Tax Planning Archives - Encore Partners

Tag Archive for: Tax Planning

When the sale of an appreciated home triggers taxes — and when it doesn’t

June 29, 2026/in News, Tax Tips - Individual/by Betty Kim

Home values have risen significantly in many areas of the country over the last several years, leaving some homeowners with substantial gains when they sell. Of course, a large profit is generally a good thing. But, depending on the amount of your gain, how long you’ve owned and resided in the home, and your income level, a sale may trigger capital gains tax and, in some cases, the net investment income tax (NIIT).

Save tax with the gain exclusion

If you’re selling your principal residence and meet certain requirements, you can exclude from tax up to $250,000 of gain ($500,000 for married couples filing jointly).

To qualify for the exclusion, you must:

Have owned the property for at least two years during the five-year period ending on the sale date.
Have used the property as a principal residence for at least two years during the five-year period. (Periods of ownership and use don’t need to overlap.)

In addition, you can’t use the exclusion more than once every two years.

Be aware of ineligible gain

What if you have more profit than your gain exclusion? Any gain in excess of the exclusion generally will be taxed at your long-term capital gains rate (typically 15% or 20%), as long as you owned the home for more than one year. If you didn’t, the gain will be considered short-term and subject to your marginal ordinary-income rate (usually 22% to 37%).

If you’re selling a second home (such as a vacation home), it isn’t eligible for the gain exclusion and the entire gain generally will be subject to capital gains tax. But if the home qualifies as a rental property, it can be considered a business asset. In that case, you may be able to defer tax through an installment sale or a Section 1031 like-kind exchange.

Watch out for the NIIT

When does the NIIT apply to a home sale? If you sell your principal residence and qualify for the gain exclusion, the excluded gain isn’t subject to the 3.8% NIIT.

However, gain that exceeds the exclusion is subject to the NIIT if your modified adjusted gross income (MAGI) is over a certain amount. Gain from the sale of a vacation home or other second residence, which doesn’t qualify for the exclusion, may also be subject to the NIIT.

The NIIT applies only if your MAGI exceeds $200,000 ($250,000 for joint filers or $125,000 for married taxpayers filing separately). If your MAGI is above the applicable threshold, additional factors will affect your NIIT liability. Be aware that the NIIT kicks in before the top long-term and ordinary-income rates apply.

Keep track of your basis

Gain on your home is calculated by subtracting your tax basis in the home from the sale price. Your basis generally includes what you paid for the home plus major improvements you made to it.

To support an accurate basis, be sure to maintain complete records, including information about your original cost and subsequent improvements (such as a kitchen remodel or a new roof). But basis-increasing improvements don’t include maintenance and repairs (such as painting your kitchen or fixing a leak in your roof). Also, you must reduce your basis by any casualty losses or depreciation claimed for business use (such as if a portion of your home was rented out or you claimed the home office deduction).

If your basis is more than what you sell your home for, your loss generally won’t be deductible. But if a portion of your home was rented out or used exclusively for business, the loss attributable to that part may be deductible.

Plan for the tax impact

A home sale can be tax-free or create a sizable tax liability — or result in a tax bill between those extremes. If you’re thinking about selling your home, it’s important to know the potential tax impact. Contact us before putting your home on the market so we can help you estimate the tax impact and discuss possible planning opportunities.

Don’t overlook these tax issues after a job loss

June 19, 2026/in News, Tax Tips - Individual/by Betty Kim

Even with a relatively low unemployment rate (averaging around 4.4% over the past year), layoffs and terminations continue to affect workers across many industries. If you’ve recently lost your job, you’re likely focused on replacing income and evaluating your next steps. But some tax implications related to a job loss also may require attention. Here are a few important areas to consider.

Unemployment, severance and other income

Many people are surprised to find out that federal unemployment compensation is taxable. (Some states do exempt it from state tax.) Although severance pay is also taxable and subject to federal income tax withholding, some elements of a severance package may get special tax treatment. For example:

Incentive stock options (ISOs). If you sell stock acquired by way of an ISO from your former employer, part or all of your gain may be taxed at lower long-term capital gain rates rather than at ordinary income tax rates — depending on whether you meet the required holding-period rules.

