purposes, which would be unusual given that your activities are presumably rental real estate, which don't generally have much in the way of tax preference items. One would genera...
by Two Headed Mule
Sun Mar 19, 2017 9:49 am
Forum: Personal Finance (Not Investing)
Topic: Sale of home that was also rental - tax question
Replies: 8
Views: 886

Re: Sale of home that was also rental - tax question

How was basis determined at time of conversion? Was this value higher or less than original purchase? Have you been using TT all along to track it? You might consider a CPA for this year. I can't remember off the top of my head but I believe it was either 2009 or 2007 that the rule changed so any g...
by Two Headed Mule
Sun Mar 05, 2017 8:22 pm
Forum: Personal Finance (Not Investing)
Topic: Real estate loss and Roth Conversion?
Replies: 2
Views: 319

Re: Real estate loss and Roth Conversion?

It depends on the reason the lot was purchased. If it was bought and held for personal reasons (e.g., to build a house/residence that never materialized), the loss would be nondeductible. If held for investment purposes (e.g., speculation on land prices), the loss is capital, and thus would not offs...
by Two Headed Mule
Sun Feb 26, 2017 9:15 pm
Forum: Personal Finance (Not Investing)
Topic: Selling rental at a loss
Replies: 4
Views: 572

Re: Selling rental at a loss

Help me understand the tax implications. 2010: $167k condo purchase 2013: started renting to tennant 2017: $132 left on mortgage If I sold this year for $147k ($20k below what I paid) how would it impact my tax return? Depends. Assuming value was equal to or greater than 167K when converted to rent...
by Two Headed Mule
Sun Feb 26, 2017 8:44 am
Forum: Personal Finance (Not Investing)
Topic: Invest or pay down rental property mortgage
Replies: 16
Views: 1323

Re: Invest or pay down rental property mortgage

Mortgage rate: 4% (ARM, so could go up) I'm in California, my income is greater than $200K, so my combined interest and dividends tax rate, I believe, is 33%. So I would have to earn at least a 5.97% yield. Factoring in overall return is a litle more complicated because of capital gains rates (or n...
by Two Headed Mule
Mon Feb 20, 2017 8:33 am
Forum: Personal Finance (Not Investing)
Topic: Rental property sale (conversion) - loss question
Replies: 8
Views: 754

Re: Rental property sale (conversion) - loss question

The calculations are correct as far as they go. The questionable part is the assumption that the value of the property at the time of conversion was equal to its original purchase price, since the property was ultimately sold at a substantial loss. This assumption is also driving the (tax loss) resu...
by Two Headed Mule
Fri Feb 10, 2017 10:12 am
Forum: Personal Finance (Not Investing)
Topic: Life estate at death
Replies: 20
Views: 2871

Re: Life estate at death

The house was owned as joint tenants by mom and dad, yes? Rev Rul 69-577: Where property held in tenancy by the entirety is transferred to a trust under which each spouse reserves a joint and survivor life estate, only one-half of the value of the trust property is includible in each cotenant's gros...
by Two Headed Mule
Thu Feb 09, 2017 4:22 pm
Forum: Personal Finance (Not Investing)
Topic: tax problem on once partially rented primary home
Replies: 4
Views: 533

Re: tax problem on once partially rented primary home

You should be eligible for the section 121 exclusion, subject only to depreciation recapture. Do not simply net the depreciation recapture with the suspended passive losses since they have different tax attributes. Depreciation recapture is subject to a maximum 25% rate and can be offset with other ...
by Two Headed Mule
Thu Feb 09, 2017 9:19 am
Forum: Personal Finance (Not Investing)
Topic: Life estate at death
Replies: 20
Views: 2871

Re: Life estate at death

The part that I'm slightly confused by is that there was a life interest for both mom and dad and how the two interests are divided. If mom (surviving spouse) had no power of appointment, then your original characterization would appear to be accurate. See Rev Rul 69-577. If the surviving spouse re...
by Two Headed Mule
Sun Jan 29, 2017 9:36 pm
Forum: Personal Finance (Not Investing)
Topic: How to Fill Out Nanny W-2 When Paying Her Portion of FICA
Replies: 16
Views: 1434

Re: How to Fill Out Nanny W-2 When Paying Her Portion of FICA

TomatoTomahto wrote:
In your experience, for a household worker, how often are wages grossed up?
Compliance in this area generally is so poor that there is no number that would surprise me. Payroll services and experienced CPAs are probably the only things keeping this number mildly north of 0%.

Mule
by Two Headed Mule
Sun Jan 29, 2017 9:04 pm
Forum: Personal Finance (Not Investing)
Topic: How to Fill Out Nanny W-2 When Paying Her Portion of FICA
Replies: 16
Views: 1434

Re: How to Fill Out Nanny W-2 When Paying Her Portion of FICA

To clarify on this, only box 1 wages are grossed up. Wages for social security and medicare are not grossed up. Otherwise you run into an iterative problem where the increased wages for FICA and medicare again produce more FICA and medicare tax, which since you are covering, again produces addition...
by Two Headed Mule
Sun Jan 29, 2017 5:36 pm
Forum: Personal Finance (Not Investing)
Topic: How to Fill Out Nanny W-2 When Paying Her Portion of FICA
Replies: 16
Views: 1434

Re: How to Fill Out Nanny W-2 When Paying Her Portion of FICA

I believe that, technically, you're supposed to gross up her wages (e.g., instead of saying her wages were $6,000, you'd say that her wages were $6000 + FICA + whatever additional income it would take to have FICA left after other withholding). Technically speaking, this is the correct answer. If y...
by Two Headed Mule
Sun Jan 22, 2017 4:47 pm
Forum: Investing - Help with Personal Investments
Topic: What to do with Passive Rental Loss?
Replies: 9
Views: 2787

Re: What to do with Passive Rental Loss?

