Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday answers all the caller’s questions concerning taxes and the following topics:
- Need To Take Money Out of Your 401K?
- Tax Advantages
- How The USA President Will Affect Your Taxes
- Charitable Deductions on 2020 Tax Returns
- Changes to Retirement Plans Due to COVID-19
- The Truth About Virtual Currency
- Is PPP Money Taxable?
- The PPP Loan Forgiveness Deadline
- Are Quick Claim Deeds Safe?
- Why You Need Help With Tax Representation
and other callers’ questions!
Transcript
Announcer 0:01
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now at 615-737-9986. So here’s your host financial counselor and tax consultant, Dr. Friday.
Dr. Friday 0:30
Good day! I’m Dr. Friday and the doctor is in the house. We are talking about my favorite subject. You know what? Time is flying, we are in the middle of November, not a whole bunch of time to actually make a lot of changes. But if you’re thinking about doing conversions, or if you’re thinking about taking some money out, maybe you had a hardship from COVID, and you need to do or you want to take some money out of your 401k. We’re going to talk a little bit about some advantages that may come up for that. Again, I am not a financial planner. So I’m going to talk about tax advantages. You should always consult with your tax person as well as your financial planner, before making any of these suggestions I will put out there. But if you have questions, you can certainly join the show by calling 615-737-9986. All right, and you can join the show.
Dr. Friday 1:28
Let’s talk about a couple of different things. We all know that at this point, we’re going to be moving forward. We know what’s happened in 2020 as far as taxes, there’ll be no change, we don’t really know what to expect for 2021. Depending on the final numbers and the count, if Biden is President, I think we’re going to see some major changes in what Trump successfully did for some tax changes. I think we’re going to find that we may find that there’s gonna be some changes that we may need to preempt. The hard part of that conversation is, when will it happen? I mean, when he comes in, will they immediately try to change or reduce the taxes that we know, or will it be something that’s gradual, giving us enough time to make some changes to adjust our taxes? So we know what’s going to be there and what’s not going to be there. So we want to make sure that we understand what the best options are. If you’ve got questions about that, or want to join the show about any other questions you might have, you can join it at 615-737-9986. All right, and why don’t we go ahead and hit Gary. Hopefully, my buddy on the other side here is multitasking. So we’ll see if Gary can be joined the show here or if we need to give him a second to type because you know, he only has two hands. Alright, so let’s see if we can get Gary on the show. Thank you, buddy. Appreciate it. Hey, Gary.
Caller 2:56
Yes, the question I’ve got for you is two parts. The first part is if you receive money from [inaudible] injury, do you have to pay taxes on that money?
Dr. Friday 3:08
Well, if it’s for injury, meaning it’s not loss of income, but you had it for medical purposes, then the answer is going to be no. If it was partly for injury and partly for loss of income, because you may not be able to work or earn the same income that you did before then the answer is part of it will be yes. Anything that’s for injury is no but anything for loss of income, you do have to pay taxes on.
Caller 3:34
The second part, even though you’ve got the money, is there a spot that you are supposed to record it on your taxes or?
Dr. Friday 3:44
Well, again, if it’s for injury, then they’re basically covering it under your medical and it’s not a reportable income. If it is for loss of income, then there is a place under other income where you can put settlements or, you know, lawsuits.
Caller 4:00
Yeah, it wasn’t for loss of income. It was for injury.
Dr. Friday 4:04
Okay. Usually, in most cases, you will also get 1099 for that when a lawyer does the settlements. but I have found from time to time where it’s mixed and they just basically called it all injury but in an audit, you know, that wasn’t the case. But most of the time, you know, if it’s just for injury, then there’s no place on your tax return to worry about it. No, sir.
Caller 4:26
Well, listen, I appreciate you taking my call. I listened to you regularly. It’s the first time I really had a question for you. Thank you so much.
Dr. Friday 4:33
Thank you for so much for listening. I appreciate it very much, Gary. All right. Let’s go ahead and keep the phone lines going. Let’s go to Robert. Hey, Robert.
Caller 4:43
How are you?
Dr. Friday 4:46
I am doing great.
Caller 4:49
Will there be a place on the 2020 tax form that if you didn’t receive a stimulus check, that you request it then?
