Read Online The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle - Free Book Online
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Capital Loss Carryover
If your total net loss is more than $3,000, you can carry over the unused portion to the next year. The loss can be used to offset gains in the future or to offset $3,000 in ordinary income. Losses carry forward until the entire capital loss is completely used or the taxpayer dies. Only a surviving spouse can use capital loss carryover. It cannot be inherited by anyone else.
Selling Your Home
Taxes may be owed when you sell a home. This section discusses the tax implications of selling your primary residence, which is the main home you live in for more than two years.
The gain or loss on the sale of your main home is the selling price less the adjusted basis. Determine the adjusted basis by adding the price you paid for the home plus any capital improvements on the home. The adjusted basis is increased by additions and other improvements that have a useful life of more than one year, special assessments for local improvements, and amounts you spent after a casualty to restore damaged property. See IRS Publication 523 for details. Part of your cost basis is certain settlement or closing costs but not fees and costs for getting a mortgage loan. Chapter 13 of IRS Publication 17 has a list of settlement fees and closing costs that you can include in the cost basis of property.
There is a significant tax advantage with the sale of your main home. You may exclude up to $250,000 of the gain on the sale of your main home ($500,000 if you are married and file a joint return) if you meet the ownership test and the use test and if during the two-year period ending on the date of the sale, you did not exclude the gain from the sale of another home. This tax advantage pertains only to your main home. It does not pertain to vacation homes or rental property.
Ending on the date of the sale, you must have owned the home for at least two years and lived in the home as your main home for at least two years out of the last five years (or up to fifteen years for those in the military). If you do not meet the ownership and use rules, you may still claim a reduced maximum exclusion by reviewing all the details of your situation against the relevant tax code. IRS Publication 17 has a summary of these exceptions.
Capital Gains on Collectibles
Long-term capital gains on financial assets such as stocks and bonds (or mutual funds holding stocks and bonds) are eligible for the preferred maximum tax rate of 15 percent. However, the sale of such items as collectibles (art, coins, stamps, bullion, etc.) held more than one year is taxed at a maximum rate of 28 percent.
Some mutual funds invest in gold and other alternative assets. How those funds are taxed depend on what is actually held in the fund. If the fund holds hard assets such as gold bullion, you will pay 28 percent capital gain taxes when you sell the fund or when assets in the fund are sold to meet redemptions. If the fund invests in derivatives such as future and swap contracts, a portion of the gain will be taxed as ordinary income and a portion will be taxed as long-term capital gains. See your 1099-DIV for a breakdown.
FEDERAL TAXES ON SOCIAL SECURITY INCOME
An entire chapter is devoted to understanding Social Security, and you should refer to that chapter for details. The focus in this chapter is on how these benefits are taxed. Social Security benefits are superprogressive. Not only does the tax on Social Security income increase as your income increases but also the percentage of the payment that is taxed goes up. It is a double whammy by Uncle Sam. For example, if you receive very little taxable income in addition to Social Security, then you are in a low tax bracket, and none of your Social Security is taxable. However, if you have substantial income beyond Social Security, then 85 percent of your benefit is taxable at a high marginal tax rate.
ALTERNATIVE MINIMUM TAX (AMT)
The alternative minimum tax (AMT) is an extra tax some people have to pay
Capital Loss Carryover
If your total net loss is more than $3,000, you can carry over the unused portion to the next year. The loss can be used to offset gains in the future or to offset $3,000 in ordinary income. Losses carry forward until the entire capital loss is completely used or the taxpayer dies. Only a surviving spouse can use capital loss carryover. It cannot be inherited by anyone else.
Selling Your Home
Taxes may be owed when you sell a home. This section discusses the tax implications of selling your primary residence, which is the main home you live in for more than two years.
The gain or loss on the sale of your main home is the selling price less the adjusted basis. Determine the adjusted basis by adding the price you paid for the home plus any capital improvements on the home. The adjusted basis is increased by additions and other improvements that have a useful life of more than one year, special assessments for local improvements, and amounts you spent after a casualty to restore damaged property. See IRS Publication 523 for details. Part of your cost basis is certain settlement or closing costs but not fees and costs for getting a mortgage loan. Chapter 13 of IRS Publication 17 has a list of settlement fees and closing costs that you can include in the cost basis of property.
There is a significant tax advantage with the sale of your main home. You may exclude up to $250,000 of the gain on the sale of your main home ($500,000 if you are married and file a joint return) if you meet the ownership test and the use test and if during the two-year period ending on the date of the sale, you did not exclude the gain from the sale of another home. This tax advantage pertains only to your main home. It does not pertain to vacation homes or rental property.
Ending on the date of the sale, you must have owned the home for at least two years and lived in the home as your main home for at least two years out of the last five years (or up to fifteen years for those in the military). If you do not meet the ownership and use rules, you may still claim a reduced maximum exclusion by reviewing all the details of your situation against the relevant tax code. IRS Publication 17 has a summary of these exceptions.
Capital Gains on Collectibles
Long-term capital gains on financial assets such as stocks and bonds (or mutual funds holding stocks and bonds) are eligible for the preferred maximum tax rate of 15 percent. However, the sale of such items as collectibles (art, coins, stamps, bullion, etc.) held more than one year is taxed at a maximum rate of 28 percent.
Some mutual funds invest in gold and other alternative assets. How those funds are taxed depend on what is actually held in the fund. If the fund holds hard assets such as gold bullion, you will pay 28 percent capital gain taxes when you sell the fund or when assets in the fund are sold to meet redemptions. If the fund invests in derivatives such as future and swap contracts, a portion of the gain will be taxed as ordinary income and a portion will be taxed as long-term capital gains. See your 1099-DIV for a breakdown.
FEDERAL TAXES ON SOCIAL SECURITY INCOME
An entire chapter is devoted to understanding Social Security, and you should refer to that chapter for details. The focus in this chapter is on how these benefits are taxed. Social Security benefits are superprogressive. Not only does the tax on Social Security income increase as your income increases but also the percentage of the payment that is taxed goes up. It is a double whammy by Uncle Sam. For example, if you receive very little taxable income in addition to Social Security, then you are in a low tax bracket, and none of your Social Security is taxable. However, if you have substantial income beyond Social Security, then 85 percent of your benefit is taxable at a high marginal tax rate.
ALTERNATIVE MINIMUM TAX (AMT)
The alternative minimum tax (AMT) is an extra tax some people have to pay
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