Is that true if, as the OP did, convert the house back into a personal residence? The rule are very complex about how to treat losses/gains for people which convert residences into a rental (which I did) and back (which I didn't). Wouldn't it be more proper to treat the conversion back from a renta...
by Two Headed Mule
Sun Jan 22, 2017 3:10 pm
Forum: Investing - Help with Personal Investments
Topic: What to do with Passive Rental Loss?
Replies: 9
Views: 2787

Re: What to do with Passive Rental Loss?

I am unsure what happens to the passive losses when they are freed when we sell our house. Do they disappear? Are they continued to be brought forward to be used against possible other passive income? Does it offset any appreciation of the house when we sell it? Freed simply means that the losses a...
by Two Headed Mule
Sun Jan 22, 2017 2:28 pm
Forum: Investing - Help with Personal Investments
Topic: What to do with Passive Rental Loss?
Replies: 9
Views: 2787

Re: What to do with Passive Rental Loss?

My understanding is that the passive loss will not apply to the sale of our house when we move since it is our primary residence again. Is this correct? No -- any suspended passive losses are freed in full on the sale of your residence. Will we carry the passive loss for years or is there some way ...
by Two Headed Mule
Sun Jan 08, 2017 10:18 am
Forum: Investing - Help with Personal Investments
Topic: Divesting Higher Expense Ratio Funds
Replies: 12
Views: 1192

Re: Divesting Higher Expense Ratio Funds

You should almost certainly sell the actively managed funds immediately because of the fee differential and because the unrealized gains as a percentage of fund value is low. You should understand conceptually what is occurring. By selling now, you are simply accelerating gain that you will owe in t...
by Two Headed Mule
Fri Jan 06, 2017 8:48 pm
Forum: Personal Finance (Not Investing)
Topic: Conversion of Inherited Home into Primary Residence worthwhile?
Replies: 13
Views: 1143

Re: Conversion of Inherited Home into Primary Residence worthwhile?

As has been noted, gain from the sale (if you move back in and later sell after living there for at least 2 years) will need to be allocated between periods of "qualified" and "non-qualified" use. Nonqualified use is any period of time you (or your spouse) didn't use the property as your principal r...
by Two Headed Mule
Tue Jan 03, 2017 9:03 am
Forum: Personal Finance (Not Investing)
Topic: Homeowner costs calculation and ROR
Replies: 5
Views: 615

Re: Homeowner costs calculation and ROR

I follow the caniretireyet website and have gleaned some useful information from it over the past few years. On the article in the link below though, I think the author is making a mistake by not accounting for the rental costs that one would have to pay when not owning a home. In my view, homeowne...
by Two Headed Mule
Fri Dec 30, 2016 3:31 pm
Forum: Personal Finance (Not Investing)
Topic: Any tax benefits in prepaying real estate tax for high earner? Pease and AMT worries
Replies: 7
Views: 978

Re: Any tax benefits in prepaying real estate tax for high earner? Pease and AMT worries

(1) Property taxes are an add-back for purposes of the AMT (i.e., the deduction is disallowed). If you were subject to AMT with $8,000 of property taxes, then prepaying another $8,000 won't provide a federal tax benefit (absent some truly unusual circumstances). What you will see on your return if y...
by Two Headed Mule
Wed Dec 28, 2016 8:50 am
Forum: Personal Finance (Not Investing)
Topic: Convert to LLC in the middle of 2017?
Replies: 19
Views: 1787

Re: Convert to LLC in the middle of 2017?

A check-the-box election to be a C corporation is effective on the date specified on the form (Form 8832), with the following limitation: you can specify any date 12 months in the future and any date up to 75 days prior to the date on which the election is filed (if you specify a date more than 75 d...
by Two Headed Mule
Tue Dec 27, 2016 9:25 am
Forum: Personal Finance (Not Investing)
Topic: Accidental Rental - Sell or "One more year"
Replies: 16
Views: 1914

Re: Accidental Rental - Sell or "One more year"

OP, it would be the value for you to calculate everything. You've mentioned the purchase price multiple times, but the purchase price went out the window the second you made it a rental. If you sell the rental for more than what the FMV was at the time of conversion, you will pay capital gains. The...
by Two Headed Mule
Tue Dec 27, 2016 8:20 am
Forum: Personal Finance (Not Investing)
Topic: Convert to LLC in the middle of 2017?
Replies: 19
Views: 1787

Re: Convert to LLC in the middle of 2017?

You have the basic gist correct -- report operations through the date of the conversion as you normally would (Schedule C); the conversion is treated as a (generally tax-free) contribution of the business assets to the corporation. Operations from that point forward will be reported by the corporati...