Another episode of the Dr. Friday Radio Show is here! In this episode, Dr. Friday takes on the latest tax updates, answers callers questions, and talks over the following topics:
- Dr. Friday’s Tax Tips For the End of the Year
- What You Should Know About the Consolidated Appropriations Act
- What You Need To Know About the Advanced Child Credit
- Does the IRS Know How Much Money I’ve Gifted Someone?
- Certain Limitations Contributing to A Roth IRA
- Standard Deduction Changes for 2020 Tax
- The New Charitable Contribution Deduction
- How To Know If You Are Paying Penalties and Interests
- The Capital Gaines Tax Changes
- How to Get Back on Track With the IRS
and much more!
Transcript
Announcer 0:01
No, no, no, she’s not a medical doctor, but she can share a cure for your tax problems or 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. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:30
I’m Dr. Friday, and the doctor is in the house, we are here live. So if you want to join the show, you can 615-737-9986. We are taking your calls talking about my favorite subject taxes and money. We all know that there was a new bill passed for infrastructure just well, it’s on the President’s desk, I guess you would say it hasn’t fully passed. But it did go through the house, and the Senate and $1.9 trillion. Not a lot about taxes in there. Thank goodness, they didn’t put anything major.
Dr. Friday 1:06
There’s a few things but nothing that’s going to be on the day-to-day things that many of us are watching for, they’re still hoping to pass another bill, because they couldn’t agree on the total thing. So we’ll see if they’re going to pass a larger bill coming soon. But under this particular one is more for utilities and infrastructure, per se versus some of the other concepts.
Dr. Friday 1:30
So we’ll have to follow and stay in tune with that and see what we do have moving forward some of the things we do know, that have passed in the Consolidated Appropriations Act, and some of the other well, the three different bills that we had passed in the last year. And one of them was, of course, I was talking to one of my clients. And we were saying he’s saying, Well, I couldn’t write off any of my meals in the last year. So because you kept saying, well, Friday’s not tied to this.
Dr. Friday 1:57
And I will say under the newest tax law, they have extended meals for people that are entrepreneurs and business owners, this has nothing to do with individuals, but people that take their clients to lunch or to dinner, they are allowing 100%, which we’ve never had before, it used to be 50%. Because either way, they always said that the owner would have had to eat one way or the other.
Dr. Friday 2:21
But right now they’re using a 100% for 2021-2020 to one of the few things we’ll be looking at when we’re looking at reconciling people’s urine, paperwork, but you may have other questions, tax changes, or things that we’re looking to, maybe you’re looking at your 2021 tax bill, and you’ve sold real estate or even inherited some property, or money and you’re not sure what you need to use or pay for at that time, we need to be ahead of this. We don’t want to be waiting until tax season.
Dr. Friday 2:51
And then you turn around and you say, “Oh, wait for a second, I did have this” and “Oh, you do oh, this, we really would like to get that money paid earlier versus later.” If that’s a possibility, at least seven estimates are paid in so you’re not worried about penalties or interest on top of additional taxes. So if you have questions on anything like that, if you are in the situation where you have some, you know, I mean, again, I have been talking to many of my clients who have sold at least one, if not two rental properties because of the way the real estate market is.
Dr. Friday 3:23
And there’s a large number of people that are becoming more, I guess you would say more proactive, they want to be more cash, not so much cash flow, but cash. The at this time the of the way the politics and everything is happening and they seem to be moving money up to that kind of situation. And if you have questions on how to prepare for that, or you know what kind of taxes you’re looking at, because you do have ordinary income tax on the recapture of depreciation, and you do have capital gains tax on the property that you would sell for gains, assuming it’s either long term or short term, obviously short term is ordinary income.
Dr. Friday 4:00
Again, if it’s been held for one year in a day, that’s considered long-term. And then it can be 15 18.8 20 or 23.8. So there’s not a straight across-the-board, simple answer on many of these things. We really want to make sure that you understand where you’re at in your taxes, everybody’s taxes are slightly different, always have a different situation on all those things. So you want to make sure that the information that you have about your taxes is as correct as you’re going to be able to get it when you have that situation because again, now is the time. We really do sit down with many of our clients or people that are trying to set up something to make sure that we’re in the right place, right.
Dr. Friday 4:42
I mean, if we need to contribute more to a 401k. Well, since that is usually handled by an employer, you need to make arrangements before the last paycheck, if we’re trying to defer income. If we need to be able to set aside money for an IRA or other types of deferred or If you’re doing a conversion from a Roth to a mean, from a standard to a Roth IRA, these again, many of these are taxable situations one way or the other, you’re either going to be able to save tax dollars by doing these types of conversions, or you’re going to be able to go the other way. And, you know, just keep things going with it, you know, whichever is going to happen, it’s going to still be the way you need it and what you have going.
