Welcome to another episode of the Dr. Friday Radio Show! In this episode, tax expert Dr. Friday answers callers’ tax questions and covers various topics, including:
- Introduction and mention of the upcoming tax deadline on October 15th.
- Discussion on potential tax changes for 2023 and the impact of life events on tax situations.
- Caller question about capital gains taxes on the sale of co-owned hunting property.
- Caller question about reporting the sale of a rental property with gifted equity to a daughter.
- Importance of staying current with taxes and options for resolving tax debts.
- Mention of potential benefits of bankruptcy in certain tax situations and the advice to seek professional advice.
- Encouragement to track expenses and income for better tax planning and setting aside money for self-employment taxes.
- Explanation of 1031 exchange for deferring capital gains and advantages of long-term real estate holding.
- Emphasis on understanding tax liabilities when inheriting property or receiving gifts and the tax implications of life insurance policies.
- Reminder to file 2022 taxes by the deadline and discussion of SEP contributions for retirement savings.
- Dr. Friday’s contact information for further assistance.
Transcript
Part 1: 00:00
Announcer: 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, 737-WWTN. That’s 737-9986. So here’s your host, financial counselor and tax consultant, Dr. Friday. (upbeat music)
Dr. Friday: This is the Dr. Friday Show. Let’s see if we have us going here. I think I was a little bit rough getting on the show here, but I think we’re good to go. Guys, we’re live here in the studio, and if you wanna join the show, you can at 615-737-9986, 615-737-9986, the number here in the studio. We’re all working pretty diligently this next week and a half to finish up the end of the extensions that were filed. Obviously, if you filed an extension, then your taxes are due October 15th, and then you must have them filed, otherwise you’re late. So making sure, and then obviously, we’re all thinking about 2023 taxes. What’s going to be happening? Is there anything that’s gonna change? Maybe something’s changed in your life, how that’s going to affect you on that situation. Is it that you inherited something? Did you have some sort of change in marital status or maybe had a baby or got married or, you know, all those things do have an effect on your taxes. So understanding how that affects, usually, obviously getting married, it can be a different situation because now you’re going from being single on your withholdings. And if you’re merging people’s W-2s, sometimes it’s better to stay single on as far as withholding than it is to change to married and zero. You may find out that you won’t have enough of a withholding. make sure you’ve talked to someone before you make changes. Let’s go to Jim in Nashville and see if we can help him out a little bit. Hey Jim, what can I do for you, sweetie?
Caller: Hi doc. How are you doing this Saturday?
Dr. Friday: Oh, not complaining. Seriously. It’s pretty nice day out there. Beautiful, beautiful.
Caller: Hey, I’ve got a question for you. Several years ago, my best friend and I went in together and bought some hunting property. and now we have just put it on the market to sell. We own the land free and clear, so the money that we get will be split between the two of us. Help me out as far as what I’m looking at as far as capital gains taxes and any way to avoid that. I don’t plan on reinvesting that money in more real estate, but I’m just kind of looking for some guidance from you.
Dr. Friday: Sure. Well, I think you took my golden goose out of the game because the only way to avoid capital gains on that property, I guess there’s two ways. One, if you have stocks or anything else that you plan to sell and they have it for a loss, then this might be a good year to take that loss to offset a session in the year in which you know it’s going to actually be a sale. I mean, if you you just put it on the market now, land does take a while to sell usually. It’s not quite as fast as houses usually, but it may be something to consider if you have something in your other portfolios that you’ve had, you’re like, “Well, I’m just going to hold on to it because a loss isn’t going to help you.” Maybe it will in this. Other than that, you’re looking at whatever you and your mate paid for the property originally. And then if it’s hunting property, I’m assuming you didn’t have leases out on it where you You wrote it off as expenses. So if you had to do maintenance, so I’m going to assume you guys pay property taxes every year. Did you have to put up any kind of fence lines or anything?
Caller: No ma’am, did not.