Dr. Friday 5:01
Yes, sir. There is a place already on there for everybody. So it’s going to basically ask you “have you received the stimulus? And if so how much you received.” Because some people didn’t get quite enough, maybe they had children that were under age or whatever, and they should have received money on them. Or I have quite a few individuals that may be filed their 2018 late or the 2019 and they weren’t able to do anything. So yes, there is a form on there that we’re going to be clicking a lot like back in 2008 -2009 when we had a similar similar situation, and then they will credit it to you at that time. The only tricky part about that, Robert, is, if you owe the IRS in the past when the stimulus checks were issued, they could not use it to pay back IRS debt, they had to give it to you, even if you owed the IRS. And I don’t know if that will be the case if you get it on your 2020 tax return. But in your case, probably yes. You’ll get an additional $1200 or $2400 depending on if you’re single or married.
Caller 6:03
Already. Thank you.
Dr. Friday 6:05
Thank you very much. All right, that was a great question. So I know quite a few people out there. Alright, let’s go to Paula in Cotton town. There’s a big town. Hello, Paula.
Caller 6:14
Hey, how are you?
Dr. Friday 6:16
I am doing awesome.
Caller 6:19
Well, I attempted, I’m still building it a business during this whole COVID shut down where I buy t-shirts and I put vinyl on them. I make my own little bags, zippered bags, I do candles, and make earrings.
Dr. Friday 6:38
Okay, very artistic treads? Yes.
Caller 6:43
Yes, I had someone tell me and I’m thinking that this is not true. But I had someone tell me that if I pay sales tax on what I buy, I do not have to turn around and charge sales tax when I sell my items. But I’m questioning that?
Dr. Friday 7:00
You should, because logic doesn’t work quite that way. Because for one, you’re marking up those products, right? The state wouldn’t be getting a fair amount. What you should be doing is if you have a sales tax number, that same number is what we refer to as a wholesale number. You should be giving that to your vendors wherever you go if it’s Hobby Lobby, or if it’s an online site, whatever, you should not pay sales tax. So when you sell the product, you collect the sales tax and then that way because right now really sales tax on anything you buy is just additional cost of goods, which means you’re paying in this state, 9.25 to 9.75% additional cost of goods. So you need to just make sure if you have a sales tax number you should be giving that to any of the people that you buy your product from.
Caller 7:47
Okay, and that would apply to online sales as well there’s a place where I could say that I could get.
Dr. Friday 7:55
Correct. If you’re buying it from out of state then obviously theoretically, you probably aren’t paying any sales tax unless it’s a large vendor that has locations like Amazon now collects you know, sales tax no matter where you’re getting it from. But yes, all of them would have a place for you to be able to present the wholesale number, and then again if you sell it out of state you would not collect sales tax because that is not taxable to our state.
Caller 8:22
Right. So if someone who orders from may say they order online from me and they’re in a different state, I just have you don’t know website set up to where it doesn’t charge them tax obviously?
Dr. Friday 8:33
That is 100%. Are you shipping for yourself? Or do you have a warehouse that does the shipping?
Caller 8:39
I’ll be doing my own shipping. I’ve actually done a little bit already and I take it in, you know, I box it up and I ship it I mean I’m still very, very small. I’m still trying to grow this thing.
Dr. Friday 8:50
Well sometimes people will use people like Amazon and them and they’ll ship the stuff to them and allow them to do the shipping and then that’s where the sales tax changes but in your case, you’re 100% correct. If you’re shipping it to somebody in Florida, you don’t have to collect sales tax for that person.
Caller 9:07
Okay, perfect. All right. I can just go to my secretary of state or someplace like that and get my sales tax number?
Dr. Friday 9:15
It’s going to be the Tennessee Department of Revenue. And yes, you can go on to what they call TNTAP.gov and you can sign up for an account there and you can do your business license your sales tax. If you’re interested in entity franchise excise, anything that’s paid to the government pretty much can now be paid through TNTAP.
Caller 9:37
Okay, fantastic. I thought I wasn’t getting good information. I don’t want to go to jail!
Dr. Friday 9:44
Yeah. Well, you’re starting a new company. So you kind of want to do it right from the beginning. It’s a lot easier than trying to go backward and make corrections on it. So if you have any other questions, don’t hesitate to call me even at my office or whatever. I rather make sure you get done right. If you need help, it’s easy to do, we do it all the time? Okay.
Caller 10:02
Absolutely. Thank you so much.