Dr. Friday 5:23
So I just want to make sure you’re on the right page that you understand what’s going on. So that way, you don’t have to worry about trying to wait at tax time when it’s always a little bit crazier and trying to dig up paperwork and trying to figure Oh, am I going to need to do this? Did I should have been paying quarterly, am I going to get hit with a penalty? Those are the, you know, big questions that often come in.
Dr. Friday 5:44
And I would say if you are an entrepreneur or a self-employed individual, and you have not yet taken on how you’re tracking your expenses, other than a shoebox, or a version of that, meaning you’re not actually typing them into a system, or you’re not actually putting them together in some format, then my personal opinion on all that is you need to start it right. I mean, nowadays, there are so many different places that a small business owner can be audited.
Dr. Friday 6:14
Right now we’ve got several different audits, franchise, excise audits, business, tax audits, sales, tax audits, of course, that’s only on the state side, then you’ve got the business, federal tax audits, work comp audits, General Liability audits, I mean, these are all the things that are normal, and most of them aren’t, I mean, I use the word audit, but they’re not terrifying audits if you’ve done the paperwork, and you’ve done everything, to the best of your ability and correctly, you’re not going to have to worry too much about what’s going to be done.
Dr. Friday 6:43
But you do need the documentation that was the same thing with people that made more than 150 on PPP, right, or received more than 150. We had documentation that was required, it wasn’t that we couldn’t get things through. Even though in some cases, it seems like we’re having a little trouble communicating with whoever is the person that they keep sending emails out for some of my clients that keep saying, well, we need additional documentation, sign on to this website, we sign-on. And we don’t seem to see any additional documentation required.
Dr. Friday 7:14
So we just have to, you know, spend a little more time tracking down those individuals. That being said, you want to make sure you have all the proper documentation. Because as you get busier as your business grows, it’s harder to recreate what you don’t have to recreate, you know, I’m saying if you don’t have the receipts, you didn’t write notes on the checks, and you made a check out to cash.
Dr. Friday 7:36
But you know that cash was actually used to go buy a piece of equipment or something else, then how do we know that that becomes a non-tax deduction unless you have a receipt or documentation showing it so it’s so important guys, I know when you’re busy, and you’re starting a business and you’re trying to do everything, and you have 15 different hats on, I can totally relate to that.
Dr. Friday 8:00
But on the other hand, you don’t want to be the guy that ends up not doing something and then you get caught up with the IRS. And then you’re always playing catch up. It’s so hard to get ahead once you’ve gotten behind with the government and either the state or the federal. So it’s better to start the game out the way you want to and move forward the way you should than it is to just keep letting it pile up. If you need help, obviously I’m here.
Dr. Friday 8:24
Our staff can help you get your bookkeeping, we are certified QuickBooks advisors, we can help you get things organized, we can make sure that we’re on the right page and get things moving forward. I do want to bring up any employer anybody that has their own little business or medium-sized business and you have employees and maybe you do your own payroll, or you use ADP or any of the other payroll services out there. Remember there is still the employee retention credit it goes through the end of this year.
Dr. Friday 8:55
They keep extending it a little bit but I think it’s done I don’t think it’d be extended and you’ll have to have an end before that time. So you basically only have until the end of November to get the documentation in to qualify now this can be up to $10,000 a quarter per employee for the first two quarters of the year. In so in you could have received PPP it’s in there’s the biggest thing is you have to have had a reduction of more than 20% loss between 20 and 21.
Dr. Friday 9:27
There are experts out there who’ll be able to help you get more details on this but I know a lot of times people kept saying to me when they walked in the office I like did you get PPP one did you get PPP two, did you get the grants did you get the EI deals? And a lot of people are like I didn’t know so I want you to know that this is still one of the few things it’s only designed for businesses with employees that are running 941’s, 940s. You know paying them through wages and it doesn’t cover the boss or the employer, the owner of the business.
Dr. Friday 9:58
This is for the true employees but it does work for some and you do have to have a loss of income between 20 and 21, I believe, I think for between 19 and 20, it was a 50% loss. But I think they changed it between 20 and 21, only a 20% loss or difference, and it’s only one-quarter of that time period. So for all those businesses that are out there, saying they’ve had a really hard time, they’re trying to keep things going. They’re barely making payroll and rent, this may be some money that’s still out there that you could actually get.
Dr. Friday 10:29
If you need more information, you can certainly call our office, we’ll be more than glad to help you or at least connect you with someone that is doing that. So they can get done correctly. And make sure that you’re getting what you can out of that particular benefit that the government is sending to you. So again, if it’s called employee retention, if you have another payroll service, call them up and ask them if they can do it for you.
Dr. Friday 10:52
Or if they have a company that is doing it for them. Our service, we hired someone to do it because it isn’t as simple as people like to think I mean, we, we were not able to successfully do it. But we have found a company that is having success filing it for our clients. So I’d be more than glad to share that information.
