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I plan to sell investment property worth $400,000 and do not want to
use the tax-free exchange provisions of Section 1031 because I want to pay off my car loan
with some of the proceeds. How can I do this without paying 25-30% in taxes?
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 You are
taxed on your gain and your gain is based on the adjusted basis of your property (what you
paid for it, plus improvements, minus depreciation). Consider a partial tax-free exchange.
Cash out only the money you need to pay the auto loan and use the balance to acquire
replacement property, with a mortgage at least as high as your current mortgage.
Otherwise, consider selling on an installment sale to stretch out the tax obligation over
several years. Unless you use the tax-free exchange provisions, you'll owe tax on the
sale.
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We put our Mom into an assisted living facility.
Her home is on the market and has appreciated quite a bit over 40 years. Dad has passed
away. What are the tax consequences if we sell the home?
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Your mother cannot use your
deceased father's $250,000 exclusion; however, she can use her own if she sells her
residence while living in a nursing home.
Upon your mother's death, the home receives a basis step-up to fair market value. There
will be no gain unless the home is later sold for more than the FMV at date of death. The
current estate tax exemption is $1 million ($1.5 million in 2004), so if the gain from the
sale of the residence exceeds $250,000, but the entire value of your mother's estate is
less than the estate tax exemption amount - then consider waiting until after her death to
sell the property. To avoid probate, the property should be held in joint tenancy or
placed into a revocable trust.
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I
want to make an early withdrawal from my IRA to invest in real estate. What would be my
tax consequences?
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You add the amount of withdrawal to your income. If you file a joint
tax return (consider this only if you run the numbers jointly and married filing
separately), you pay income tax on the amount of withdrawal plus a penalty of 10% of the
amount withdrawn. For instance, if you withdraw $50,000, you pay taxes on the $50,000
added to your income, plus a penalty of $5,000.
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Does a Delaware Corporation
owned entirely by a non-resident alien have to pay any federal taxes in the US on stock
trades conducted solely by the NRA shareholder?
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Yes. Without understanding more about the
structure, this seems like a bad idea. NRAs do not pay federal taxes on gains and losses
from stock sales; however, a U.S. company will pay taxes on such trades. The NRA should
operate as an individual or as a foreign corporation. The location of the broker who
merely executes trades, in general, is not relevant. The highest federal corporate tax
rate of 35% applies and there is no capital gains deduction available.
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Partial Tax-Free Exchange