Dr. Friday: Okay. So pretty much all you’re going to be looking at is maybe the property taxes annually and you can add all those up, deduct it as long with the value of that property and take it all off now. So if you paid 50 and you sell it for 150, you’ll each have taxes of 50,000 per se, less whatever property tax may have been on that property.
Caller: Okay, I was also wondering if possibly I retired or excuse me, I didn’t possibly retire, I am retired, but possibly putting that money into my rollover IRA, would that be a possibility?
Dr. Friday: No, it’s not considered earnings. So you can’t take it in and put it into your IRA in any way. If you were still working and we had the ability to possibly maximize, normally, maybe you don’t put money in a 401k or whatever, you could have taken some from your paycheck and theoretically replaced it with your own money. But no, if you’re retired, then that means this is not going to be the kind of earnings you can invest now.
Caller: Okay, all right. Very good. Very good. Well, listen, I appreciate your time and your your expert advice. Thank you very much.
Dr. Friday: Thank you. I appreciate you listening. Thanks.
Caller: All right, let’s go to Tim and bowling greens.
Dr. Friday: Hey Tim, what can I do for you, buddy?
Caller: Just quick question. I’ll do loan taxes. Sold a piece of rental property, really my daughter who purchased the rental property and I’m trying to give I give part of the equity back, so sold it for Photo photo tour gift equity. It’s paid off the loan When I do the return I’m looking at it. I did last year only Excuse…
Hello Yeah, Tim, you’re going in and out a little bit and I’m trying but it says that you have a rental property You’re working on your schedule. Well II as in Edward and that’s as far as I got right Can you try a little bit more?
Caller: Yeah, all I want to know maybe getting ahead of the game, but make sure what I do I do I when I do the disposition What’s that when I do the sale? How much I put it? I know you don’t put the gift So I just put the payoff of the loan which is about fifty five thousand or the purchase of the..
Yes, okay, so let me recap for everyone again. I’m trying to it sounds like you’re selling the house, but was it to your daughter?
Caller: No, it’s a rental.
It’s a rental. It’s a rental and are you selling it or no?
Caller: Yes
Okay, so it’s a rental that you are going to gift to your daughter
Caller: Yes, part of the equity about 80,000 and then the rest of it 65.
Dr. Friday: Yes Well when you show it as a sale to a family you have to show the total Amount because you still have to pay capital gains even if there isn’t any I mean if you’re selling it to her for what you paid for it or what the fare you do Have to make it a fair market value
Caller: I did what yes, it’s 150 firm 147. Basically what fair market? 80 over the equity paid off the loan That’s the way I’m doing it, yes,
Dr. Friday: Right So I mean when you show it on your when you show it on the schedule II that will refer over to the schedule D You’re gonna show it for 147 and then you’re gonna show whatever you would make Whatever you made for capital gains, you’re gonna pay tax as far as the other side of it That’s a gift tax return and you’re gonna shut so that you get a $80,000 out of little gains at the time that you filed it She won’t pay any tax on it because the person receiving a gift does not pay the gift tax.
Caller: So the gift the gift portion she has to show… I’m sorry you lost me on that…
Dr. Friday: The gift to be you you will file a? In this house because you’re now gifting her that and then So you’re gifting her the equity so you’re gonna show the home sale on your schedule D And whatever 147 against whatever you originally paid for whatever the cap Okay It’s capital gains then I know that you’re gonna give her eighty thousand dollars of equity in this home and in essence That’s gonna be coming out of your lifetime. You’re not gonna pay an additional tax. She’s not gonna pay any tax This is just a paper trail for the IRS to know and for her if she has to go into You know later get a you know get a loan or whatever because then the home value for her will be 147,000 once you gift her that difference then she’s paying 60 and she got 80 whatever So you do need a gift tax return
Dr. Friday: Caller: Okay
Dr. Friday: okay boss.
Caller: Thanks. Yeah, I didn’t confuse you on that one –
Dr. Friday: Thank you. All right, we’re gonna take a break here and we get back, we’ll take more of your phone calls at 615-737-9986.