Dr. Friday 11:11
And so if you’ve got a question 615-737-9986. We just finished filing everything for the third quarter, obviously, we’re already through the first month of the fourth quarter. And we only have a few more months, and you start getting into holidays and all that. So if you have tax situation tax credit questions, tax situations, where maybe this year, even if it’s going into 2022, something’s coming up, maybe you’re thinking about retirement, or, you know, like I always talk about inheritance, it does change things for us, if those are the kinds of things you’re thinking about or possibly have out there that I want you to, you know, give us a call if you need help.
Dr. Friday 11:54
Those are available things that we can help you do and make sure that everything is working in the right direction. I mean, that’s what this show is all about. I’m trying to be here to help them and this is our 12th year, I believe, we’ll be starting the 12th year next, maybe we’re still at the end of our 11th year, I believe, of doing the show. And one of the things I’ve loved about doing it.
Dr. Friday 12:15
And besides the fact that you guys are all still listening, which is totally awesome, is also being able to get everything out there to you guys so you don’t miss out on opportunities. All right, we’re gonna take a quick break, we come back, we’ll get to some of your phone calls. You can reach us at 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 12:43
We are back here live in the studio. We’ve got a few phone calls, which you guys all know I love and love and love. Let’s go to Al in Springhill. Hey, Al, what’s happening?
Caller 12:55
Hello, Doctor, I sold a house that I bought in 2009 in Massachusetts, and need to figure out how the taxes are calculated on capital gains.
Dr. Friday 13:08
Was it a rental or where did you relocate it was your primary home?
Caller 13:12
Oh, it was a house that I purchased for my daughter. But she passed away so I don’t need the house anymore.
Dr. Friday 13:18
I’m so sorry. Okay, so theoretically, your daughter lived in it until she passed away. So you never claimed it as a rental on it was like a second house for you. It sounds like Yes. Okay. So do you remember how much you paid for it back in 2009? Ballpark, you don’t give exact pennies?
Caller 13:38
150.
Dr. Friday 13:40
what do we sell for?
Caller 13:42
240.
Dr. Friday 13:44
All right, so that’s gonna give us what about $90,000 profit? Give or take. Did you have some repairs or updates you needed to do?
Caller 13:54
Yes, yes. I recently spent about $20,000.
Dr. Friday 14:00
Okay, and how about and then we’ll still have closing costs fees, which would be probably another 10 or 15,000 that you’d have to pay at the time that you close. So you’re probably looking at closer to about 55 to maybe 50 to 55, probably that’s going to go in your pocket as far as gains. Do you know what ballpark your income is? I mean, like. Are you single or married first?
Caller 14:24
Married.
Dr. Friday 14:28
You said how much your combined income is?
Caller 14:31
120.
Dr. Friday 14:33
Okay, so the bottom line is you’re looking at 15% tax on whatever that profit be at 6050 in that ballpark. So you can calculate that 15%.
Caller 14:45
Oh, great. Once I calculate what the receipts I have for the expenses, just add that to the
Dr. Friday 14:55
The difference between the regular 150, the 240, take the 90, and then search tracking all your expenses, closing costs, and whatever comes out the very bottom will be what you’ll be reporting as gains.
Caller 15:07
Great. 15%. That answers my question. Now, should I pay that this year? Or wait till tax time next year?
Dr. Friday 15:16
You would have? I mean, theoretically, it has. When did it happen? When did you sell?
Caller 15:23
September.
Dr. Friday 15:25
September. So I would say at this point, I would probably just make it in. I mean, you have a choice, wait till January 15. If you’re going to file before the deadline, you’ll be fine without penalty.
Caller 15:35
Great. I’ll do it. Hey, Doc. Thank you very much.
Dr. Friday 15:39
Thanks, sir. Appreciate the call. Alright, let’s go to Eric. Eric in Nashville. Hi, Eric.
Caller 15:46
Hey, how are you doing?
Dr. Friday 15:47
I’m awesome. What can I do for you?
Caller 15:49
Well, I filed my taxes in mid-April. And about three months later, I got a letter while I got my taxes back, I forgot to sign the stupid thing. And, yeah, I’ve done it. That’s happened. Anyway. So they actually owed me quite a bit of money because I claimed my son. And I signed it, I sent it back. And it’s been like another three months, I still haven’t heard, haven’t heard anything.
Dr. Friday 16:22
I was just in a call yesterday with the IRS, they did a speaking thing. And they said for paper returns, you’re looking at a 120-day minimum for us to mail them in. So you have two options, you could still probably get someone to E file for you. But if you want to wait, you’re already 90 days into it. So give 30 days at this point, you’ll probably be able to see it on and just keep an eye on the system. And it will show you know eventually will show that they’re processing or whatever.
Caller 16:54
Okay, so no easy answer at all. Wow. It’s an answer. Now I know.
Dr. Friday 17:00
All right. Thanks for calling. I appreciate it.
Dr. Friday 17:03
No worries, bye.
