You may qualify for excluding gain from the sale of your home by up to $250k of your capital gains from your taxable income or $500k if you’re filing a joint tax return with your spouse. You must sell your principal residence before you can claim the exclusion. You can exclude gain up to $500k of each home’s capital gain if you own two houses. Publication 523, “Selling Your Home,” provides cost basis rules and worksheets. Topic No. 409, “General Capital Gain and Loss Information,” covers general capital gain and losses information.

Requirements for the Gain Exclusion

To meet the requirements for Section 121 Gain Exclusion, you must satisfy both of the following tests: 

1) you must own and use your principal residence as your main home for at least two out of the five years before the date of sale, and 2) you must exclude any gain from the sale of your other home during the two years preceding the sale of your principal residence. If you meet either test, you may exclude the gain from the sale from your capital gains tax liability calculation. 

To determine whether you meet the ownership requirements, you need to identify the period when you met both tests. For example, if you meet the ownership test during the first three years of owning your home, then you meet the ownership test for the entire five-year period. Similarly, if you meet the use test during the last four years of owning your home before selling it, you meet it for five years.

Reporting the Sale

If you sell real estate, you may need to file a Schedule D (Form 1041) each year’s end. You should also file Form 8949 if you sold any property during the year. Suppose you received a Form 1099-S (Proceeds From Real Estate Transactions). In that case, you must report the sale even if the gain from selling the house is excludable. You must also report the sale if you can’t exclude the entire amount of capital gains from taxable income. To know whether you need to report the sale, see Publication 523.

Suspension of the Five-Year Test Period

An individual is eligible for the suspension of the five-year test if they meet either of the following two conditions:

1) They are on a qualified official extended leave of absence from their position for more than 90 consecutive days.

2) They serve in a capacity that requires them to be absent from their position due to unforeseen circumstances.

At a military base at least 50 miles away from your family or living in government housing. Suppose you live in a dormitory, barracks, or similar quarters while stationed overseas. In that case, you may not be considered a resident of your state or county of your principal residence. You must also meet all other requirements for residency. For example, suppose you’re living in a hotel or motel room. In that case, you might need to stay there for 30 days before qualifying for residency.

Installment Sales

If you sell your house under a contract that provides that part of the selling price will be paid in installments, you must report the sale as an installment sale. You may exclude any gain realized on the sale, but not any loss. See Publication 537, Installments Sales, for more information.

Summary Section 121 Exclusion

• You must sell your primary residence within ten years of buying it.
• You can exclude up to $250K of the gain or $500K if you file a joint return with your spouse.
• You must use the proceeds of the sale to buy another property, such as an investment property.
• You can deduct up to $10K per year for the cost basis related to selling your house.
• You can claim a deduction for state and local sales taxes paid on the sale of your home.
• You can also claim a deduction for mortgage interest paid on the home’s sale.
• You cannot claim a deduction for moving costs.
• You can exclude up to $250,000 ($500,000 for married couples filing jointly) of taxable gain from the sale of your primary residence.
• The exclusion applies to any gain from the sale of a primary residence.
• You’re required to report the sale of your primary residence even if you can exclude some of the gains.
• The suspension applies to spouses who are also military members.
• The exclusion of gain under section 121(b)(3) continues to apply to installment sales regardless of whether the seller uses the installment method to defer the gain.

Need Help With Filing Taxes On Your Property Sale?

There are many different ways to file your tax return. You don’t have to navigate them all by yourself. If you need assistance with your tax return, plenty of resources are available to help you. Some of the most common options include filing online, using an app, or contacting The McGuire Law Firm and speaking to one of our tax attorney professionals. Call us at (720) 833-7705.

Non-recourse debt means that if the debtor defaults, the creditor cannot pursue the debtor personally. Instead, the creditor must seek recovery from the collateral securing the loan. The creditor can file a suit against the borrower if the collateral does not cover the debt. However, if the collateral covers the debt, the lender will likely agree to accept less than the total amount owed.

With recourse debt, the creditor can come after you and your assets if you fail to repay the loan. If you default, the creditor can seize your property, including any real estate you own and sell it to recover the amount owed. Non-recourse debt does not allow the creditor to go after you if you default on an obligation. Instead, the creditor can only get back what he paid for the asset. For example, if you bought a house using a mortgage, the bank cannot come after you for the unpaid portion of the mortgage. However, if you default on the mortgage, the bank can foreclose on the house and sell it to recover its losses.

Concerns when Obtaining Property Subject to Non-Recourse Debt

A second concern arises when considering acquiring property subject to a non-recoverable debt. You must first determine if the non-recourse liability is included in the purchase price. If so, you must also consider whether the non-recoverable responsibility is part of the sale proceeds. The cornerstone case for both of these questions comes from Crane v. Commissioner, 331 U.S. 1 (1947), which was decided in 1947 by the United States Supreme Court.