“Golden parachute” payments. If you received (or will receive) such a payment, you may be subject to an excise tax equal to 20% of the portion of the payment that, under complex rules, is treated as an “excess parachute payment.” This is on top of ordinary income tax.

Job placement assistance. The value of such assistance you receive from your former employer usually is tax-free. However, the assistance is taxable if you had a choice between receiving outplacement help or cash.

Finally, be aware that payments from your former employer for accumulated unused paid time off, such as vacation time or sick time, are taxable.

Health coverage

If your former employer pays for some of your medical coverage for a period of time after termination, you won’t be taxed on the value of the benefit.

Under the COBRA rules, employers that offer group health coverage generally must provide continuation coverage to most terminated employees and their families. The cost of COBRA coverage can be high because you typically will have to pay the portion your employer had been paying in addition to what you’d been paying as an employee. So you may want to look for your own coverage through the Health Insurance Marketplace at healthcare.gov to see if you can purchase less expensive coverage there.

Medical insurance premiums not paid pretax from a paycheck are potentially tax deductible. But you must itemize deductions, and you can deduct eligible medical expenses only to the extent that they exceed 7.5% of your adjusted gross income.

If your COBRA coverage is for a high-deductible health plan or you purchase bronze-level coverage on the Marketplace, you can make tax-deductible contributions to a Health Savings Account — and you don’t have to itemize to claim the deduction. HSA withdrawals used for qualified medical expenses are tax-free.

Retirement savings

Do you have a retirement plan with your former employer, such as a 401(k) plan? You may be able to leave the account there. But consider the investment options it offers and the fees that will apply.

If you get a new job, you may want to roll over the funds to your new employer’s 401(k) plan. That will leave you with fewer retirement accounts to keep track of. But again, consider the investment options and fees of the new plan.

In many cases, a direct, tax-free rollover from your old 401(k) to an IRA is the best move. You’ll generally have a much wider variety of investment options and more control over fees because you choose the brokerage firm, bank or other IRA custodian.

If you’re doing a rollover, request a direct rollover from your old plan to your new plan or IRA. Otherwise, you’ll need to make an indirect rollover within 60 days to avoid tax and potential penalties.

If you make withdrawals from your former company’s plan or IRA to supplement missing income, you’ll generally owe income tax on them. And, if you’re under age 59½, you’ll owe an additional 10% penalty unless you qualify for an exception. (If you have a Roth IRA, you can withdraw up to your contribution amount without incurring taxes or penalties.)

If a distribution from your former employer’s retirement plan includes employer securities in a lump sum, the distribution is taxed under the lump-sum rules — except that net unrealized appreciation in the value of the stock isn’t taxed until the securities are sold or otherwise disposed of later.

Further, any loan you’ve taken out from your former employer’s retirement plan, such as a 401(k)-plan loan, may be required to be repaid within a specified period or even immediately. If it isn’t repaid, it may be treated as if the loan is in default. If the balance of the loan isn’t repaid within the required period, it will typically be treated as a taxable distribution.

Guidance available

A job loss can create tax consequences that aren’t always obvious. Reviewing your options before making decisions about severance, health coverage or retirement accounts may help you avoid unnecessary taxes and penalties. If you’d like guidance, contact us.

Milestone moments: How age affects certain tax provisions

July 2, 2025/in News, Tax Tips - Individual/by Betty Kim

Happy 4^th of July! Wishing you a safe and happy Independence Day!

Can’t believe we’re already halfway through 2025—hope you’re enjoying a great summer!

At Encore, we know that age is more than just a number when it comes to tax and financial planning. Whether you’re saving for your kids, navigating mid-career decisions, or planning for retirement, each stage of life brings different opportunities—and different IRS rules.

We tailor our advice to fit your life now and help you prepare for what’s ahead. The article below is a helpful reminder of the tax milestones tied to age. Let us know if you’d like to take a closer look at how they apply to you or your family.

With that in mind, the IRS treats you differently as you move through life, because key tax rules kick in at specific ages. Here are some important age-related tax milestones for you and loved ones to keep in mind as the years fly by.