Dr. Friday 17:04
All right. All right. Let’s hit Ray. He lives in Tennessee. I see that. Hey, Ray.
Caller 17:09
Hey, Dr. Friday, how are you today?
Dr. Friday 17:11
I am awesome. How about yourself, sir?
Caller 17:13
I’ve had better days, I suppose. I’ve got a rental house that my wife and I purchased about 10 years ago, we’ve been using it as income property. It’s been destroyed twice by tenants. So I’m thinking about getting rid of it this time for sure. Our cost basis on it was 53,000. When we bought it, we’ve been amortizing the house for the last 10 years. And claiming the income from it. This is regular income, taxable income.
Dr. Friday 17:44
No, I was just gonna say you said you’ve had to fix it the last two times or whatever, twice in 10 years. So I’m assuming you’ve added those and depreciated those additional costs or wrote it off whatever. You’ve taken the expense or the expenses on your depreciation schedule for those rebuilds?
Caller 17:59
I do it on the first rebuild. The second rebuild is happening right now. We won’t wait through with the construction on it. I’ve got to put a central heating air unit in it. I’ve got to put flooring in it. I’ve got some plumbing issues. That will I guess, be counted as improvements that will add on to the cost basis of 53,000. Correct?
Dr. Friday 18:18
100%. Yes.
Caller 18:21
So we’re gonna list it for just short of 200,000. So there’s gonna be quite a bit of capital gains on it.
Dr. Friday 18:28
Yeah, what do you think this last repair is going to be out of your pocket? ballpark? Just give me a number roughly.
Caller 18:34
Probably 17 to 20. So that puts the cost basis up to around 70,000?
Dr. Friday 18:41
Yeah. Okay. So we got roughly around 70,000. That’s 130k profit in capital gains, what’s your ballpark of your guys’ income before the rental thing?
Caller 18:51
Before the work, we’re doing on this house?
Dr. Friday 18:55
Yeah, what do you bring in like a real paycheck? I mean, we all have rentals, but maybe not everyone does. I have rentals. But it doesn’t always create a lot of income. But what is your other income? Or this? Do you guys just live off this one rental?
Caller 19:08
No, we got other rentals that we’re keeping up total incomes right at 100 grand.
Dr. Friday 19:14
Okay, so you’re looking at as long as your profit on this thing stays roughly with where you’re at. So everything below 250 total? Right? So the capital gains plus your income all being less than 250. You’re still at the 15% capital gains.
Caller 19:30
Okay, well, let be let out through for 2022 because it’s gonna be on the market probably till January.
Dr. Friday 19:37
Unless something changes as of right now. It didn’t pass in the last bill. They were not changing and even in the conversation of capital gains, they were talking over a million so we should still be in the same game that we have so far. Yes, sir.
Caller 19:50
Okay, so if we sell it in 2022, I won’t pay tax on it until 2023. Correct?
Dr. Friday 19:56
That is correct. But I will tell you, the rule is usually not 90 days after, um, you should probably make an estimated payment.
Caller 20:05
Okay, okay, just on the capital gains?
Dr. Friday 20:07
Just on the capital gains, right just on that. And theoretically, I don’t know if you want to get out of the game of rentals because it sounds like you’re still in they still have the 1031 exchange and this could be a good deal for that because you have such a large capital gain.
Caller 20:20
I don’t think I’m going to be buying any more rentals anytime soon.
Dr. Friday 20:24
Okay, well, just throwing that out there. If if it was on the table, that would be a direction otherwise, just calculate a 15% figure Uncle Sam and Euro be keeping the rest and you’ll be able to do whatever you want not to have to worry about locking it up in another rental.
Caller 20:38
Okay, thank you very much for your help.
Dr. Friday 20:40
No worries. Thank you, sir. Appreciate it. Let’s hit Rosie in Nashville. Hey, Rosie.
Caller 20:45
Hi, Dr. Friday. Love your show. I read a headline and glanced at an article about the salt deduction being played with the new infrastructure bill? Is that for 2020 and is that final?
Dr. Friday 21:02
Well, the president hasn’t signed off on it yet. But since he’s the one pushing it so hard, it’s will probably be yes. I think it’s going to be final in just a matter of days. But I believe it’s going to be a 2022 situation effective.
Caller 21:23
Okay.
Dr. Friday 21:24
Unless they backdated, I haven’t had a chance to really read the entire it says disliked on both sides may have another day in Congress debate 1.7 spendings? I don’t know if it actually made it into I tried to look at it before the show today. I didn’t see where it had any of those. But right now it’s the $10,000. Let me put it that way. Right now for everyone else that may not know what salt is. That’s our state income tax, your property taxes, your sales tax. And in some areas, you actually have personal taxes that is all deductible for all of us.
Dr. Friday 22:02
And that’s what she’s talking about where then President Trump lowered it down to $10,000. Maximum. And they were talking about bringing it back up to a maximum of, I don’t know, 70 or something. It was a conversation I went but I don’t think it’s actually going to go back there. But you know what, these kinds of taxes have always shocked me with some of these spending bills we’ve got in front of us girls.