The basis of a property is the price paid for the property when you bought it. If you buy a house for $100,000, the basis is $100,000. You can deduct any increase in the value of the home during the year from your taxable income. For example, if you sell your house for $200,000, you get a capital gain of $100,000 ($200,000 – $100,000) and pay taxes on half of that gain ($50,000), leaving you with a $50,000 net profit. A higher basis means you can claim more significant deductions for depreciation, interest, and other expenses.

Non-recourse debt is usually considered when you buy a house. You must pay back the loan plus interest if you borrow money to buy a home. If you default on your loan, the bank may seize your assets. However, if you own your house free and clear, you won’t owe any money if you fail to repay the loan. You’ll still have to pay taxes on the gain, but there won’t be any penalties for failure to repay the loan.

In general, if you borrow money against your residence, the basis should be the property’s fair market value at the time of the loan. If you borrow money against your business real estate, then the basis should reflect the fair market value of your business real estate at the time of the borrowing. However, there are exceptions to this rule. You may be able to exclude certain types of debt from the basis of your property. For example, if you borrow money to pay for improvements to your property, the amount borrowed does not become part of the basis of the property. Similarly, suppose you borrow money to purchase an asset that is held primarily for sale to customers in the ordinary course of business. In that case, the amount borrowed is excluded from the basis of the asset.

Key Takeaways

A recourse loan is a type of credit instrument where the lender has recourse against the borrower if there is an event of default. A non-recourse loan is a type of loan where the lender does not have recourse against the borrower if the loan goes bad. Non-recourse loans are often associated with real estate lending because real estate is considered a safe asset. However, non-recourse loans are also used in other industries, including finance, manufacturing, and construction.

Non-recourse loans allow borrowers to borrow up to the value of the property. If the borrower defaults, the bank cannot pursue them for the remaining amount. As a result, banks charge higher interest rates on these types of loans to cover the increased economic risk. In the United States, loan-to-value ratios for residential mortgages are generally capped at 80%.

Special Considerations

Non-Recourse debt is an investment strategy involving borrowing money at low-interest rates and then investing those funds in projects that will generate returns later. These investments are made without guaranteeing that the borrower will repay the loan. If the project fails, the lender does not lose anything because they did not put any money down. On the other hand, if the project succeeds, the lender gets paid back plus interest.

For more information speak with a Denver business attorney at The McGuire Law Firm, call 720-833-7705.

Estate planning is about protecting yourself, your family, and your loved ones against potential problems that could arise after you die. Estate planning includes creating a will, establishing trusts, making medical directives, and choosing guardianship over minors. Having a valid will is essential if you don’t do anything else.

You might think you’re too young to worry about estate planning, but you probably are not. A recent study found that nearly half of Americans haven’t done anything to protect themselves financially. And while most people understand the importance of saving money for retirement, fewer than one in four have a savings account.

If you want to ensure that your family gets what you want and deserve after you die, you owe it to yourself to take action.

Is My Estate Plan Good Enough?

Whether you want to protect your home, your family, or both, there are many ways to accomplish this goal. Estate planning is one of those things that people do without really thinking about it. But the reality is that having an effective estate plan helps ensure that you can pass your wealth to your loved ones while protecting yourself against probate court proceedings. In addition to ensuring that your wishes are carried out upon your death, estate planning allows you to take advantage of tax benefits and reduce the amount of money you pay in taxes during your lifetime.

The most important thing to remember about estate planning is that it doesn’t have to be complicated. There are three basic steps involved in creating an estate plan:

1. Determine Your Goals

2. Create Your Plan

3. Implement Your Plan

I Have A Living Trust, Do I Need A Will?

A living trust is one way to avoid probate while transferring assets to beneficiaries upon death. If you have a living trust, you may still need a will. But what happens if you don’t have a will? What if you die without having established a trust?

You may still need a will because assets that are not in your living trust that do not include beneficiary designations or are owned solely by you may still be subject to estate taxes. And if you fail to transfer those assets into your trust correctly, they could become part of your estate and be subject to probate and administration fees.

In addition, if you have a will, it may provide guidance about how you want your assets distributed among your heirs. Without a will, however, there is no specific distribution plan. Sometimes, a court may distribute assets according to state intestacy laws. These laws vary widely across states.

What Is Probate?

What is probate? Probate is the legal procedure used to resolve issues surrounding the distribution of the deceased estate. In simple terms, it involves the formal transfer of property owned by someone who died without a will into the hands of their beneficiaries. This occurs after the court determines what happens to the deceased person’s assets upon death.