Ages 0–23: The kiddie tax

The kiddie tax can potentially apply to your child, grandchild or other loved one until age 24. Specifically, a child or young adult’s unearned income (typically from investments) in excess of the annual threshold is taxed at the parent’s higher marginal federal income tax rates instead of the more favorable rates that would otherwise apply to the young person in question. For 2025, the unearned income threshold is $2,700.

Age 30: Coverdell accounts

If you set up a tax-favored Coverdell Education Savings Account (CESA) for a child or grandchild, the account must be liquidated within 30 days after the individual turns 30 years old. To the extent earnings included in a distribution aren’t used for qualified education expenses, the earnings are subject to tax plus a 10% penalty tax. To avoid that, you can roll over the CESA balance into another CESA set up for a younger loved one.

Age 50: Catch-up contributions

If you’re age 50 or older at end of 2025, you can make an additional catch-up contribution of up to $7,500 to your 401(k) plan, 403(b) plan or 457 plan for a total contribution of up to $31,000 ($23,500 regular contribution plus $7,500 catch-up contribution). This assumes that your plan allows catch-up contributions.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $3,500 to your SIMPLE IRA for a total contribution of up to $20,000 ($16,500 regular contribution plus $3,500 catch-up contribution). If your company has 25 or fewer employees, the 2025 maximum catch-up contribution is $3,850.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $1,000 to your traditional IRA or Roth IRA, for a total contribution of up to $8,000 ($7,000 regular contribution plus $1,000 catch-up contribution).

Age 55: Early withdrawal penalty from employer plan

If you permanently leave your job for any reason after reaching age 55, you may be able to receive distributions from your former employer’s tax-favored 401(k) plan or 403(b) plan without being socked with the 10% early distribution penalty tax that generally applies to the taxable portion of distributions received before age 59½. This rule doesn’t apply to IRAs.

Age 59½: Early withdrawal penalty from retirement plans

After age 59½, you can receive distributions from all types of tax-favored retirement plans and accounts (IRAs, 401(k) accounts and pensions) without being hit with the 10% early distribution penalty tax. The penalty generally applies to the taxable portion of distributions received before age 59½.

Ages 60–63: Larger catch-up contributions to some employer plans

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $11,250 to your 401(k) plan, 403(b) plan, or 457 plan. This assumes your plan allows catch-up contributions.

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $5,250 to your SIMPLE IRA.

Age 73: Required minimum withdrawals

After reaching age 73, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts (traditional IRAs, SEP accounts and 401(k)s) and pay the resulting extra income tax. If you fail to withdraw at least the RMD amount for the year, you can be assessed a penalty tax of up to 25% of the shortfall. However, if you’re still working after reaching age 73 and you don’t own over 5% of your employer’s business, you can postpone taking RMDs from the employer’s plan(s) until after you retire.

Watch the calendar

Keep these important tax milestones in mind for yourself and your loved ones. Knowing these rules can mean the difference between a smart tax strategy and a costly oversight. If you have questions or want more detailed information, contact us.

Understanding Taxes on Real Estate Gains

August 15, 2024/in News, Tax Tips - Business/by Encore Partners Team

Let’s say you own real estate that has been held for more than one year and is sold for a taxable gain. Perhaps this gain comes from indirect ownership of real estate via a pass-through entity such as an LLC, partnership or S corporation. You may expect to pay Uncle Sam the standard 15% or 20% federal income tax rate that usually applies to long-term capital gains from assets held for more than one year.

However, some real estate gains can be taxed at higher rates due to depreciation deductions. Here’s a rundown of the federal income tax issues that might be involved in real estate gains.

Vacant land

The current maximum federal long-term capital gain tax rate for a sale of vacant land is 20%. The 20% rate only hits those with high incomes. Specifically, if you’re a single filer in 2024, the 20% rate kicks in when your taxable income, including any land sale gain and any other long-term capital gains, exceeds $518,900. For a married joint-filing couple, the 20% rate kicks in when taxable income exceeds $583,750. For a head of household, the 20% rate kicks when your taxable income exceeds $551,350. If your income is below the applicable threshold, you won’t owe more than 15% federal tax on a land sale gain. However, you may also owe the 3.8% net investment income tax (NIIT) on some or all of the gain.