Part 2: 9:51
(upbeat music)
Dr. Friday: All right, we’re back here live in studio and sorry guys, I seem to be having a difficult time trying to hear on my side, so maybe just human errors here, but hopefully we can work our way through it.
So if you wanna join the show, you can. 615-737-9986, 615-737-9986, taking your calls, talking about my favorite subject, which is taxes, and the fact that we have taxes coming due very, very soon. We all know how that’s gonna work. We basically have about a week and a half, October 15th, I guess about 15 days, I guess it’s the days, the 930, 15 days to get all of our taxes completed for the year of 2022. If you have not completed your taxes by that time, guess what? You need to just get them done. If you haven’t filed an extension and you’re like, okay, I haven’t filed an extension, but I really wanna get caught up, right? I mean, ’cause you can’t move forward in many things in life when it comes to dealing with a lot of the things that we have. You know, you can’t get a house, you can’t easily buy a car. I do know people do. But you know, kids get ready to go to college. These are things that require bank statements or tax returns and bank statements at cases, but tax returns. And if you’re trying to get ahead and getting things redone, trying to get ready to move forward and maybe, you know, get married and move and decide to do these things.
One of the things you really do wanna make sure is that your taxes are in order. Last thing you wanna do is bring that into another situation. And it’s not an impossible situation. I mean, you know, we do it all the time, help individuals to get their taxes caught up and then get them into either a payment plan, an offering compromise, an installment agreement, and really understanding the difference. What can you do and what can you not qualify for? Because I know in doing this for 25 years, one of the things that it seems like to me, so often people are getting told that they should be able to just make a deal with the IRS. That’s what they call it, make a deal with the IRS. But you know what? You can’t just make a deal with the IRS. There are rules, there are things you have to consider. There are situations.
And I know people sit there and say, well, I have equity in my house, but I mean, that’s the last thing I have. And I was finding out there was some really interesting debates about some of this at a seminar I was attending last week. And I did find some of it very fascinating with, depending on the age of the person, how much of that equity might be able to be argued off that it was actually part of their retirement and can the IRS actually touch it? And so, there is always a different approaches to how you can actually deal, but it doesn’t change.
First things, no matter who you talk to, no matter if someone says they can get all of your penalties waived and they can deal, they can even get interest waived, which is impossible, may I tell you? Unless they can find an heir by the IRS, you’re not going to get that interest waived. You may get penalties, but one of the things you need to be is up to date, right?
So I was talking to a client last Thursday and he came in and he’s like, well, okay, well, you know, we’ve been working with him for a number of years. And he said, well, you know, I really want to get someone to help me with this tax resolution. I know, you know, you’ve talked to me and all this, but everyone just tells me I should be able to get this resolution. And I, you know, I came right out and said, there’s nothing wrong with being able to get resolution. But with this gentleman, the thing is he doesn’t pay his taxes every year. We’ve been working for years to get him on a monthly estimated payment so that every month he makes a payment. So at the end of the year, he does not owe the IRS. And for three years, that has not happened because of something either coming up, unable to do it. Now he’s recently gotten married and the person he’s married to doesn’t have any of her own income. So this is gonna be even a larger situation because he’s sitting there going, “Well, I’ve been paying the IRS forever. “I’m not getting ahead and now I just filed.” And he hasn’t filed 2022, which is also going to need to be added into his tax debt.
And I said, he would qualify. Personally, I think he would qualify for an offer and compromise. But if I made a deal with the IRS, I would already know that this individual isn’t going to be able to continue not to get in trouble or not to have issues with the IRS because he has to stay current and pay all of his IRS every single year for five years. Last three years, I haven’t been able to do it. So why would I want to go and make a deal with the IRS, get him all set up for failure really, because it doesn’t help him if he’s not succeeding on what he needs to do. And that’s something that people need to consider.