The probate process includes validation of wills, payment to creditors, distribution of assets to heirs according to the terms of the will, and a third-party mediator to settle disputes. In some cases, there are no heirs; in others, there are multiple heirs, and the court must determine how the assets should be distributed among them.

With A Small Estate, Should I Still Consider Probate?

Probate is the legal process for distributing assets upon someone’s death. This includes real property, personal property, bank accounts, and life insurance policies. However, it does not apply to certain types of trusts, such as charitable remainder trusts, irrevocable life insurance trusts, and revocable living trusts. Probate is required even if no beneficiaries are named in the deceased person’s will. If you die intestate without a valid will, your state’s laws determine what happens to your assets.

In general, probate proceedings take longer and cost more money than administering a simple estate. For example, the average cost per hour for lawyers performing probate work is $250, compared to $150 for estate administration. Also, the process involves many steps, including filing paperwork, obtaining court approval, having witnesses sign affidavits, paying fees and taxes, and waiting for the courts to make decisions.

The good news is that most people don’t need a lawyer to handle probate. Many states offer simplified probate procedures that allow individuals to administer their estates. Some states require only one form to file for estate administration and probate. Others provide online options, allowing anyone to complete and submit forms electronically. These streamlined processes typically save families thousands of dollars over traditional probate.

However, probate still applies to all wills regardless of whether the estate is large or small. And, probate is always required if someone dies without a valid will.

Types of Trusts

A trust is a legal arrangement where one person manages another person’s property. You can set up a trust for yourself, others, or both. There are three types of trusts: revocable, irrevocable, and testamentary. Each type has different requirements and benefits. Revocable trusts allow you to change the terms of the trust whenever you want. Irrevocable trusts cannot be changed once established. Testamentary trusts give you control over what happens to your property after you pass away.

Charitable Remainder Trusts

A charitable remainder trust allows donors to give away money today without paying taxes on it now. In exchange, the donor receives an annual payment during their lifetime, plus the chance to designate how much goes to charity upon their death.

The trust is similar to a living trust, except that it offers donors a way to receive an income tax deduction, freedom from capital gains taxation, and the possibility of avoiding estate taxes. When the donor dies, the trustee distributes to designated charities according to instructions left in the trust document.

How the McGuire Law Firm Can Help

The McGuire Law Firm provides a full range of personalized trust services, including trusts, wills, powers of attorney, tax advice, insurance, and retirement plans. We are here to ensure you and your family are financially protected, whether during life or after death.

We offer a variety of services to meet your individual needs. Our experienced Denver Tax Attorneys are ready to assist you with estate planning, asset protection, and long-term care planning.

Don’t hesitate to contact The McGuire Law Firm today to learn more about our trusted solutions. Call us at 720-883-7705.

– Will and Last Testament

– Living Will

– Medical Power of Attorney

– Financial Power of Attorney

– Revocable Living Trust

The above estate planning documents could be considered common documents that you would discuss with an estate planning attorney.  You can contact a Denver estate planning attorney at The McGuire Law Firm in Denver, Colorado or Golden, Colorado.  The McGuire Law Firm provides a free consultation with an estate planning attorney in Denver to discuss your estate planning questions and needs.  The video below has been prepared to provide additional documents regarding common estate planning documents.

Contact The McGuire Law Firm to speak with a Denver estate planning attorney!

Contact The McGuire Law Firm to schedule a free consultation with a business attorney in Denver, Colorado or Golden, Colorado.

You can contact The McGuire Law Firm to schedule a free consultation with an estate planning attorney in Denver, Colorado or Golden, Colorado.

Contact The McGuire Law Firm to schedule a free consultation with a Denver estate planning attorney.

All of the above questions are very important when considering your will and last testament and your estate plan as a whole.  The video below has been prepared to provide additional information related to the parties who may play a role in your will.

You can contact The McGuire Law Firm to discuss your estate planning questions and needs with a Denver estate planning attorney.

Contact The McGuire Law Firm to schedule your free consultation with an estate planning attorney in Denver, Colorado or Golden, Colorado.

Estate planning attorneys often see people try to “save money” by purchasing software that allows them to create their own estate planning documents. These same people say that attorneys charge high fees for basic documents just to make money. Though some attorneys may charge high fees, the consumer holds the power to shop around for the best attorney for him or her. At The McGuire Law Firm an experienced Denver estate planning attorney will charge you a fair price for all estate planning services, including a basic will plan, which includes documents tailored to each client’s specific needs.

When you speak with an estate planning attorney, however, the communication allows the estate planning attorney to tailor the documents to your needs. Do you own rental property? Do you own a small business? Do you have minor children? Do you have specific family issues for which the documents must address? Moreover, the attorney, based on his or her experience, may bring up additional issues or questions that the individual may never have thought of on his or her own.