Dr. Friday 10:04
Thanks, Paula. Appreciate you. Alright, so that was great if you do want to join the show, those are wonderful questions, guys, you can call 615-737-9986. One of the gentlemen that were asking, I think it was Robert that was asking about the stimulus. Also, something new on the 2020 tax return is going to be charitable deductions. Now, it’s $300 per return is what I’ve heard, I have not heard it’s going to be if it’s married, or single, it’s going to be $300 straight across is what they’re telling me. But this is the time when people are always giving. I know for the last couple of years, we’ve not really maybe tracked it as much because a lot of people haven’t had the need to do that because they don’t itemize. I mean, you may give but you might not be keeping those receipts thinking it’s not something I have to track because you really haven’t itemized much. Well, this year, you’re going to need to bring in or have your documentation that you provide to the tax person that you did use or give $300 because that’s going to be above the standard deduction. A lot of my clients totally givers, they are always giving a lot of their time buying foods and things for charities. So any of those things would qualify. Doesn’t have to be money, it can be clothes or, Habitat for Humanity or donating things, whatever it might be that you do. But the bottom line is there is going to be an additional $300 per return that you can write off. Again, I’m not finding anything that tells me that it’s going to be $300 for single and $600 for married, it’s going to be 300 per return to the best of my ability. So you know, make sure you’re dealing with that and moving forward.
Dr. Friday 11:54
Also make sure that when you are using if you do have charities, make sure they are true 501- C’s. There’s a lot of things online, a lot of companies, GoFundMe accounts, things like that, that people are doing great things, nice things, but they’re not legitimate 501 C 3’s. For tax purposes, you giving money to somebody that maybe needs money for medical procedures or something along those lines. That is not a true tax deduction. Keep in mind, that is not something that has to be something that is a 501 C-3. If you’re not sure, you can go directly to irs.gov. In the little search, just put in charitable content, charitable companies, and they will bring up and you can double-check that information to make sure if you’re giving to them, that you’re you know, giving to something that’s going to be a tax deduction. Again, if it’s not something you care about tracking, awesome, do what you need to do. But when it comes time for taxes, your tax person wants to make sure that that’s the right information. All right, so if you want to join the show, you can call 615-737-9986. We’re gonna take a quick break. When we come back, we’ll do more about your calls. Also, we’re going to talk a little bit about $100,000 that can come out of your 401k and what you need to know about doing that without having to pay some penalties. We’re going to be right back with the Dr. Friday show.
Dr. Friday 13:37
We’re going to talk a little bit about some major changes to retirement plans due to COVID. And this is one of those deals that the qualified affect plans can withdraw up to $100,000 from those they’re eligible for retirement plans, including IRAs between January and December 30, 2020. So this is something you’d have to do. This COVID virus-related distribution is not subjected to the 10% penalty for those that may be applying if you are before the age of 59 and a half, but they are subjected to regular income tax. Taxpayers can include COVID related distributions as income on returns over a three year period. So it’s something we can spread out, they must repay the distributions to the plan or IRA also within three years. Some plans have relaxed rules on loans and repayment terms. The limit on the loan made between March 27 and September 22 has been raised up to 100,000. Plans may suspend loan repayment due between the 27th and 31st. Some of those if you have a 401k loan. The biggest thing is that someone either you tested positive or have been diagnosed with COVID has a dependent or spouse who has tested positive or has been or has been diagnosed, been quarantine furloughed or laid off or have reduced worked hours, not be able to work lack of because of childcare, the closure of businesses or operations, having pay or self-employed tax reduction, having a job that has been rescinded or start a new job, but it was delayed, any of those things can apply. So it’s something to think about. If you need to, again, I’m not suggesting this for any one person, I am saying that if hardships have happened, this is the time, to look at that 401k or IRA, especially if people have reached into it. Make sure when you get ready to do your taxes, if you had been furloughed, quarantine, I think almost all of us were quarantined for two weeks at one point or are unable to do any work requested that we had to shut our businesses down.
Dr. Friday 15:53
Most people are still having to work from home. Many people apparently are dealing with being diagnosed with COVID. I haven’t, I actually don’t know anyone that has had COVID. In Tennessee, I do know one of my siblings in California did have it. Other than that, you need to make sure you’re documenting or making sure but if you did take money out of your 401k, or you’re thinking that it’s something that you might need to do, then you might want to consider or definitely talk to someone about this, this is something different it just comes up during the covid time. So it’s something that we’re going to need to look at when we get ready to do taxes. Are you going to repay the whole thing? Or is the plan to claim it as income and roll it over three years. You have a few options, and you need to consider what’s going to be best for you. Because the last thing you want to do is wait for the third year and have to get hit with a big penalty or something else because for not filing it properly, or paying tax on it when not taking the exclusion to hang with the 10% penalty. So those are really important things. If you want to join the show, you can call 615-737-9986.
