Don’t Take Your Losses!

Tax Act

Many people have been troubled by the impact of the financial crisis on their savings. If you are retired, you probably know that there is an annual minimum distribution that you are required to take from your IRA if you are 70-1/2 or older, that is, you must take money out every year, or you are penalized on the funds. However, if you do not need the money to live on, you may consider it a disadvantage to have to cash something out at the moment, because you might want to leave your investments in place to recover, rather than … Read more at 2009 Taxes

Tax Act

Many people have been troubled by the impact of the financial crisis on their savings. If you are retired, you probably know that there is an annual minimum distribution that you are required to take from your IRA if you are 70-1/2 or older, that is, you must take money out every year, or you are penalized on the funds. However, if you do not need the money to live on, you may consider it a disadvantage to have to cash something out at the moment, because you might want to leave your investments in place to recover, rather than sell them and make the paper loss into a real loss.

Although this requirement still applies to 2008 taxes, the rule has been suspended for 2009, which means that you are not penalized if you choose to leave your investments in place this year, and not take any money out. In that way, you can continue to get the tax advantages on the returns rather than being forced to sell when the markets are down.

Affected by the housing crisis?

Tax Act

If you are one of the millions affected by the housing crisis, and last year managed to get your home sold to another buyer in a pre-foreclosure or short sale, then I have some good news and some bad news. If the amount that the sale was short of the mortgage debt was forgiven by your lender, as commonly happens, and you walked away from the house owing nothing, then the bad news is that the canceled debt which was forgiven is viewed as ordinary income by the IRS. It does not matter that you never saw any money, … Read more at 2009 Taxes

Tax Act

If you are one of the millions affected by the housing crisis, and last year managed to get your home sold to another buyer in a pre-foreclosure or short sale, then I have some good news and some bad news. If the amount that the sale was short of the mortgage debt was forgiven by your lender, as commonly happens, and you walked away from the house owing nothing, then the bad news is that the canceled debt which was forgiven is viewed as ordinary income by the IRS. It does not matter that you never saw any money, the IRS still view it as a cash benefit, or income, to your finances.

Now the good news. Because this has happened to so many people, and the IRS feels your pain, they have changed the rules. The income is not taxed if house was your principal residence, and not just an investment property. This exclusion applies to property sold from 2006 up to 2013, and is subject to a maximum of $2 million for a couple or $1 million if you file separately. You can read all about the details of this in IRS Publication 523, which you can find at http://www.irs.gov/pub/irs-pdf/p523.pdf.