They always think about, well, if I could just get the IRS off my back, I’ll be fine, but that’s great. And in many cases, I think it does help. But if you’re not ready to actually, not just get the IRS off your back, but to actually get the IRS into a place where you’re going to be able to move forward to do things, meaning that you’re paying the IRS off and that you’re not having to deal with something other than that, then you’re just going to set yourself up for failure. I mean, seriously, and that’s what you don’t want to do. You don’t wanna tell the IRS you’re gonna do something and then turn around and find out, well, I couldn’t really do that. Well, that’s so not what you want. You know, I mean, really it’s not, you want to be able to go out there, get yourself set up so that way now you know that, Hey, as long as I set this much money aside, and I will tell you, it’s us, the entrepreneurs that often have the hardest time, because if you already have a w two job and you’re not getting enough money, you just go in there and tell them to take more money out. I mean, even though you might not like it, it is something that is easier for us to control where if you’re an entrepreneur and no taxes come out and you don’t have a separate bank account where you’re putting 20, 25, 30% of that check because your partner in business is the IRS. No matter what anyone else wants to tell you, you do have a partner in business. They want their share of that information and they want their share of taxes. Boom, that’s it.
So first thing when you go in business and you’re doing things, you need to remember that you do have this partner that’s expecting their share of your profits. Now it’s not a gross, it is of profits. But in some cases, some of my clients don’t do a great job of tracking every single month their expenses. They do a little better job tracking them on the quarter and then once a year they go through and for weeks at their kitchen table they spread out everything and they put it together so they have all of their deductions. But the problem with that is, how have they been able to take out the money if they don’t know what their profits were on a monthly basis? So having a system, I don’t care if it’s a matter of just doing Excel, doing some sort of QuickBooks, Quicken, I know there’s some other free accounting systems out there, it doesn’t have to be complicated. It doesn’t have to generate. What you need is what I refer to as a profit and loss, it’s income and expense. I don’t care what you wanna call it, but if you can get something that would show this is what you came in with income, here’s the expenses that you tracked and this bottom line is what I think I earned. Then that dollar amount is what you wanna be taking a minimum of 20, no matter how little it is, up to 25 to 30 to 35, depending again, you know, what your dollar amounts and your income is. But you need to know that percentage, you need to know what it is. And then you can take that and set it into the account for your partner, the internal revenue service. So that way when it comes time, weekly, monthly, I mean, I have people that will pay it weekly. I usually suggest for people that have a difficult time to do it on a monthly basis. And then obviously if you’re able, the IRS only requires it four times a year. And September 15th was our third payment. Our last one for the year will be in January. But you need to remember that because the ones that get in trouble because when the truck breaks down or when you get behind on a credit card, or usually, to be honest, it’s something happens that’s unexpected. Normally a vehicle breaking down, or maybe at that point, then you don’t generate, if you’re a driver or something, and you don’t generate income for a few weeks, you have to start borrowing from the only account you really have, or you don’t set that money aside.
So, next thing you know, you’re basically upside down, and now you’re in a situation where you don’t have the ability to really fix that problem. And once you get to that, it’s so hard because when you’re paying backwards for back taxes, and then I’m telling you to pay forwards. So there is a system, once you do it, there is a way, but you have to look at, when you have a job and a W-2, it’s not like you can borrow the IRS tax money, it’s not there for you to borrow. So what would have you done then? You know, and that’s what people have to start thinking when you are an entrepreneur and you have this partner in business, whatever that percentage is, that money needs to be set aside and you don’t touch it any more than you would touch the ability to go to your boss and say, “Hey, I’m short this week, I need $1,500.” I mean, the logic is that’s not going to happen with most bosses and you’re going to have to figure out another way instead of just using your partner’s money.
Well, that’s what this is. So once you are set and you are able to live off of the 80% of profit or 70% of profits, and that’s what your lifestyle is, then you’re in a better situation because then, you know, if you do have some extended expenses and that brings your income down, now you’ve probably overpaid or you have extra money in your savings. And at the end of every year, you can clean that out. If you only need to pay 15% of it to the government and you save 20, you’ve got 5%. Gosh knows you might even set up a retirement account. Who knows?