Most people, once they learn the cost associated with hiring an experienced estate planning attorney to draft their documents, find the fee more reasonable than they expected. Also, the companies that sell and promote their documents do not have an altruistic motive for doing so. They make money for pre-packaged documents. Their companies work from a profit motive despite statements to the contrary.

Contact The McGuire Law Firm to speak with an estate planning attorney and discuss your needs.  Free consultation.

There are several methods to titling property that may avoid or bypass the probate process.  Assets that do not go through the probate process are referred to as non-testamentary assets or non-probate assets.  Certain methods may act more as a deferral than a true avoidance.

Assets Held in Trust

Many people use a revocable living trust to avoid probate.  A revocable living trust can hold title to property for the benefit of an individual.  Because title is held in the name of the trustee and a beneficiary is named for the property, the property held in the revocable living trust is not part of the probate estate.  The trust document will direct the trustee regarding the distribution of the trust property at death.  A revocable living trust also provides some privacy as it does not become public record.  However, you must be very diligent at titling the assets under the trust or they may become probate assets.  Further, there is a misconception that a revocable living trust provides asset protection.  This is false and incorrect.  A revocable living trust does not provide asset protection.

Assets with Beneficiary Designations

Employer sponsored retirement accounts, individual retirement accounts, life insurance death benefits and annuities pass directly to the beneficiary named by the account or policy owner because they are considered contractual obligations to pay out a death benefit.

Assets with Payable on Death (POD) Designations

Any money in a POD account will pass directly to the named beneficiary upon the account holder’s death, but the account holder will retain exclusive rights to the account while they are alive.

Joint Tenancy with Right of Survivorship

This may be jointly held bank accounts or brokerage accounts with JTWROS designations placed on the account or real estate held by two or people as joint tenants.  Property owned in joint tenancy with a right of survivorship automatically passes without probate to the surviving owner or owners when one owner dies.  Unlike tenants in common, a joint tenant does not own a fractional share or interest, but instead, each owns 100% of the whole.  Holding property in joint tenancy may work well when couples acquire assets such as real property, bank accounts, securities, vehicles or other property together and desire to “automatically” leave the property to the survivor.  Joint tenancy also has its disadvantages, such as one tenant may not want the other to receive their interest; both tenants could die in a common accident; one tenant may wish to sell their interest; the avoidance of probate with joint tenancy exists only as long as there is a surviving tenant.  Thus, there may come a time when there is only one tenant and the property is held in fee simple and thus probate would be required at their death without further action.  This is an example of potential probate “deferral” without full avoidance; a jointly owned asset is subject to the judgment against every owner and may be lost in the bankruptcy of an owner.

Ultimately, how you wish to pass your assets is a personal decision.  A Denver estate planning attorney or tax attorney at The McGuire Law Firm would welcome the opportunity to meet with you and discuss your estate questions, issues and options.  All potential clients receive a free consultation with an attorney.

Contact The McGuire Law Firm to speak with a Denver estate planning attorney or tax attorney!

Testamentary assets are those assets that are part of an individual’s probate estate and are subject to the probate court process at death.  Sometimes these assets are also referred to as “probate” assets.  Examples of testamentary or probate assets are below.  Assets held in fee simple (100% individual ownership) whereby there is full and absolute ownership and no other owners with survivorship interests.  Thus, it could be a bank account, house, stock certificate whereby there is no payable on death designation or survivor interest.  Property held as tenants in common would be a testamentary asset.  Tenants in common could be defined as two or more people owning property without rights of survivorship.  Under this situation, each tenant’s ownership interest will become part of their probate estate and therefore distributed to the individuals designated in their will and last testament.  As a tenant in common, you absolutely own your percentage share in the property.  You may sell the interest during your lifetime or you can leave the interest to your chose beneficiaries upon your death.

As you may have inferred from the above information, there can be ways by which assets can avoid probate.  Some people do not care if their assets go through probate, while others feel strongly that their assets not pass through the probate process.  Many people think probate is costly, time consuming and troublesome for their loved ones.  It is possible to defer or avoid probate by titling assets, holding assets in trust, establishing beneficiary designations, establishing payable on death designations or holding property in joint tenancy with a right of survivorship.  Some of the above options work well in certain circumstances, but there can be potential disadvantages as well.  The options to avoid probate will be discussed in future articles.

Please contact The McGuire Law Firm to speak with a Denver estate planning attorney regarding your estate plan and related questions.  We offer all potential clients a free consultation and estate plans that are affordable and fit your needs.

A free consultation can be scheduled with a Denver estate planning attorney by contacting The McGuire Law Firm.