Paying Taxes When Selling an Inherited Vacation House — Lexington, KY

Paying Taxes When Selling an Inherited Vacation House — Lexington, KY

While it may seem great to inherit a vacation house, in actuality it may not be practical to keep the property, especially for tax reasons.  There are many factors to consider when inheriting property, including taxes, any mortgage, and other owners. But if you know you do not plan to keep the property, it is better to sell it sooner, rather than later.  Property like a house or stocks usually appreciates in value and is worth more than it was when the original owner purchased it. If you were to sell the property, there could be huge capital gains taxes. Fortunately, when you inherit property, the property’s tax basis is “stepped up,” which means the basis would be the property’s value on the date of death. For example, suppose you inherit a house that was purchased years ago for $150,000 and is now worth $350,000. You will receive a step up from the original cost basis from $150,000 to $350,000. If you sell the property right away, you will not owe any capital gains taxes. If you hold on to the property and sell it for, say, $400,000 in a few years, you will owe capital gains on $50,000 (the difference between the sale price and the stepped-up basis). If the property is located in a different state from where you live, be warned that there may be a tax for selling real estate and moving to a new state. For example, New Jersey has an “exit tax” on the profits from any sale when you are moving out of state.  For inheritance questions or other estate planning or receiving concerns, call Gayheart Law at (859)...

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Special Tax Deduction for 2020 Allows Donations of $300 to Charity Without Itemizing — Lexington, KY

Special Tax Deduction for 2020 Allows Donations of $300 to Charity Without Itemizing — Lexington, KY

As we enter the giving season, there is an additional reason to be charitable. Congress enacted a special provision that allows more people to easily deduct up to $300 in donations to qualifying charities this year. Since the increase in the standard income tax deduction in 2018, only 11 percent of taxpayers itemize deductions, so fewer taxpayers take advantage of the charitable deduction. But to both encourage and reward giving in this difficult year, as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act Congress created a one-time $300 charitable deduction for people who do not itemize on their tax returns. To qualify, you must give cash (including paying by check or credit card) to a 501(c)(3) charity. Gifts of goods or stock do not qualify. While $300 may not seem like much, it can make a big difference to smaller charities. And a lot of $300 gifts can add up.  One thing that’s not clear is whether a married couple filing jointly can deduct $600. While it’s logical that they should be able to do so, the IRS has not clarified this yet. With just four weeks left in the year, time is a-wasting. Here are some places you might take a look at to determine which charity you would like to support before the end of the year: Give DirectlyGiving CompassCommunity Foundation LocatorPhilanthropy TogetherGrapevineCharity NavigatorCharity WatchKristof Impact For more information from the IRS about the tax deduction, click here.  If you would like additional information about tax planning, estate planning, or charitable contributions, give Gayheart Law a call to schedule your consultation, (859)...

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Ability to Withdraw Money Early from Retirement Plan, Without Penalty, Expires at the End of the Year – Lexington, KY

Ability to Withdraw Money Early from Retirement Plan, Without Penalty, Expires at the End of the Year – Lexington, KY

If you are experiencing financial hardship due to the coronavirus pandemic, you may want to consider withdrawing money from your retirement account while you still can. The special exemption allowing early withdrawals without a penalty ends soon.  Passed in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals adversely affected by the pandemic to make hardship withdrawals of up to $100,000 from retirement plans this year without paying the 10 percent penalty that individuals under age 59 ½ are usually required to pay. This exemption is only for withdrawals made by December 30, 2020. If you decide to withdraw money from your retirement account, you will still have to pay income taxes on the withdrawals, although the tax burden can be spread out over three years. If you repay some or all of the funds within three years, you can file amended tax returns to get back the taxes that you paid.  To qualify for the exemption, you must meet one of the following criteria: You or a spouse or dependent have been diagnosed with COVID-19You or your spouse have suffered financial hardship due to the pandemic, such as a lost job, a job offer rescinded, reduced pay, business closed, or inability to work due to lack of childcare.  This step should not be taken lightly. Withdrawing money now means your retirement funds will be reduced and limits the retirement plan’s ability to grow. But for some people, it may be the best option to pay bills and avoid running up high-interest credit card debt.  For information from the Consumer Financial Protection Bureau on how the withdrawal exemption works, click here.  For more information about retirement plans or how to proceed during this difficult time, call Gayheart Law at (859)...

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Annuities and Medicaid Planning in Lexington, KY

Annuities and Medicaid Planning in Lexington, KY

In some circumstances, immediate annuities can be ideal Medicaid planning tools for spouses of nursing home residents. Careful planning is needed to make sure an annuity will work for you or your spouse.  An immediate annuity, in its simplest form, is a contract with an insurance company under which the consumer pays a certain amount of money to the company and the company sends the consumer a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the community spouse, it’s not a problem. In order for the annuity purchase not to be considered a transfer, it must meet the following basic requirements: It must be irrevocable–you cannot have the right to take the funds out of the annuity except through the monthly payments.You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant’s behalf. Example: Mrs. Jones, the community spouse, lives in a state where the most money she can keep for herself and still have Mr. Jones, who is in a nursing home, qualify for Medicaid (her maximum resource allowance) is $128,640 (in 2020). However, Mrs. Jones has $238,640 in countable assets. She can take the difference of $110,000 and purchase an annuity, making her husband in the nursing home immediately eligible for Medicaid. She would continue to receive the annuity check each month for the rest of her life. In most instances, the purchase of an annuity should wait until the unhealthy spouse moves to a nursing home. In addition, if the annuity has a term certain — a guaranteed number of payments no matter the lifespan of the annuitant — the term must be shorter than the life expectancy of the healthy spouse. Further, if the community spouse does die with guaranteed payments remaining on the annuity, they must be payable to the state for reimbursement up to the amount of the Medicaid paid for either spouse. All annuities must be disclosed by an applicant for Medicaid regardless of whether the annuity is irrevocable or treated as a countable asset. If an individual, spouse, or representative refuses to disclose sufficient information related to any annuity, the state must either deny or terminate coverage for long-term care services or else deny or terminate Medicaid eligibility. Annuities are of less benefit for a single individual in a nursing home because he or she would have to pay the monthly income from the annuity to the nursing home. However, in some states immediate annuities may have a place for single individuals who are considering transferring assets. Income from an annuity can be...

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