All right, so let’s get ready. We’ll take our second break of the show. When we get back, we’re going to hit some of the calls or emails that you have. The phone number here in studio is 615-737-9986. 615-737-9986. We’ll be right back with the Dr. Friday Show.
Part 3: 20:58
(upbeat music)
Dr. Friday: All righty, we are back live here in studio. And if you wanna join the show, you can. 615-737-9986, 615-737-9986, taking your calls, talking about my favorite subject, taxes, money issues, dealing with the IRS or the state.
We have had a couple people that have been dealing with the unemployment issue where they got unemployment and now the government’s coming back and saying they didn’t qualify. I will tell you that is not my expertise for those kind of situations, but I have understand there are a couple of different court cases that have come out of this. So hopefully that will help with some of the individuals that are coming back and saying that they were, they’re now being billed for something that may or may not apply in that scenario. So we’ll have to stay tuned and keep track of all of that.
My biggest thing is making sure that we have two things. One, making sure taxes are filed because that’s what I mainly do. And then the second thing is mainly I do a lot of tax resolution. As an enrolled agent, I’m licensed by the Internal Revenue Service to do taxes and resolution. And that’s really what we do a lot of trying to help people get past the point of, all right, you know what, something happened, businesses fail, especially in the last few years, we’ve had a number of businesses that have failed and ended up with trustee tax issues. These are just situations that you can’t really change, right? By the time you’re in my office, the fact is, here’s where we are.
So being able to take a fresh look at your situation and seeing is there a possibility of getting some sort of payments. Like I always talk about businesses can do offer and compromise as well as individuals. And then obviously just finding out what would be the settlement and how would that come about. Would it be in less than 12 months? Would it be in 24 months? What kind of payment plans?
These are options we do have. And the last thing you really want is so the government to come and do a, you know, a levy on your bank, right? We don’t want them taking money, especially when it’s set aside usually for rent, food, the essentials in life. And there are hardship filings. So if the IRS did take money out of a bank account that you had set aside for the emergency of paying your rent or paying food, there are ways of getting those funds back. you would have to prove that hardship that you don’t have the ability to pay your rent or to to eat. So those are the kinds of things we deal with all the time.
But part of it comes down to this is understanding what is your individual situation like? Because I know there’s so much stuff out there if you’re Googling or even if you listen to the radio or TV, there’s all kinds of those organizations that come out and say, we can help you do We can save you a thousands. We’ve we’ve done this and anybody that’s been in the resolution business has a story where they had someone That had owed over a hundred thousand dollars and they settled it for less than 25 Anyone that’s been in the business will always have those stories But what’s the reality for you because that’s the story you really want to understand Just because I could sit here all day and talk about the different types of resolutions We’ve done and maybe that would give you the idea that I know what I’m talking about about, but it’s not going to really give you the idea. Can I do it for you? Because you are unique. Your situation is going to be different.
You know, were you married at the time of this resolution? Did you file things jointly or not? Uh, had, I had a situation where someone called me and was telling me, um, about their child and, uh, this particular situation, the person is in a, um, an unhealthy relationship. Let’s put it that way. And that does come into play because filing a joint tax return with somebody that just tells you to sign it or else does lead to the government understanding that that wasn’t really a choice. And if you didn’t have those kind of choices, if you were in a situation with someone that was extremely dominant or even threatening or abusive, obviously, that changes your personal responsibility.
But if you were in a normal, healthy, I guess you can say a healthy marriage of some sorts, then, you know, you, you ended up divorced. But at that time, when you did the divorce, you owed the government. And because the government basically, you know, in the divorce, you said that. She’s going to pay all the taxes because she was self-employed. I paid my share and this is all her fault. So she agreed to get out of the situation, uh, by basically saying, sure, I’m going pay all the taxes? Well, from first-hand experience, I can tell you we had a situation just like that and due to the situation, I was able to get that particular individual out of tax debt with an offer in compromise. But the court had said that she had to pay the taxes and we got her in an offer in compromise, which means she did not pay at all. And since they weren’t legally married any longer, the IRS then turned around and went after the husband who obviously at that time, because the court and the IRS are completely two different things. You’ve got to understand that.