Dr. Friday 17:09
I know there’s a large number a lot more people than I thought that actually deal a little bit in that virtual currency. There is I just want to let you know the IRS has not lost their focus on priors rising, dealing with people that are dealing with virtual currency. They are now reporting or getting information. I’m not exactly sure how they’re getting it because when I talk to people that deal with virtual currency, they say no one really knows who owns this. But if you’re a business owner, and you are collecting or taking that in form of payment, remember that is it reminds me a lot about 5-10 years ago, a lot of people were getting into bartering. And so they would say well, “I barter for this. And they barter for that.” And that’s not really income. But yes, again, if you’re bartering, whatever the value of what you bartered was, that is considered income to you your service and what you would have normally built, no matter what you got on in return for it is income. The same thing with virtual currency, just want to put out there that there are large agencies, you know that the IRS is building a database that they are dealing with and finding out more about their arsenal in the coin base. It’s just a stock, the same thing as anything else. So if you own some version of Bitcoin, or one of the other ones that are out there, every time you buy and sell it, you are creating a stat a transaction in which can be a win or lose. You need to make sure that you’re reporting that so that you don’t get caught later when they come back and say that you haven’t been filing your Bitcoin information for quite a while. And then they turn around and then they turn around and say that you now owe penalties interest.
Dr. Friday 18:54
We still get love letters from people when the basis is actually tracked. The IRS still doesn’t quite track that through properly. It’s not easy enough with Bitcoin where there is no basis being tracked at all, how in the heck, you’re supposed to get that from the government. Then you guys have to make sure whoever owns that, that it’s actually being tracked properly and making sure that you understand exactly how that’s going to work. This year, they have changed some of the NOL. A lot of people are going to have some net loss carryforward because of the COVID and their businesses. They have changed that a little bit. So if you want to roll back, you can try to get your income, maybe get a better taxable situation this year because of it and be able to use that money instead of rolling back five and going back 2020. You can use it a little differently. So make sure you talk again to your preparer, whoever is doing your taxes to make sure they can maximize how much that is going to happen for those individuals right. Because if you have a business that hasn’t made money this year. I have been dealing with a lot of meetings and we’re taking the conversation of how is the PPP money being reported? If it’s tax-free money, then does that mean that we don’t have to write off the expenses that we have? Or is it going to wash the expenses? That has not been ruled yet by the IRS. So we do not know exactly how PPP is going to turn around and become taxable or not to us. But what I do want to make sure is, most people have to have their forgiveness documentation before December 30, 2020.
Dr. Friday 20:39
I’m not too sure if anyone out there has there’s through SunTrust, but I have not yet received anything through SunTrust. I do know Bank of America and Chase, both of them have sites right now that are open and are accepting the 3508 in the documentation that goes with it. I have not personally received anything on the PPP from SunTrust. So if you have, let me know, because that would be something I need to move forward. Because all of us are looking to get forgiveness on the PPP. We need to make sure that we’re moving forward quickly on that last thing you want to be is waiting for that to happen, and then find out you missed the window. Now you have to pay that money back instead of getting it forgiven. We’re all still waiting to find out if they’re going to reopen PPP money, especially based on some of the conversation going on out there. Again, not trying to get political because well, it’s not a whole bunch we can do to control that. But if the Democrats take over and Biden does what he promises to do, we’re going to be looking at some interesting changeovers, possibly in 2021. So we do need to think about changing or bunching and evaluating what we’re going to do for our taxes. So if you have questions, or maybe you’re working on doing something, and hopefully not your taxes. Because at this point, we should have already filed all of our taxes. This is the small window we have from October 15, until pretty much January at least. Then you can start again doing taxes. But if you’ve got questions, or maybe something’s happened, maybe you’ve inherited property or you sold some property, you’ve got capital gains, or you’re not sure exactly how the basis is going to work, give me a call, you can also call the office, but the phone number here is 615-737-9986. We are taking your calls about taxes or questions.
Dr. Friday 22:41
I’m an enrolled agent licensed by the Internal Revenue Service who did the taxes and representation which basically means that’s all I do, pretty much is taxes. I do individuals and businesses and estates. So if you have a situation where you’re not too sure exactly what’s the best way to move or do this is the show, you might want to call and at least get some advice on which direction to go, then we can always set up a free consultation, if you like to make sure that your information that you’re getting is directly for yourself, not something that I’m generically putting out there. You do want to make sure that you’re saving your tax dollars to the best of your ability and doing and forwarding that as you can to the best of what you have. So don’t miss out on the opportunities because we never know what we’re going to do.
