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Don't forget that depending on the value of the farmland, Nebraska might also have had estate taxes that would have been due upon your uncle's death. This is separate from the income/capital gains taxes you'll pay when selling. Did you have to file an estate tax return?
I don't think we did any estate tax return in Nebraska. The land was appraised at around $380,000 when my uncle passed. Is that something I should be worried about now before selling? The executor of the estate was my cousin and she handled all the paperwork at the time.
At $380,000, you should be fine for Nebraska state estate tax. Nebraska actually repealed their estate tax effective January 1, 2007. And the federal estate tax exemption is much higher (over $12 million for 2023), so unless your uncle's total estate was worth more than that, no federal estate tax return would have been required either. It's good that you have that appraisal though - that $380,000 value establishes your stepped-up basis for calculating capital gains when you sell. Make sure to keep that documentation!
Are you planning to reinvest in other real estate? You might want to look into a 1031 exchange to defer the taxes if you're going to buy different investment property with the proceeds.
1031 exchanges don't work for inherited property that you're just selling without having used it as investment property yourself, right? I thought you had to have held it as investment property first.
Actually, you can do a 1031 exchange with inherited property, but there are some requirements. The property needs to be held for investment or business use, not personal use. Since this is farmland that was generating rental income or being farmed, it could qualify. However, you'd need to hold it as investment property for a reasonable period before exchanging - you can't inherit it and immediately do a 1031. The IRS looks for investment intent, not just a quick flip. Given that @abfd5713521c mentioned wanting to sell soon and having no interest in farming, a 1031 might not be the right strategy here unless they're willing to hold and rent the land first.
Has anyone here actually filed separately and found it beneficial? My accountant keeps insisting joint is always better but I'm not convinced.
We file separately because my wife has income-based student loans. Even though we pay about $1,800 more in taxes, her monthly loan payment is about $350 lower, saving us $4,200 a year overall. But our situation is pretty specific and wouldn't apply to everyone.
For your income levels ($160K and $155K), filing jointly is most likely going to be your best bet. With similar incomes, you won't hit the marriage penalty that affects couples where one spouse earns significantly more than the other. The math usually works out like this: joint filing gives you a higher standard deduction ($27,700 for 2023 vs $13,850 each filing separately), and you'll benefit from the more favorable tax brackets. Without kids or significant itemized deductions, you're looking at probably $2,000-4,000 in tax savings by filing jointly. The main exceptions where separate might be better: - If either of you has federal student loans on income-driven repayment (could lower monthly payments) - Significant medical expenses over 7.5% of your individual income - One spouse has tax debt/issues you don't want to be liable for Since you just got married in September, this is also a good time to update your W-4s with your employers to adjust withholding for next year based on your new filing status. Congrats on the marriage, and welcome to the world of joint tax planning!
This exact same thing happened to me last year! Turns out the IRS had an old version of my ZIP code in their system from when I moved apartments within the same ZIP but the +4 extension changed. Try using your ZIP+4 from your most recent tax return if you have it, or call your local post office to get the exact ZIP+4 for your current address. Sometimes that extra specificity is what unlocks the system.
Had this exact issue last year and it drove me absolutely crazy! Turns out my middle initial was the problem - I was entering my full middle name but the IRS only had my middle initial on file from my original return. Try variations of how your name appears: with/without middle initial, abbreviated vs full middle name, etc. Also double-check if you're using the ZIP code from when you originally filed vs your current one. The IRS system is ridiculously picky about these details but once I figured out the right combo it worked instantly.
This is such good advice! I'm dealing with the same nightmare right now and never thought about the middle name/initial thing. Going to try entering just my middle initial instead of my full middle name. The IRS verification system is so unnecessarily complicated - why can't they just make it work with reasonable variations of our own info? π€
Has anyone used a land contract instead of a mortgage? I've heard they're simpler but not sure about the tax differences.
Land contracts, also called contracts for deed, are treated the same as owner financing for tax purposes. The main difference is legal, not tax-related. With a land contract, the title doesn't transfer until all payments are made, while with owner financing using a mortgage, the title transfers immediately but you hold a lien against the property. From a tax perspective, both are reported as installment sales on Form 6252. The advantage of a land contract is it can be easier to regain possession if the buyer defaults since you never transferred the title.
This is a great discussion on installment sales! One thing I haven't seen mentioned yet is the potential impact of the Net Investment Income Tax (NIIT) if your modified adjusted gross income exceeds certain thresholds ($200k for single filers, $250k for married filing jointly). The 3.8% NIIT can apply to both the capital gains portion and interest income from your installment sale, which could significantly affect your overall tax liability. This is especially important to consider if the installment payments push you over the NIIT threshold in years when you might not have crossed it otherwise. Also, don't forget about state tax implications - some states treat installment sales differently than federal rules, so you'll want to check your state's specific requirements. The tax deferral benefit can vary significantly depending on where you live.
Great point about the NIIT! I hadn't considered how installment payments could push someone over those thresholds in years they might otherwise stay under. That 3.8% additional tax could really add up over time. Do you know if there's any way to structure the payments to help manage the NIIT impact? Like maybe varying the payment amounts in different years based on other income fluctuations? I'm wondering if having some flexibility in the contract terms could help with tax planning.
Ana ErdoΔan
Hi Cynteria! Tax code 291 typically refers to "Additional Medicare Tax" on your tax documents. This code by itself doesn't indicate that you're receiving money - it's usually related to additional Medicare tax that may have been withheld from your wages if you earned over certain thresholds ($200,000 for single filers, $250,000 for married filing jointly). To better help you understand what this means for your specific situation, could you provide a bit more context? Are you seeing this code on your W-2, tax return, or another document? This will help clarify whether it affects your refund or tax liability.
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Aiden O'Connor
β’@Ana ErdoΔan provided great clarification! Just to add - if you re'seeing code 291 on your W-2 in box 12, it means your employer withheld Additional Medicare Tax from your paychecks. This withholding would be credited toward any tax you owe, so it could potentially increase your refund or reduce what you owe. But like Ana mentioned, we d'need to see where exactly you re'seeing this code to give you the most accurate guidance about your specific situation.
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