Gains from depreciation

Gain attributable to real estate depreciation calculated using the applicable straight-line method is called unrecaptured Section 1250 gain. This category of gain generally is taxed at a flat 25% federal rate, unless the gain would be taxed at a lower rate if it was simply included in your taxable income with no special treatment. You may also owe the 3.8% NIIT on some or all of the unrecaptured Section 1250 gain.

Gains from depreciable qualified improvement property

Qualified improvement property (QIP) generally means any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building is placed in service. However, QIP does not include expenditures for the enlargement of the building, elevators, escalators or the building’s internal structural framework.

You can claim first-year Section 179 deductions or first-year bonus depreciation for QIP. When you sell QIP for which first-year Section 179 deductions have been claimed, gain up to the amount of the Section 179 deductions will be high-taxed Section 1245 ordinary income recapture. In other words, the gain will be taxed at your regular rate rather than at lower long-term gain rates. You may also owe the 3.8% NIIT on some or all of the Section 1245 recapture gain.

What if you sell QIP for which first-year bonus depreciation has been claimed? In this case, gain up to the excess of the bonus depreciation deduction over depreciation calculated using the applicable straight-line method will be high-taxed Section 1250 ordinary income recapture. Once again, the gain will be taxed at your regular rate rather than at lower long-term gain rates, and you may also owe the 3.8% NIIT on some or all of the recapture gain.

Tax planning point: If you opt for straight-line depreciation for real property, including QIP (in other words, you don’t claim first-year Section 179 or first-year bonus depreciation deductions), there won’t be any Section 1245 ordinary income recapture. There also won’t be any Section 1250 ordinary income recapture. Instead, you’ll only have unrecaptured Section 1250 gain from the depreciation, and that gain will be taxed at a federal rate of no more than 25%. However, you may also owe the 3.8% NIIT on all or part of the gain.

Plenty to consider

As you can see, the federal income tax rules for gains from sales of real estate may be more complicated than you thought. Different tax rates can apply to different categories of gain. And you may also owe the 3.8% NIIT and possibly state income tax, too. We will handle the details when we prepare your tax return. Contact us with questions about your situation.

Proactive Tax Planning & Organized Accounting for Strategic Decision Making

July 14, 2023/in News, Tax Tips - Business/by Betty Kim

Encore Partners LLP wanted to bring to your attention the importance of proactive tax planning and maintaining organized accounting practices. By ensuring that your financial records are up to date and accurate, you can significantly enhance your ability to make informed decisions and optimize your tax position.

We understand that tax planning is a crucial aspect of financial management. With the ever-changing tax landscape and evolving regulations, it is essential to stay ahead of the curve. By proactively reviewing your financial situation and implementing effective tax planning strategies, we can help you minimize tax liabilities and maximize savings.

To achieve these goals, we highly recommend organizing your accounting systems and records in a meticulous manner. Having well-maintained and up-to-date financial information enables us to identify opportunities and devise customized tax strategies tailored to your specific needs. Some key benefits of maintaining organized accounting include:

Accurate Financial Reporting: Timely and accurate financial reports provide a clear snapshot of your financial health. This information helps us identify areas where potential tax savings can be realized and allows for proactive decision making.
Real-time Data for Strategic Planning: Organized accounting ensures that your financial data is readily available when needed. Having access to up-to-date information empowers us to analyze trends, anticipate tax implications, and develop effective tax strategies.
Tax Returns & Compliance with Regulatory Requirements: Maintaining proper accounting records is essential for meeting regulatory obligations. By keeping your records organized, you can stay compliant with tax filing deadlines, avoid penalties, and streamline the audit process.
Efficient Financial Management: Organized accounting practices enable efficient tracking and management of income, expenses, and cash flow. This information serves as a foundation for accurate budgeting, forecasting, and making informed business decisions.

To assist you in this process, we are ready to offer our expertise and guidance. Our team of experienced professionals can help you implement effective accounting systems, streamline your financial processes, and develop proactive tax planning strategies tailored to your unique circumstances.

Now is an ideal time to initiate discussions about proactive tax planning and organizing your accounting practices. We encourage you to reach out to us to schedule a consultation. Together, we can ensure that you have the most up-to-date information at your disposal to make strategic financial decisions and optimize your tax position.

Thank you for your continued trust in our services. We look forward to supporting you in achieving your financial goals.

Tag Archive for: Tax Planning

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