Dr. Friday 23:27
Okay. I’m not too sure if that person’s name is actually Friday, because that would be really freaky. But if it is, put him on the line, I’m kind of curious. So let’s see if he can get that person. Nope. They hung up. I thought that was unusual. All right. So we’ve got your calls. I thought that was an interesting one. If you want to join the show call 615-737-9986. We are talking about taxes or money issues. Maybe you’re trying to make some decisions on which way to go. Or if you’re, like I say usually sometimes inheritance, or if you’re selling real estate, what exactly are you looking at for taxes. We can try to get you some basic numbers, where I’ll take your calls and take more of this conversation we get back from this break. We’re gonna be right back with the Dr. Friday show.
Dr. Friday 24:35
Join the show at 615-737-9986! Let’s see if my twin is there is Friday available? Hey, Friday!
Caller 24:46
Hey, how you doing?
Dr. Friday 24:48
I’m good.
Caller 24:49
Yeah, I just got a quick question. My wife and I just bought a home a few months ago, and we’d be renovating downstairs and stuff like that. Can we itemize that?
Dr. Friday 25:09
Yeah, great question. It’s possible depending on if you’re able to itemize to use some of the sales tax because that would be considered unusual, you know, purchase, but most of it, to be honest, is an investment. You’re improving the home that you purchase. So the value of the home is increasing because of that. And that’s equity that you’ll have later when you sell the house. So no, most of that will not be a tax deduction unless you turn it into a rental property or something like that.
Caller 25:40
Oh, okay. Thank you so much.
Dr. Friday 25:43
Thank you for calling. That’s a great question. I can’t tell you how many people asked that question. So thank you so much. Okay, let’s go to Sharon. Hey, Sharon.
Caller 25:58
How are you?
Dr. Friday 25:59
I am good. What can I do for you?
Caller 26:02
Okay, I was telling the guy that I talked to. My mother just passed away in 2019. And before she died a couple of months she did, I think it was called a quick claim deed and put the house and my sister and myself name. But the house really didn’t become ours until her death several months later. So we have just sold a house. So I’ve just learned that I’m going to have to pay capital gains on that. I just thought it would be an inheritance and we wouldn’t have to pay. You know, unless it’s over $500,000.
Dr. Friday 26:44
I know, a lot of people, I keep trying to do this on my show. And I’m glad you asked that question no matter what because the problem is, is that people like to when you get we get older, we just want to make sure that our assets are going to where the people we love or whatever. But when they do that they supersede the tax law. And therefore, when she quickly claimed it over, she made a quick claim did over $1. You know, I mean, who knows normally is a very low dollar amount. Therefore you’ve eliminated the step-up in basis. Even though you weren’t able to sell it because she had a life estate in it, you still maintain her original investment, which may have been nothing hardly compared to what it sells for. So there’s not a whole bunch, unfortunately, you can do. You are 100% correct. I mean, even though you were she may have even been thinking that basically you’ll just inherit it once she passed away. Right. She superseded with the quick claim. So yeah, there’s not a whole bunch. Do you have any idea how much she actually originally paid for that home?
Caller 27:50
Oh, well, the house was built in 1946.
Dr. Friday 27:57
There’s no real value to it at that point. I mean, there was at that time, the dollar was worth a lot more. But when it comes down to it, you don’t have any real write off on it. So yes, unfortunately. I’m just glad you call because there’s a lot of people that have done that for their children thinking that they’re protecting them. And really, they’re kind of hurting. I’m not on purpose, but they are. But yeah, sorry, Sharon, there’s not a whole bunch you can do under that.
Caller 28:26
Well, when my father’s dad, took ownership of the house and that was in 1997.
Dr. Friday 28:33
Okay, so there would have been a step up in basis from 1940 to 1997. Was she on the title prior to that, do you know or it was jointly held or that was just in his?
Caller 28:45
No, it was in both their names.
