By John Stylianou, Accountant
You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. Recent IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.
To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.
Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.
These recent regulations are very favorable to landowners. If you have vacant land you’re thinking of selling, contact our office for additional tax advice.
Is it time to check your withholding?
Did you receive a big refund on your 2002 taxes? Or worse still, did you wind up with an unexpected tax bill? In either case it might be time to adjust your withholding.
Many people like to receive a refund from the IRS – they look upon it as a form of forced saving. If you’re of this opinion, that’s fine. But too big a refund means you’re wasting your money, giving an interest-free loan to the government.
On the other hand, if you underpaid your taxes by more than $1,000 and don’t meet certain other exceptions, you could be hit with a penalty. All sorts of things can cause underpayment of taxes. You might receive interest, dividend, or tip income on which no taxes are withheld. If you’ve been unemployed, your unemployment benefits could increase your tax bill. And, of course, if you’re self-employed, it’s your responsibility to make estimated tax payments. These should cover both income taxes and FICA taxes (social security and Medicare).
There are two ways to adjust the taxes you pay. If you’re an employee, you can file a new Form W-4 with your employer. To increase withholding, you can either reduce the number of exemptions you claim on the W-4, or you can specify an extra dollar amount to be withheld from every paycheck. Alternatively, you can make estimated tax payments to cover the taxes you owe in each quarter.
However you do it, you should adjust your withholding to match the taxes you expect to owe. If you need assistance determining the right withholding in your situation, give us a call.