Dr. Friday 22:26
So it will be interesting to see. I mean, I have clients in California and in New York, which both took huge hits because their property taxes are more than 10,000. Bad enough is their state income tax. But I’m not sure where the money’s coming to pay for all this.
Caller 22:42
Exactly. Future taxes. And yeah, because we bunch our deductions, and so 2022 would be ideal. But I was also calling to let your listeners know what’s on the horizon, supposedly, so.
Dr. Friday 23:00
The a good catch here. Yeah, that’s, uh, and I am trying to watch on all those to see if they’re going to reinstate, you know, allowing basically the max. Because I also bunch, I mean, I also do every other year, my total contributions, as well as pay my property taxes, you know, in one year, both years so that way, I’m able to meet the itemizing and not worry about, you know, the years I don’t, but it’s gonna be interesting to see what they change.
Dr. Friday 23:29
Are you on this year or next year’s year?
Dr. Friday 23:31
I’m actually on an even year so next year would be my year of bunching this year. I’m not.
Caller 23:36
Yeah, that’s how I am to so it would benefit us because Nashville had a huge tax increase. It, hit us because we had two years of property taxes over 5000. I was like, “Oh.”
Dr. Friday 23:57
Between your sales tax and our property taxes, we’re losing on those bunching as well. I mean, I do at least, but if I double up my property taxes, and I maximize my sales tax in those, you know, those years or whatever, I’m usually always the way, way over, but you know, close to 13 versus 10. And I lose 3000 a year on that, but it’s still better than not getting any deduction in some years.
Caller 24:22
Maybe next year, it’ll help us.
Dr. Friday 24:26
Yeah. I mean, I again, I wasn’t a firm fan of reducing it down because a lot of people do have state income tax a lot higher than you and I have in Tennessee, but again, you know, all these things were supposedly ways they were going to pay for these other deductions. We have another making adjustments again. So, Rosie, we will just have to find out what they’re going to use, and like you say taxes will go up. There’s no question.
Caller 24:48
No question. Okay. Thank you so much, Dr. Friday.
Dr. Friday 24:51
I appreciate you, thanks. Bye. All right. Can we hit Raymond before the break? I know it’s a little tight, but let’s see if we can hit him real quick. Hey, Raymond.
Caller 25:00
Hey, how are you doing?
Dr. Friday 25:02
I’m good, sir.
Caller 25:04
I’ve got two quick questions for you. Okay, one it one is I’m on complete social security disability 100% disability, I get Social Security Administration, I received a huge back payment that goes all the way back to like 2017. We’re talking, we’re talking about $26,000 in back payments. Am I liable for taxes on that?
Dr. Friday 25:27
Not unless you have other income that makes it taxable in the first place.
Caller 25:31
I have no income at all other than that, yeah.
Dr. Friday 25:34
Then no, no tax return. No, no taxes.
Caller 25:37
Okay, that’s beautiful there. My second question is, have you heard or do you know of any cost of living adjustments for SSDI?
Dr. Friday 25:47
Well, I know that they made one and I thought they make them at the same time there was a big social security adjustment this last year, right. They will say it’s like 4%, or something like that, that they adjusted social security. I thought they just did it across the board.
Caller 26:04
Yeah, I started receiving it back in December of last year, January, right about there. But I’m just I’m thinking about next year. Do you know of anything?
Dr. Friday 26:14
Yeah. As far as I know. 2022. It says here, they calculate AARP livable. Blob coverage. Yeah, that’s so in 2021, the average monthly Social Security benefits came up by 5.9% cost of living, but it wasn’t affected until 2022. So they did it basically the next year. That’s when that’s coming out.
Dr. Friday 26:37
Because they’re causing call it the 2022 adjustment, but it was based on 2021. So you should be seeing one soon, as far as I can see if it hasn’t already. And again, I’m not in these, but they’re all advertising it as 2022 Social Security changes. But it’s based on the third quarter of 2021. It was based on the third quarter, so it should be coming out. Now. I would think if I’m not an expert, I think so.
Caller 27:03
Well, that I consider you an expert. And I’ve, I’ve read the same stuff, but I’ve used all my back payment to your app to secure housing, and every bit of it was used for housing, and I have receipts but you say I have no tax liability on that.
Dr. Friday 27:23
None at all. That’s the only blessing I can give you sir. You’re in good shape there. Okay.
Caller 27:27
That’s a great question. And you have a one-second weekend.
Dr. Friday 27:30
Thank you, sir. All right. We’re gonna take another break. If you want to join the show. You can at 615-737-9986. We’ll be right back.
Dr. Friday 27:52
All righty, we are here back live in-studio and the lines are live. That means you can call us right now at 615-737-9986. We will take your call and hopefully have the right answers for you. And I was lucky enough for Ron to call from Lebanon. Ron, do you want to give us a heads up? What can I do for you?
