Selling Your Home: The Tax Angle

selling your homeThe buying and selling of homes are the largest financial transactions you may make, and as with most financial transactions, there’s a tax angle. If you know what your tax implications are as you go into the deal, you’re better able to plan and avoid unpleasant surprises.

Capital Gains Exclusions

Unlike with most other capital gains, the government gives you a big break when selling your principal home for a profit. You can exclude up to $250,000 ($500,000 if married filing jointly) of the profit from the sale. This exclusion is available for an unlimited number of times. And it applies to houses, apartments, condominiums, stock cooperatives, and mobile homes fixed to land.

However, there are other rules and limitations. To take advantage of the exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. Owning it and occupying it are two different things, however, and although you have to meet both tests, you don’t have to do this simultaneously. As legal site Nolo explains, “As long as you have at least two years of ownership and two years of use during the five years before you sell the home, the ownership and use can occur at different times.” This is an eligibility break for renters-turned-buyers, who can count rental time before the purchase as part of the “occupy” time.

Also note the word “principal.” This is your main home, where you spend most of your time. You can only have one principal residence at a time. If you have a townhouse in the city where you work but spend August in your country home, your townhouse is still your principal residence.

Conditions for $500,000 Married Exclusion

The IRS also imposes conditions to be eligible for the larger $500,000 married exclusion. You must meet all the conditions below:

  • You are married and file a joint return for the year.
  • Either spouse meets the ownership test.
  • Both spouses meet the use test.
  • During the two-year period ending on the date of the sale, neither spouse excluded gain from the sale of another home.

If a spouse is deceased, under what conditions can the surviving spouse use the $500,000 exclusion? You have to meet all of the following conditions:

  • You sell your home within two years of the death of your spouse.
  • You haven’t remarried at the time of the sale.
  • Neither you nor your late spouse took the exclusion on another home sold less than two years before the date of the current home sale.
  • You meet the two-year ownership and residence requirements (including your late spouse’s times of ownership and residence if need be).

Getting a Break on Improvements

If you’re single and buy a house for $300,000, you’re limited to a sale later of $550,000 before you start having to pay taxes. However, any improvements you made will increase that $300,000 basis, and the IRS is generous in what it considers an improvement. You can add a new room, landscaping, a heating system, new siding — even a satellite dish. General repairs, like fixing a broken windowpane, do not add to the basis. But fixing the windows as part of a larger renovation project will count.

The bottom line? When selling a home, work with professionals to make sure your plans are aligned with tax rules.

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Posted on May 11, 2021 | Published by Ignite Local | Related Local Business

Federal Tax Date Postponed to May 17

federal tax dateThe filing date for the federal income tax has been postponed until May 17. The IRS has announced that individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Need Additional Time? Request a Filing Extension Until October 15

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15. However, this Oct. 15 extension does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

Relief Does NOT Apply to Estimated Tax Payments Due April 15

The IRS emphasizes that this relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. If you are an employee of a company, you probably have your taxes withheld from your paychecks and submitted to the IRS by your employer.

Regarding State Tax Returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. Some states have already delayed their filing dates and others may follow the IRS example, but don’t make any assumptions.

Let us know if you have any questions.  Ensure your financial statements are appropriately completed and filed. Contact our firm, Layton Layton and Tobler, today.

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Posted on April 14, 2021 | Published by Ignite Local | Related Local Business

Special PPP Loan Provisions for Small Businesses in Las Vegas

loan provisions las vegasStarting on Feb. 24, 2021, the SBA is establishing a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. This is according to guidance on the SBA and White House sites. According to the statement, this will give lenders and community partners more time to work with the smallest businesses to submit their applications. These special loan provisions are designed to aid small businesses across the country.

New Loan Provisions for Small Businesses in Las Vegas

The SBA also announced four additional changes to open the PPP to “more underserved small businesses than ever before.” The SBA will:

  • Allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants.
  • Eliminate an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal.
  • Eliminate PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP.
  • Ensure access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use their Individual Taxpayer Identification Number (ITIN) to apply for the PPP.

Goal from Congress for the Latest Round of PPP Loan Provisions

The statement further noted that a critical goal from Congress for the latest round of PPP was to reach small and low- and moderate-income (LMI) businesses who have not received the needed relief a forgivable PPP loan provides. Although Congress set a $15 billion set-aside for small and LMI first draw borrowers, the current round has only deployed $2.4 billion to small LMI borrowers, “in part because a disproportionate amount of funding in both wealthy and LMI areas is going to firms with morhan 20 employees.” The SBA believes this special 2-week window and the other changes will allow the distribution of more funds.

Where to Find More Details About Additional Relief Programs

More details are available on the SBA loan resource site. The program is slated to end on March 31, although additional relief programs are expected before then. Contact us at Layton Layton & Tobler for a free consultation.

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Posted on March 17, 2021 | Published by Ignite Local | Related Local Business

Keeping Receipts for Taxes

Why Keeping Receipts for Taxes is Important. Which Receipts to Keep and Which Not to Worry about?

Keeping Receipts for Taxes in Las Vegas, Henderson & SummerlinThe start of a New Year is time to begin thinking about preparing financial records and employment documents for tax filing. Nobody looks forward to this annual chore, but it unfortunately must be done. Which expense receipts are important and which are not for tax filing is discussed below. Make sure you’re keeping receipts for taxes the right way.

Keeping Receipts for Taxes in Las Vegas

Your receipts are what the IRS refers to as ‘documentary evidence’ of business expenses during the year; expenses you plan to deduct from income or use for tax credits. Generally, tax planners advise you to keep receipts for the following expenses. If in doubt, don’t throw it out! It’s better to have them and not need them than the other way around.

  • Charitable contributions
  • Tuition & student loan payments
  • Fuel purchases if vehicle use was work-related
  • Rent & mortgage payments
  • Childcare payments
  • Office rent, including for a home office
  • Medical expenses related to exams, hospital stays, out-of-pocket Medicare expenses, dental work, psychiatric and chiropractic care, optometry, etc.

Receipts You Can Discard

Generally, receipts for work-related travel are not required to be kept if the amount of the purchase is under $75. If you bought a meal during work-related travels that cost $40, you don’t need the receipt. If the meal cost $80, hold onto it. Take a picture of the receipt with your smartphone, email it to yourself, and store then in a separate email folder if that’s easier for you. Your accountant will need them come tax season.

Let Us Help

Contact the tax experts of Layton Layton & Tobler to get a head start on your tax planning and preparation. Keeping receipts for taxes is just one of many things you’ll want to be ahead of the game on. Not planning and executing your plan in regards to taxes is like not planning and executing in your business operations. Not doing so can land you in a bad place.

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