Letters to the editor - Think Outside the Tax Box

Letters to the editor

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Your Questions Answered

Home Sale Rules for Newlyweds and Significant Others

Question: A spouse didn’t meet the residence test when the home sold because they weren’t legally married for two years on the date of the house sale. You indicated, however, the spouse is eligible for the home exclusion because by the end of the year they were married for two years

Answer: If you want to understand how getting married impacts your ability to take tax-free profit, we must look at two issues and pass two tests.

To take the full 121 exclusion deduction amount ($250,000/$500,000), first you have to determine filing status. If you were married or an RDP as of December 31, 2022, even if you did not live with your spouse/RDP at the end of 2022, your filing status is either Married Filing Joint or Married Filing Separate. Either way, the IRS considers you married for tax purposes.

Now that you’ve determined that the client’s filing status is married, the potential gain exclusion is $500,000 under Section 121.

But there are two important tests to apply to see whether you can exclude the maximum of $500,000 or whether it is going to be less. To learn about these tests, read on.

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Looking at a Trust to Reduce or Eliminate Your Federal Taxes? Not So Fast!

Question: What kind of trusts help a taxpayer pay less or no federal tax?

Answer: If you have trusts and want to minimize state taxes, there are options available. In the United States, there are two types of trusts for federal income tax purposes: grantor and non-grantor trusts. A grantor trust is one the creator or their spouse retains enough control over that they are still the assets’ owner. Therefore, they must pay taxes on any income or gains it generates.

On the other hand, a non-grantor trust is its own entity and is responsible for paying its own taxes. However, state tax laws also have an impact on the taxes trusts must pay. By choosing the right trustees or assets for your non-grantor trust, it’s possible to minimize or even eliminate state income taxes. Don’t miss out on this opportunity. Learn more about your options and take steps to reduce your trust taxes today. Click here to continue reading.

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TAX COURT ROUNDUP – February 2023

January brought some new wrinkles. Even tax practitioners whose endeavors are far from Tax Court can find useful information there. My usual reminder: I cover Tax Court exclusively. Tax Court decisions get appealed routinely, and reversed sometimes, so check before citing as authority…

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TAX COURT ROUND-UP – January 2023

I’m new here, but I know enough not to try to do what everyone else does. I won’t try to cover the wider tax picture. I cover United States Tax Court on my blog, so here’s a brief round-up on what went on in Tax Court during the last month that I think is of interest to the tax planner and practitioner…

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