Caller 28:13
Yeah, good afternoon. So the reason why I’m calling is that much like a lot of people that live here in that Tennessee area. We actually moved down from Ohio and we had a house in Ohio for six-eight months. Bought it ended up having to do a lot of work on foundational issues. Dr. Wright needs to be replaced as a result of that.
Caller 28:36
Code upgrades for electrical and plumbing are a lot of them a necessity, rather than esthetics of did maybe like how something worked. And then an opportunity had arisen down here in the Nashville area to end up selling the house and buying a house here. We essentially bought the house for 75 ended up selling it for 235.
Caller 29:02
My concern is with the capital gains. I’m trying to kind of figure out a way to maybe not have to pay so much because we did buy another house with those funds and a lot of those funds. A lot of money was had gone towards, you know, necessities for the house to make it habitable. So, kind of what am I looking at here as far as that goes?
Dr. Friday 29:28
Well, I wish you would’ve called me before but you know what, we’re just getting into a relationship now. So there’s not much I can do about it. Okay, so the law basically stipulates you could have done what’s called a 1031 exchange. Was this your primary home in Ohio?
Caller 29:43
Yep.
Dr. Friday 29:44
Okay. It was your primary home and you had to relocate here for work?
Caller 29:49
Correct.
Dr. Friday 29:50
Okay, um, there is an exclusion to the usual two-year on a five-year relocation situation, exclusion. So I have to look it up real quick, to be honest with you to find out, but I’m hoping and crossing my fingers and toes here that we could actually get you under that because one of the exclusions Is someone getting sick and having to, you know, be hospitalized. The other one is relocation for jobs.
Dr. Friday 30:21
So if we can get the relocation exclusion on a home sale, then what will be is that you won’t have to meet the two-year exclusion, we can show that being sold and then basically, you would have the $500,000. So you would be fine. Right? The 75 to 235, you said you were married, right? Yep. Okay, I thought I heard you say that want to make sure I wasn’t making that up making you married when you weren’t. You know what, I’m probably not to make sure we meet the eligibility test for that exclusion, there are a couple of things that I don’t want to do over the phone. But if you want, I’m gonna give you my email.
Dr. Friday 31:01
And if you want, you can email me or call me on Monday. And we can do that, I think you will qualify. I mean, just from this very short, I mean, it’s not too complicated. But there are a couple of things in there I don’t know about and don’t want the world to know about until we talk about it. But my email is Friday at Dr. friday.com, or my phone number is 615-367-0819. And those will be repeated in case you’re driving down the road and you cannot write them down. But if you want to give me a holler, I think you will meet the automatic exclusion that happens when people have to relocate. But just in case I don’t, you know, said otherwise, to be honest, if we don’t meet that, you’re going to end up paying tax on that 160 grand as short-term, ordinary income.
Caller 31:46
Okay, so just confirm it’s 615-367-0819. Awesome. Thank you so much. I appreciate it. I hope you have a good day.
Dr. Friday 31:56
Okay, thanks. Appreciate you. All right, yes.
Dr. Friday 31:59
And there’s always these little loopholes within loopholes. But sometimes you got to make sure you meet those loopholes. So anyone that may have had that same kind of situation. And you this only applies to primary homes, guys, this wouldn’t have applied if you had a rental property, and then you turn and put money back into another rental property.
Dr. Friday 32:18
That’s when the 1031 exchange would have happened. And you have to deal with that particular situation. But what we’re trying to do is preserve that sale of your qualified home and the $500,000 exclusion that we might be able to take out earlier because of having to relocate for work. So if we can get that on there, that would be so awesome. And even if we have to carry some of that over to the next that would be great.
Dr. Friday 32:44
So anyway, if you want to join the show, you can 615-737-9986 is the number here in the studio, taking your calls. If you’ve got questions like these gentlemen, and women like Rosie was smart enough to be checking out that bill, that’s a that we know is coming very quickly.
Dr. Friday 33:06
Again, I don’t know, I know Biden at least that last I checked, Biden had not signed it. But I think we have every expectation that he is going to sign it since he was the one pushing for it to be done. As it was so well, hopefully, we’ll get better detail of I always love it. When they put all these things out there. They say, “Oh, this is what the bill is” or whatever it is. And then we turn around and we’re like trying to find all these little hidden tax situations or anything else that might be coming in there. As part of all this, like the salt tax being increased in 2021 or 2022.
Dr. Friday 33:47
I would be really curious to find out if they’re going to backdate that, because I know there are quite a few people that would love to see that backdated. But again, you know, it’s nice to be able to say that I would love all the taxes to be in my favor. I would love not to have to deal with this.
Dr. Friday 34:02
But in all honesty, I mean, we only collect something like, again, I was on a phone call the other day yesterday with some representatives from the IRS and they were talking about 2019 I believe it was like three or $4 trillion in taxes. We’ve spent that already twice, almost over if you consider all these different bills from COVID and everything else. And that’s per year.
