You asked, we answered! Due to the amazing response of tax questions that we received ahead of the podcast with Maggie Klokkenga, CPA, CFP®, we knew that we couldn’t answer them all in Mailbag. Instead, we asked Maggie to answer your questions. We have split them up by topic. So, without further ado, Maggie answers your tax filing questions.
What are the tax implications of selling a house that I inherited from my husband in 2017? He had bought it before we were married. I built a new house and moved in October 2018 and closed on the previous house seven days later. I kept receipts for everything.
My condolences to you. If this was the home that you lived in with him for the last two out of five years, you can exclude gain on the sale of that home if the gain was less than $500,000. If your deceased husband filed an estate tax return, the value of the home was listed on the tax return. You can use that value as your cost basis to determine the gain.
Other than retirement plans and HSAs, what are other ways to reduce taxable income?
If you have a side hustle and are filing a Schedule C, determine if there are other expenses that you can claim, such as tax preparation fees or membership dues.
Clump and lump your deductions (see previous answer), particularly in years that you are expecting higher income.
I got married in 2018, but my husband isn’t squared away (tax-wise) for 2017. In what cases is it better for a married couple to file separately?
Well, in this case, for one. Let’s list a couple.
- When you choose to file as married filing separately, you are only responsible for your own tax liability, not your husband’s. This might be a good idea until he gets his taxes filed and paid.
- If you have significant itemized deductions, and your adjusted gross income (AGI) is low enough to be able to claim them (for example, medical expenses). But, if you added in your spouse’s AGI, then you wouldn’t be able to claim those medical expenses. Note though: If you decide to file separately and itemize, then your spouse is required to as well, even if his itemized deductions are less than the standard deduction.
- We’ve talked in the HerMoney private Facebook group that married filing separately can help to lower income-driven student loan payments. While this is true for most IDR plans, the Revised Pay As You Earn (REPAYE) takes into account both you and your spouse’s income even if you file separately.
Are there any tax shelters for people who are legally blind?
There is an additional standard deduction of $1,600 that can be taken by taxpayers who are legally blind. For example, a single blind taxpayer takes the standard deduction on her 2018 tax return. Her standard deduction is $13,600 ($12,000 standard deduction plus $1,600 additional).
Is Social Security income taxable for one person who received $11,400 with no other income?
No, it is not. Social Security income does not begin to be taxed until you have more than $25,000 of what the IRS calls “provisional income.” Provisional income consists of your gross income plus any tax-exempt interest plus one-half of your Social Security income.
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