Dr. Friday 28:47
Okay. So theoretically, if you can go back to 1997, she would have gotten a 50% step up. So half of the house was his half the house was hers. At the time of inheriting she would have gotten a step up in basis from 1997 to what the house was worth 50% of it. So let’s just say it was worth 100,000, she would have gotten an additional 50,000 to the basis. Okay, well, let’s just say these simple numbers, let’s say when they purchased the property, it was worth $20,000. I don’t know what it is, I’m just throwing that number back in 1947. Your father passed away in 97. Now let’s say it was worth $100,000. So in the beginning, mom’s basis would have been 10,000, back, and 47. And then she would get the dad’s half which half a 50. So now she would be at $60,000 would have been the new basis for mom as of 1997. Okay, so we kind of need to find out, and sometimes property taxes are usable, not the best, but it’s a way of going back to find out what they originally paid and then find out what it was worth in 1997 split it in half, and you get half of what the original and half of what the value was in 97. That will give you a higher basis than the original basis. Does that make sense? It’s worth doing. If you need help, you can call me. Let me know this is hard on a radio show.
Caller 30:15
Yeah, but we can take off what we put back into it to get it back to sellable condition?
Dr. Friday 30:20
Absolutely. 100%. Yes. Because that would have been out of your guys’ pocket, even if it came from the state. Either way, you’re it’s money you should be reimbursed for Yes. And the closing costs, fees, and anything else.
Caller 30:32
Oh, okay. Very good. All right. Thank you very much.
Dr. Friday 30:36
No problem. Thank you, Sharon. All right, that is actually a great question. I cannot tell you how many people have come in. So if you have, if you’re listening, and you have done this for your children, thinking that by the quick claim in the house to them is going to give them a better situation. It’s not, it really isn’t, it’s better to put it in a trust or an estate. Then when something, God forbid, you pass away, and they then inherit the house, then it’s better for them than anything else. Just saying, from the tax standpoint, I’m not an attorney. So if there’s a better reason, by doing it legally, for some other reasons, I know a lot of times, people are worried about the look back for Medicare, again, you know, you’re saving money on one side, possibly, but then on the other side, you’re paying a lot of taxes. So you need to kind of consider the entire package and then sit down with a good financial planner or good estate attorney, and make sure you’re not leaving money on the table by taking someone’s advice, and just saying, “I just quick claimed my house to my kids. And now I’m not going to worry about the lookback period.” Not necessarily true. And there’s a lot of other things that need to be considered when you do something like that.
Dr. Friday 31:52
So again, just putting out there, from the tech standpoint, I do not like quick claims. It makes it very hard for the people that have inherited property is fishing a property that somebody owned since the 40s. Because the property has inflated quite a bit since then. So there’s going to be definite gains. If you want to join the show, if you’ve got a question, call 615-737-9986. I had a situation where a gentleman passed away, and he left in his estate where he wanted to leave so much money to his charitable, his church, and things like that. But he had everything go into a trust first. And the downside to that was was that he had quite a bit of money, pretty much what he wanted to give to charities in an IRA. And by giving it to the estates, the IRA has to be cashed out and pay taxes before the money can be given to the charity. Again, good tax planning, good estate planning would be how can I pay the least amount in taxes and still do what I want to do in life and leave whoever you want to leave the rest of your estate to. Be that a charity, you want to be able to leave it to them. If there are any tax dollars, we want to be able to send that over to them because they don’t have to pay taxes. So in the estate where if you’ve got an IRA, and that pretty much covers what you want to give to your church. And then you know, the rest of the estate is in cash or real estate or something like that, consider the step up and basis that people will have and other situations, much smarter to sit down and consider some of that in advance. Because we not know when that golden day is going to happen. So you want to make sure that whatever you have going on, you have the ability to leave it as organized and to the right person. Again, this is going to create quite a taxable situation, which actually then means that the only people really making out is the IRS in this particular state situation. That really was not the gentleman’s plan is just that he did not really sit down and think about “Oh, wait, this is what I need, or that’s what I need to deal with.” All right, let’s get Steve on real quick, and then we’ll take a break.
Dr. Friday 34:24
Hey, Steve.
Caller 34:25
Hey, how are you?
Dr. Friday 34:26
I am Awesome. Thanks for calling.
Caller 34:30
I’ve got a question. We have my mother’s home that we’re in the process of selling. You were talking about inheritance tax and capital gains tax. I was just curious as to how that is going to pan out.
Dr. Friday 34:49
So Steve, is your mother alive still?
Caller 34:52
No, she passed away about a year and a half ago.
Dr. Friday 34:57
And so when she passed away, that’s when you inherit her home, is that correct?
Caller 35:02
This is correct. Yes.