Dr. Friday 34:29
And that includes all of our other budgets and things that we have. So I am dying to find out how much and how they’re going to pay for this newest tax bill and you know what it’s going to come into so they’re talking about expanding it obviously under this bill to $72,500. But I’m wondering if that’s what they’re gonna say the gross income has to be able to qualify for salt or something. So we’ll find out oh, let’s see Sorry, Alan tall. Let’s see what I can do for Alan.
Caller 35:03
Yeah. Thanks for taking my call. I appreciate your show. And the reason I’m calling is we own a home. And our annual incomes around, oh 48 maybe a year, I’m on disability, and I’m on disability but my wife. But anyway, should we be getting the benefit of I mean, some kind of tax break or get something for owning a home?
Dr. Friday 35:36
No, they don’t actually have the only thing I can think of is your income. And you may already be doing that. There is the possibility and again, your income might be too high. But they do have some the counties or the city depending on what you live in, or if you live in both do have property tax, sometimes you can get breaks on the property taxes with lower incomes, or you know, if you’re living solely in with disabilities and things, Alan, but as far as on the IRS or your federal taxes, there is really at this very minute, not a lot of benefit to owning a home.
Dr. Friday 36:11
That’s a little bit what Rosie and I were talking about because itemizing is become very difficult under the tax law, right. I mean, and again, I rather not have to spend, you know, whatever $12,000 to get $12,000 on my tax return. But you know, for married couples, it’s like, if depending on your age, it’s anywhere between 24 and $26,000, you have to have you know before you can itemize so not a benefit, but then it doesn’t really cost you’re not losing anything, you’re still getting all of that standard deduction.
Caller 36:42
So when you put money into a home, like buildings or something they don’t give you a deduction.
Dr. Friday 36:49
There’s nothing really there, there are a few energy credits that still have been reinstated, you’d have to look and see if any of those apply. But other than that, it just adds to the value of the home. So when you sell it, you now have a better asset. Okay.
Caller 37:05
I appreciate your time. Thank you very much.
Dr. Friday 37:07
Thanks, Alan. I appreciate you. Thank you. Alright, let’s hit Tina real quick. And then we’ll take a break. Hey, Tina.
Caller 37:14
Hey, I’ve got a question. My father passed away in 2014. And I inherited his house and his property. Are we closed on his estate? I guess it was in 2016. Finally, and we did you know what we believe the house property was worth and I pay taxes on that for inheritance. So I had heard that Biden wanted to take the inheritance. And if you decided to sell that you would not pay capital gains at the point where you paid the inheritance tax from the initial part of where they bought it originally.
Dr. Friday 37:49
Right. So in all honesty, unless your father I mean, he passed away in 2016. So unless he had over $6 million in assets, he didn’t really pay any tax unless it was on like an IRA or because we have a step-up in basis on land and all that what Biden’s talking about? It’s a great question, you have to know what he’s trying to do is when your father passed away in 2014, whatever that property was worth, at the time of his passing was what you have as a basis, that’s what it was worth.
Dr. Friday 38:18
And you know, he may pay 50,000. But when you got it, maybe it was worth 250,000. And there were no taxes do between the 50. And 250. Biden wants you to pay tax based on the 50,000 that your father originally paid on it, we would have no idea what your father really paid for it. To be honest. I mean, a lot of times those records are impossible to find, you know, people live in these homes or even built these homes. So there aren’t really original purchase prices available to individuals.
Dr. Friday 38:48
That’s why they came up with the step up and basis in the first place. You know, trying to get people a benefit. So you are right. I mean, you would have ended up paying a lot more in taxes. Because, you know, assuming your dad didn’t just buy the house right before he passed away, but he had owned it for a number of years. Tina was correct. It was there. I think we lost her but hopefully, I answered her question. We’re gonna take a quick break here and you can join the show. If you’ve got a question on that or any of the other additional tax questions you might think about. The phone number here is 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 39:28
Alrighty, we are back here live in-studio and we’re gonna head right back to the phone lines. We have John. He’s been holding for a little bit. So let’s see if I can help John. Hey, John, what can I do for
Caller 39:40
you? Good afternoon. How are you doing? Good question. I have an elderly uncle that I recently moved down here. I’ve been living in Tennessee now for 10 years and I had some elderly family come down. Now I’m power of attorney and I showed the house back up We’re up and brought the money down here. Now I put in part of it into another house that I plan on flipping. Now, I want to know, you know, I, we have a bank account with me and him on this. So what I really want to know, where’s the money that I moved down here? What am I responsible for? Do you know what I mean? On the tax? Do you know what I’m saying?
Dr. Friday 40:27
Totally. Okay. So for your from the East Coast, no question, John. People think I have an accent. Well, boy, you do too. Alright. So that being said, Love you. The house that you sold up in on the East Coast or whatever? Was that someone’s primary home until they moved here? Was it a rental? What was that house that was sold up there?