If you have a legal document from a court that says you’re supposed to pay all the taxes and the IRS comes after you or the other person that they’re not supposed to, the IRS is going to come back and say, we don’t care what your divorce papers say. You sign those taxes and you agree to that tax that as a couple. So it doesn’t make a difference that your tax, that your divorce decree says that other person’s going to pay it. And the IRS is like, well, we’re not getting paid. So guess what? You’re going to pay it. And you can then theoretically, I’m not an attorney, but I’m assuming you can then take that person back to court and sue them for the money that you had to pay the IRS. And you’re not only liable for 50% because you’re each on the tax return, you’re each liable for 100% of that debt.
So again, my suggestion is always, I mean, if you’re getting divorced and there is a a tax liability and you have the ability to put it on their credit cards to pay them off and then the credit cards can be paid by that person or their credit or something goes bad. That’s a whole different story. But IRS is not going to allow that person that basically may have caused it to be the only responsibility. So in this case, I got the person that was responsible off and no longer in debt to the IRS. Now the other person was going to have to deal with the IRS, which that they would have been able to get an offer and compromise. So they were going to have to pay the IRS and then they were going to have to take their spouse back to court and sue them for that money, which to be quite honest, would have been interesting since there wasn’t any real money there. So, you know, and everyone knows a judgment is just as good as the paper it’s written on when it comes to certain aspects. I mean, if someone owns a house or someone has a lot of cash in the bank, well, then you probably aren’t going to sit and make an offer to the IRS and you’re not going to have these issues because you’re not the one that’s going to have those particular problems because you’re going to pay them. But if you don’t have those and then you have the ability to do that, and you know, that’s, that’s the tools that we have. It’s like bankruptcy or anything else.
I mean, I am surprised so often on how many people don’t like bankruptcy. I’m not saying it’s for everyone. I’m not saying it, but it’s no different than divorce or anything else really. You know, at the point of, if you’re that far into a situation, you need to consider all elements and keep in mind the IRS can go into bankruptcy if if it’s ordinary tax debt, ordinary income tax debt. So that can go into after 31 months to a bankruptcy. So if you owe for 2017 and that’s the only year you have, you might want to consider a bankruptcy. It may be the only, you know, but often I find with my clients, it’s not just one year, it’s multiple years. So again, I had a client that came in and they said, well, I was going thinking about bankruptcy, what do you think? And in this particular pace, they had 17, 18, 19, 20, 21, 22. So they might’ve been able to get 17 or maybe even 18 off, but 19 through 22 were not within the 31 months in their situation. So going bankrupt wasn’t going to solve much of their tax issue in this particular story. But again, we want to look at all elements.
If you have old debt that you’ve been paying on a long time and you maybe can’t pay the IRS or maybe an offer in compromise doesn’t apply. I am not an attorney. I’m not going to say I understand bankruptcy. I have worked with some attorneys and dealing with the IRS and bankruptcy. And there are certain rules again, like everything else but sometimes you can do bankruptcy and you can’t do an offer in compromise. So you need to consider your options. make sure that you’re not just, you know, flying blind and make sure that you’re able to do what you need to do. Right? Because that’s the important part. As an enrolled agent, my job is not to just get a deal with the IRS and say, okay, my hands are ripe. You know, here’s your deal. It’s to make sure you’re not, you stay current, that you can live up to the deal that we have and to make sure that it fits what you need.