Dr. Friday 35:03
Awesome. So mama did it right, Steve. Unlike where Sharon called in her parents had a quick claim the house to him before passing away. The ideal situation is when your parents or someone passed away, and they leave you home, you inherit it through the inheritance. And now the nice thing is, from at least the date that that person passed away, whatever the house was worth is now what your basis is. So if she passed away, you know, yesterday, then whatever the house was worth yesterday would be what you would put on your tax return, or you would share with whoever’s getting the percentage of the house. That’s the basis. So ideally, if you have a real estate person, and it might be nice if they can pull some comps from around the date that your mother passed away, and obviously you know what you’re selling it for now, and you can even end up with a loss in some cases, but at least that way, you have the documentation for your tax returns.
Caller 36:02
Okay, we did not have the phrase after she passed away, but we can probably go back and recreate that is what you’re saying?
Dr. Friday 36:10
Right. Most real estate people are very good at giving some similar comps in those areas. And they can usually go back to certain times. So as long as it’s done within 60 days of, you know, roughly when mom passed away, that’s something I would ask the real estate person to give you and then make a reasonable number. Usually, they’ll give you three comps, take the average and then that would be what you would use for your comp or for your basis.
Caller 36:37
Ee sold it for sale by the owner. So I don’t know if I’ve got any plans, but I’ll try to find more.
Dr. Friday 36:44
You can also use Zillow or something.
Caller 36:46
Yep. Okay. Thank you.
Dr. Friday 36:50
Thanks. I appreciate the call. Alrighty, that’s again, good call the right way. Again, we will take care of that. All right, we’re in the last part of the show. So if you’ve got some questions, and you’ve been holding out, now’s the time to pick up that phone 615-737-9986. I’ll take your calls and cover a few more exciting financial questions. When we get back from this break. We’ll be right back.
Dr. Friday 37:30
All righty. We are back here live in-studio and I have to love it when I see my phone line start lighting up because it makes my job so much more enjoyable. I appreciate it, guys. Alright, so the first one that looks like they called was a Steven. Hey, Steven.
Caller 37:51
Yes, I was gonna ask what made you think the lady called had the sibling and had the house’s quick claim? Well, in my case, I have one sibling but the house they went through probate and all home she had a long time and I just wanted to know. Is it like payday some days for the value has gone up in the house, I’m gonna hit get hit with now that we’re gonna sell the family home?
Dr. Friday 38:13
So when it went to probate, how long ago was that, that it went through probate was that years ago or?
Caller 38:20
Just this past year?
Dr. Friday 38:21
Okay. So you’re gonna be just like, the gentleman called a little earlier. So you’re gonna have the basis as the time of the passing of whoever’s house, it was if he was your parents or siblings or whoever. But whatever their date of death would be what the house was worth for your basis. Does that make sense? So when did they pass away, like a year ago?
Caller 38:45
Just a little over a year, almost a year and a half. But everything seemed to be clear back from a letter I had received.
Dr. Friday 38:54
It takes a little while sometimes, but theoretically, so a year ago when that person passed away, you need to know what the house was worth. And when you went through probate, there probably was a value put to the house actually. Then when you sell it, the difference will be what you’ll have to pay tax on. If there is a difference you may sell for less theoretically,
Caller 39:19
Like the other call, I’m sure the value has gone up because this house is from the 1960s.
Dr. Friday 39:28
Yeah, but you don’t have to worry about the ’60s. You’re only looking at 2019-2020. The difference between those two years because you don’t have to worry about the basis until they pass away. So they passed away in 2019. So whatever was worth in 2019 is what you get to claim as your cost. And then whatever you sell it for in 2020 will be your difference will be the gain. So just the difference between the one year.
Caller 39:53
Oh, okay. Well, thank you. Thank you.
Dr. Friday 39:55
No problem. Okay. All right, let’s go ahead and hit number five looks like holding the longest Larry. Hey Larry!
Caller 40:08
Hello, Dr. Friday.
Dr. Friday 40:10
What can I do for you, sir?
Caller 40:13
I guess I’m kind of tagging on some of these calls. My mom is elderly. She’s in her upper or lower 80s. Anyway, I’m currently her power of attorney, and she owns a condo. What do I need to do to help her and I as we go through all this?
Dr. Friday 40:35
Right, so I’m basically, you don’t want to have a quick claim. Are you the only beneficiary? Are there other children?
Caller 40:45
I am her last surviving son.