Caller 40:46
Yeah, it’s been a family house for 60 years.
Dr. Friday 40:50
Okay. And so was someone living in it the last two out of five years?
Caller 40:56
Well, he was living in it. And you know, it came to the point where he couldn’t take care of himself anymore. And me being the only surviving relative, I had to go up and take care of the situation. So like I said, I, I took the money, and I came down here and no, now I’m sitting on it. Cash and also a property that I just purchased. So I want to know now come tax time, where am I?
Dr. Friday 41:24
So what the answer to that is really quickly on that home, how much was the home originally purchased for or made 60 years? Do you have any idea what that original home was?
Caller 41:37
I want to say $12,000?
Dr. Friday 41:41
I mean, 60 years ago, that was a decent income. I’m assuming some upgrades had to be done in 60. In 60 years, correct? Or no, not really.
Caller 41:51
Well, it was when I left, it was a got it was just trashed.
Dr. Friday 41:57
And then how much do we get for it? When you sell it? I sold it for 280. Okay, so we basically have, here’s the deal, the person that was living there would have had a $250,000 exclusion, plus the $12,000. So that’s 262, there may be a small number of capital gains, unless there was some sort of receipts or something you might be able to pull up that would show where they did massive, or at least 20 or $30,000 worth of repairs, and that may not be able to be done. And you may just have to use the five the 262 against the 280 and pay tax on the difference. And this would be on was it your uncle? Yes, ma’am. Your uncle’s tax return?
Caller 42:39
Okay, so this is now I have that money and had that money in the bank account. just praying, put it right in there. Now, you know, when you have 200, and it wound up after everything and liens and stuff I had 250 in the bank. Now, you know, come tax time again, is because my name is on it? Am I responsible as well, you know what?
Dr. Friday 43:06
Right. It’s only his I mean, this is his primary home, you’re just basically being His representative. So you need to make sure he files taxes, he may owe zero tax, if he has a very low income, up to 50,000, he can make him pay zero on capital gains.
Dr. Friday 43:20
So you know, all in all, there might not be a lot of taxes due but you want to make sure that someone files his 2021 taxes reports the sale of this home along with whatever social security or other incomes he has. And then you know, pay whatever taxes are due and then whatever’s left in the bank would be money that you can invest, no, theoretically, you’re managing it for him until he passed away and then leaves it to you as an inheritance.
Dr. Friday 43:43
But you know, just saying the money you’re, you’re growing or investing and doing things is really just managing it for him at this point. And then at that point, once it’s once it gets to a certain dollar amount or whatever, I mean, he can gift you $15,000 a year but other than that, you would have to do a gift tax return and maybe a zero tax situation. But that would be something you’d have to you know to consider and talk to an attorney and make sure that he’s off right mind but you’re the last living relative so it’s probably not going to be a lot of difficulties
Caller 44:17
Yeah, so this wouldn’t be a just go to h&r Block I’d bet I’d want to go and talk to someone who specializes in it. Right? You know, because
Dr. Friday 44:26
I think you want to go to someone that you know not to say myself but someone that has done taxes for estates and for you know, any of those types of things h&r? I mean again, I mean, there are times when h&r block is perfectly fine, but I think anytime you get into that kind of question you really would need at least a level two or level three h&r Block person if you if you’re attached to that firm.
Caller 44:47
Great, that’s great. Because, you know, I’ve met I said, I love your show and listened to you guys all the time. And I’m like, wow, I have the perfect question and you’ve really helped me out a lot. Thank you. Thanks. Appreciate your stress off of me. And thank you for your time. I totally appreciate it. Thank you appreciate it. Yeah.
Dr. Friday 45:06
Thanks. Bye-bye. All right, guys, this is pretty much the end of the show. So again, if you want to reach me on Monday morning, you can certainly do that. My phone number is 615-367-0819. You can also email friday@drfriday.com.
Dr. Friday 45:31
And for some of you, that really have no idea who this crazy person on the radio, you might want to check me out on the web at drfriday.com is actually my first name for all of you sitting there going, “Why did she keep saying Friday, Friday, Friday.” That’s daddy’s fault, not mine.
Dr. Friday 45:47
So again, Friday is my first name friday@drfriday.com. 615-367-0819 or check out the web. We are getting ready. If you are a current client of ours. You should be receiving an email or phone call from my assistant. We are booking for 2021 tax season, our 2022 whichever way you want to think about it, and then we’ll take it from there. If you’ve got other questions, you can do that I lost my time clock so we’ll be able to keep working and moving forward.
Dr. Friday 46:19
And if you’ve got questions, give me a call at 615-367-0819 I really hope you guys have an awesome Saturday. And I hope you guys get ready to start enjoying the new season. Thank you, boss. Christmas is coming around the corner. Getting ready to put my Christmas lights up. Call me later.