Tax on Selling Your Home & More – Cut Through The Noise

Tax Hit for Selling Your Home & More – Cut Through The Noise

Tax on selling home residence? Is College Still worth the cost? & More on Cut Through The Noise

In this episode of Cut Through The Noise, Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® tackle the hottest topics in financial markets, financial planning, and life, including:

Is College Still Worth the Cost?

► Should I Take Social Security Early?

► How Much Cash Should I Have in the Bank?

► Will I pay Taxes if I Sell My Home Residence?

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Audio Version Here:

Show Notes:

SPEAKERS

Anthony Saffer VP / Financial Advisor CFP®, CKA®,

Alex Okugawa  / Financial Advisor CFP®, CKA®, CEPA® 

Alex Okugawa 0:00
Hello, and welcome to our segment Cut Through the Noise. Today we’re answering your questions that we’ve been hearing throughout the month. We’re talking about social security benefits, the cost of college tuition, taxes on the sale of your residence and cash in the bank as you head into retirement. Stay tuned.

Alex Okugawa 0:28
Okay, Anthony, let’s dive right on it. The first question we have here is about college tuition. So is college still worth it? It’s getting really expensive.

Anthony Saffer 0:36
Yes, that hits home, I got a son jeading to college. So, JP Morgan actually put out a recent study, and it still shows that you know, college means lower unemployment, on average higher income, and you know, there are those outliers, people that can create their own way. But it really seems to still pay off in most cases.

Alex Okugawa 0:54
So what I mean, what do you what is your take on it? I mean, is it worth it? As you think about your own son heading into college?

Anthony Saffer 0:59
Yeah, obviously, it depends on the person, but you know, overall, yeah, it still makes sense. I think that you have to be creative, though. Don’t take everything at face value. At least that’s my opinion. I read a book never pay retail, for college by Beth Walker. And that was really helpful. Because it’s basically like, Hey, here’s what society is putting out there. All these kids are going in, they have six figure debt when they get out of school. But what if we created more of a path and said, Okay, well, I’m going to go out and I’m gonna get scholarships, I’m going to really be selective, not keen on one school. I’m going to even if I don’t qualify for financial aid, but look and see. Okay, where do I fit in? And how can I map this out?

Alex Okugawa 1:36
Rather than looking for problems? You’re looking for solutions?

Anthony Saffer 1:39
Yeah. What do you think?

Alex Okugawa 1:40
I mean, I think it’s still worth it. I think college is still worth it. Yeah, the price tag is still up there. But like you said, I mean, colleges are going to find ways to get people to come on campus, there’s scholarships, there’s grants, like you said, so you just have to be creative. I think what happens is that people get this tunnel vision on, I’m going to this one college, and if I don’t go to this one, college, my life is gonna fall apart, I’m not going to be successful, I’m not going to get that job. That’s just not necessarily the case. And we say time and time again, employers at the end of the day, yeah, we might look at what school you go to. But what matters the most is your personality, and the interview, how you carry yourself, your professionalism, your mannerisms, that can be the most important determining factor of lifetime success.

Anthony Saffer 2:23
There are a lot of good schools out there. All right, should I take Social Security benefits early, even if I don’t need them and invest the money?

Alex Okugawa 2:29
Yeah, that’s a good question. So I commonly hear this because people go, I want to get social security benefits, while it’s still funded. Right. And that’s a whole separate discussion. But there’s a couple factors to that one is taxes, right, up to 85% of your Social Security benefits can be taxable. Now a lot of people might think, Oh, well, for 85% of my benefits to be taxable, I gotta be making a lot of money, it’s low, that’s not the case, you’re the threshold is actually very, very low, for up to 85% of your Social Security benefits to be taxable. So that’s, that’s point number one. Number two is if you’re still going to be working, right, you’re still going to be earning an income wages, you have to be really careful, because what happens is, is Social Security will then like reduce your benefits once you start going over thresholds. So I don’t know, it’s one of those things where you have to consider taxes, reduction of benefits. And then consider the fact that Social Security once you delay past your full retirement age, it’s almost like a guaranteed 8% bond.

Anthony Saffer 3:30
It goes up every year. It’s pretty significant. I mean, it really is a big, big benefit to wait and a lot of circumstances. Yeah.

Alex Okugawa 3:36
And again, if you invest it, yeah, you’re Yeah, you might get a better return. But it’s also a risk. Right. Absolutely. So next question here, I am retiring. Speaking of Social Security, I’m retiring, how much cash should I have in the bank entering into retirement?

Anthony Saffer 3:51
It’s a little demoralizing. You see interest rates so low, you open your bank statement, go I earn pennies, and then inflation we see is higher than that. So we’re losing real value on money in the bank. Yet, we still do believe you should have a cash reserve, especially with a big transition like that going into retirement, have a cash reserve target in mind, here’s how much, you know, helps me sleep at night provides an emergency reserve money that’s accessible, and it’s stable. And then you know, beyond that we can build a second layer of reserves and maybe that’s where we keep money more conservative, but we at least try to keep up with inflation overall and then of course above that having our investments well allocated.

Alex Okugawa 4:28
So what would be an example of like a second layer reserve for people?

Anthony Saffer 4:32
Yeah, so a lot of times I mean, maybe a little bit of stocks as part of a like an account, but like municipal, tax free municipal bonds can be great. Something that’s overall conservative, yes, it may have a little bit of fluctuation, looking at least pay something to earn a little bit more than cash.

Alex Okugawa 4:48
And the other thing too, I noticed that you said was target and so that’s why you have to be really careful is you don’t want to have too much right be too conservative, but you don’t want to be too little or it’s kind of like that too hot, too cold, but that’s really where the Financial Planning comes into place to say, okay, based on all my other income sources, not just my portfolio, how do I make sure that I have consistent long term, let’s say monthly income, regardless of what the market does,

Anthony Saffer 5:10
Yeah, be purposeful. Alright, last question for you, Alex, how can I determine if I will pay taxes if I sell my residence?

Alex Okugawa 5:16
Yeah, that’s another really good question. So there’s a lot of nuance that might go into this. I’d say there’s a couple factors. Number one, think about what you bought your home for. Right? Go back, what did you buy? But what do you buy a residence for? The second thing is did you make any substantial improvements to your residence? Right? Changing a broken sprinkler out front is not a substantial improvement to residents. But maybe you put a new roof on, maybe redid the kitchen, that’s a substantial improvement. So taking into consideration what you bought the home for any substantial improvements to the residence, and eventually what you sold it for, will give you a good ballpark of if you’re gonna have to do Yeah, exactly. But there’s one other consideration too, especially with home prices rising is the capital gain exclusion, it can be up to $500,000 for a married couple $250,000, for a single person. That’s the amount of gain that you could exclude from the sale in order to basically pay less

Anthony Saffer 6:14
You have to live in the in the residence for two fo the last five years.

Alex Okugawa 6:18
The two to five year tests is something else to consider the ownership and use.

Anthony Saffer 6:22
It’s so significant that I mean, you should be consulting your tax pro on this thing. You want to make sure to get it right.

Alex Okugawa 6:28
Well, this is our segment cut through the noise. We hope you found it helpful. If you have questions that you would like us to answer, we’d love to hear from you. Send us an email at admin@onedegreeadvisors.com. We look forward to hearing from you soon.

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