Just because you might get an offer and compromise doesn’t mean it’s a good offer and compromise. Maybe it’s more than you can afford. Even if I tell you, you owe them 150,000 and you can pay them 40, they’re gonna wipe it out. 40 may have been just as bad as saying you owed 150. You don’t have access to that either. So you need someone that’s gonna understand not only what their responsibility is to help you with that, but also where you’re at right now and what is going to be the best resolution. Maybe non-collectible for a little while and then getting into a different type of deal. It may not be as black and white.
So again, if you have issues with the IRS or if you’re looking to have your taxes done and we might be able to help you, you can certainly call us or just go to the internet, drfriday.com, that’s D-R-F-R-I-D-A-Y.com or email friday@drfriday.com. All right, we’re gonna take our last break for the show and if you want, you can join us here live in studio at 615-737-9986. We’ll be right back with the Dr. Friday Show.
Part 4: 32:23
(upbeat music)
Dr. Friday: Alrighty, we are back. Goodness gracious, today I can’t figure it on and off, off and on. Here we are, live back in studio. So if you wanna join the show, this will be the last bit. Otherwise you will have to wait till next Saturday or you can call me in the office, obviously throughout the week. But if you have a question right now, probably best to pick up the phone. 615-737-9986, 615-737-9986, taking your call, talking about my absolute favorite subjects, other than myself, obviously, which is taxes and finances.
So if you have something you wanna talk about, or again, keep in mind when you’re dealing with your own personal taxes, you know, and all of us are, just keep thinking about what, you know, If you inherit something, if someone’s gifting you something, where’s the taxes going to be? Social inheritance had several cases in the last couple of weeks. Property inherited, but they inherited it a couple of years ago. Now it’s finally being sold. We had somebody that has a unique situation where they had an annuity, they inherited, And then they were distributing that money to their grandchildren or to their children. And they inherited it from their parents and then they were gifting it to their children. But you know, trying to figure out where the taxes were being paid, how the gifting was supposed to be handled, all of that kind of conversation. Even life insurance had one that came in this year, this last few months that it was in a unique annuity. And therefore it was, even though it was called life insurance, it wasn’t tax free. So you know, which obviously was a surprise because the person didn’t report it thinking that it was a tax free situation and it wasn’t. So you really need to understand what you’re, what you’re getting and what you have so that you can make good judgments.
Just like the gentleman that called in earlier, Jim, that has the piece of hunting property, you know, it’s always good while you’re thinking, okay, you know what, we’re listening at first So now I have the time to preempt. Okay. This is what I’m expecting. We’re gonna sell it for this would be my share This is how much the closing cost fees blah blah blah This is what I’m expecting and depending on if it’s puts his personal income over 250,000 or if he stays under that it would be a matter of it’s 15 18 point eight or twenty three point eight capital gains tax And it like he said is there something he could consider? There’s not a lot of options. Capital gains is still probably the lowest taxation that you’re going to run into But if we could avoid it, we’re all in line for it so what is and it’s not like he’d already done his research because really the only way to avoid if you’re in that kind of Situation and you’re standing and listening to us, you know He was talking about a 1031 exchange Which basically means that if he wanted to buy another piece of property be it maybe not hunting but a piece of rental property or investment property could be commercial. But something that he wanted to turn that into, he could do a 1031 exchange and go buy it. But there are rules. There is a very tight time limit in which when you make a sale and when you have to reinvest that back into another property. But it is a way of deferring capital gains. And it’s a way of deferring depreciation recapture, which especially in Jim’s case, there won’t be any because land is never depreciated. But in people that have rental properties, many of them would have.
And I actually had a really nice surprise last Friday when I was working on one of my clients. And he now he is starting to offload a number of his rental properties, but he has had them for over 33 years, which means recapture depreciation isn’t going to happen. So there is a golden parachute in those kind of situations, but most people don’t hold on to real estate that long. So, um, but if you had held on to over 25 years, there is some, some advantages to doing that. So, um, you know, it’s still gonna hurt when you have to pay capital gains, but at least you don’t have the recapture of depreciation, uh, that does come along with it. So when you’re calculating a gain on a piece of real estate and it is a piece of real estate that has been used as rental, so there’s been depreciation. Remember, depreciation was ordinary income, which is great if you were able to actually take those losses and it would have offset your ordinary income, that’s great. Many cases that really just rolls over. If you make more than $125,000 and you have rental losses, you’re probably not actually getting the advantage of a rental loss right now, but when you do sell those properties, they will come back at you as a better situation.