Dr. Friday 40:50
Gotcha. So from that standpoint, life is simpler only because she’s just going to leave everything to her last surviving son. So as long as you have a will, that basically leaves it all to you. That’s all you need, then you can go through probate now for a state is a little larger, you can have a trust set up, which that means you don’t have to worry about probate, which I’m a firm believer of. Again, not always an option, depending on how big the estate is or how many moving parts. So basically, all you need is a will, in all honesty, leaving it all to you. Then that way, when she passes away, you’ll get that step up and basis. So when you sell the condo or rented or whatever, at least whatever it was worth when she passes away will be what you would have as a basis. Then if you sell it, then you know, you’ll pretty much sell it for what it’s probably worth, or you could turn it into rental or move into it, whatever.
Caller 41:45
Okay, and then the other thing, she’s all on board with me helping her financially. Is there any benefit to us putting the house in my name now? Or should we do it?
Dr. Friday 41:57
No. No benefit at all, because you’re going to then run with her basis. So whatever it was, is never going to be as high as was probably worth now. Who knows, mom’s still may have many, many years to go. And every year normally houses appraise for more, unless, of course, the neighborhood goes down. So, no, I would never quick claim and the same thing on bank accounts, I would have you as a power of attorney on them. But I would not have your name jointly on any bank accounts. Because if something happened, let’s say you get in a car accident, or if you’re married, you get divorced, then mom’s bank account could theoretically become an asset of yours. And that’s not what you really want to happen.
Caller 42:39
You give the best advice. Yes.
Dr. Friday 42:43
So, I mean, we all want to protect our parents, and we try to do what we think is best. And sometimes they just say, “We’ll just put your name on it. It’s easier.” No, it’s not legally better for us in the long run. In my personal opinion, again, you can always consult with the attorneys on that, but that’s my, my two cents on that one. Okay, Larry,
Caller 43:01
Thank you for your time and your advice.
Dr. Friday 43:04
No problem, buddy. Thank you very much. All right. Let’s go to Kevin real quick.
Caller 43:09
Yes. I’ve got a question as relates to one’s IRA. Were there laws passed recently, that allows the tax to be paid over, say the next three years if you choose to?
Dr. Friday 43:26
Yes, that is there is a new one that came out that you’re able to do that under the COVID. Yes.
Caller 43:32
That is exactly the purpose. And would that carry interest? Or would that be free of interest?
Dr. Friday 43:42
Yeah, there’s no interest involved. No, so they won’t have any interest in it. So you just have to make sure that you either been quarantine, furloughed, laid off, or you have to have some effect of COVID. I think everyone’s quarantine at some point, but that’s what it comes down to.
Caller 43:58
Okay. Thank you. That’s all I had.
Dr. Friday 44:02
I appreciate the call. Thank you very much. Okay, guys, we are at the end of the show. So if you have any questions, call me. I realize sometimes some of the questions or the answers I’m able to give on the radio are not always as perfect as they can be. It’s sometimes it needs to have a little bit more personal information before I can give you the exact answer. So if you’d like you can always go to my website, Drfriday.com, click on “appointment” and set up a free consult. So that way we can see if we can actually help you or give you better advice, one on one on what’s necessary for you to do. Or you can always email friday@drfriday.com and check out the website. We’re always updating it doing some new things. If you’re getting ready to think about 2020 tax returns, I think the calendar is now open. So you’re able to start setting up your appointments. Hopefully, if you’re a returning client you’ve been contacted already to get your date on the calendar. But if you’d like, you can also reach my office Monday morning at 615-367-0819.
Dr. Friday 45:07
Again, I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So if you haven’t filed taxes in a number of years, or if you have received quite a few little love letters, and you’re like throwing them in a drawer because you really don’t know what to do, or maybe you haven’t heard anything, and you’re like, “You know what, I’m just not gonna say anything or do anything and the IRS won’t know I exist.” Yeah, I’m not really a firm believer in some of that, because sometimes sooner or later, your kids want to go to college and you’re required to have taxes. Or if you want to buy a house or car or anything, it’s very difficult without tax returns. So you really do want to make sure that you have that information and it’s easier to sleep at night when you’re not avoiding something as major as taxes. So if you need help filing getting caught up, and you’ve moved, divorced, or don’t have any documents, we can help you figure out where to get started and to get some of those documents directly from the IRS.
Dr. Friday 46:01
So all you have to do is either go to drfriday.com, click on the appointment, set up a free appointment, or call us Monday morning at 615-367-0819. I hope you guys are having a wonderful Saturday. We had a great time at the show. Remember if you haven’t filed taxes, that means in the last couple of years, you’ve also missed out on the stimulus money so you know what time to get our act together, call me at 615-367-0819. Call you later.