So you will have those, I know a lot of people want more of that instant gratification, but you know what? Sometimes you do and sometimes you don’t have the advantage of that. So all you can do is move forward and see what you have. So if you want to join, not during the show, but if you want to call me on Monday morning, if you’ve got a question, I’d be more than glad to do my best to help you with leading you either towards resolution on our side, or if you need some other assistance through attorneys or state planning, we can do that as well. We have people we’ve worked with. But the phone number in the office is 615-367-0819. 615-367-0819. Remember, I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and resolution. similar, I guess you would say, to a CPA, but they’re licensed by the state. And normally a certified public accountant does accounting.
Now I have some great friends that are EAs or they’re certified in the accounting and they do taxes. So some CPAs will be and do the same thing we do. Not all, just like some attorneys are EAs and they actually do representation as far as the same situation. But in most cases, if you’re looking for someone that’s going to help, make sure that that’s what they do. Just because they are CPA doesn’t mean they’re going to do tax resolution. In fact, just because they’re EAs, it doesn’t mean they do tax resolution. Because some of them have found that they just like to do taxes. Some accountants like to do audits. Some like to do forensic accounting. There are all sides to many of these professions. But in our case, we do resolution and taxes. So if you have a problem or if you’re just really wanting to try to see what’s the next step. How can I improve upon where I’m at right now because it feels like I’ve been paying on my IRS debt forever. That’s usually the first thing people say I’ve been paying on it or you know I haven’t done anything for 10 years and I really would like to get back on track. That’s what we do as enrolled agents. We help people do just that.
So if that’s what you’re looking for again the phone number for the office is 615-367-0819. You can also email me Friday at drfriday.com. You don’t want to forget, I know I keep pushing it, but seriously, it’s only a few weeks away. You need to file your 2022 taxes. If you were fortunate enough to file an extension that never extended the money you might owe, It did extend the penalty for failure to file which can be a 25% penalty, but it did not extend the money So when you’re filing you want to try your best to actually make the payment back in April when when you file extensions But sometimes that’s just not on the table It’s not even an option and I understand sometimes it’s just the reason to push it down but also one of the nice things about filing in September or October 15th is that if you have a SEP, if you’re self-employed, it does give you till that day to make a payment into your retirement.
So that is also a wonderful advantage for many of us to be able to maximize our retirement now in October, where you can’t do that. IRAs extend only to April, but a SEP does extend all the way out to October 15th. So if you have it maximized, you still have time to put money into your retirement. And a lot of times you can’t even figure out how much the maximum is until you do your taxes because it is based on your income, subtracting your social security, getting you to a dollar amount that you can then figure out. So again, you can email friday@drfriday.com. If you have a question, again, friday@drfriday.com. You can also check me on the web. If you haven’t heard of me or you’re not too sure, or you haven’t seen my big old truck driving down the road, then it’s a good thing that you can also check and see who I am. That’s a simple address, drfriday.com, D-R-F-R-I-D-A-Y.com. And again, if you have questions, you need help, I will do my best to try to lead you or help you in doing that. You can reach us in the office Monday morning at 615-367-0819. 615-367-0819. Do not ignore the IRS. As all I can tell you, if I was to leave you with anything, if you’re getting the love letters, if you’re getting communications, it’s not something you want to do. You don’t want to just ignore the IRS. What you want to do is basically respond. Communication can make the difference of having someone coming right at you or being able to deal and move forward in that. You’re not sure how to do it? Call me 615-367-0819 615-367-0819 I hope you guys have an awesome Saturday. Cop ya later! (upbeat music)