A couple Tax questions.

[Time2]

I think I created a problem, I solved one, (bought a house) but it seems to have caused a tax problem.
Last year I borrowed on margin $233k, I gifted $220k to my son to buy a house.
I have not paid back the margin, but I now realize (I think) any money I use to pay back the margin loan is going to be taxable.
We have generally stayed in the 12% bracket, If I paid this all in one year, I would need an income of $300k putting me above the 12% bracket. I have plenty in Roth/IRAs I could pay it with. Is there any way out of this? I know I can split it into two or three years.
Suggestions?

And then, I have to fill out a 709 form (large Gift Form), I'm using TurboTax Deluxe, Do I upgrade? And, what has form 709? Can I just fill out the form and send it alone to the IRS.

As an odd note I sent a quarterly in using EFTPS it was cashed, but never credited to my IRS account. I'm going to the bank this morning, but, I don't think I will learn much. Any suggestions?

 

[Souschef]

I was in the same situation as you. I sold 250K worth of stock, and paid the capital gains on it, which Turbotax handled.
I went on line and downloaded the 709 form from the IRS site. There are a number of on line tutorials on how to fill it out.
You fill it out, print it out, and mail it to the address on the form instructions.

 

[Closet_Gamer]

I have not paid back the margin, but I now realize (I think) any money I use to pay back the margin loan is going to be taxable.

Sorry, I'm not able to be helpful here ... just curious.

Why would paying the margin loan back be taxable?

If you have $233K sitting in a savings account and you use it to pay off a margin loan, what is the taxable event?

Thanks.

 

[COcheesehead]

If you itemize, the margin interest is deductible. The money you use to pay it back is not taxable.

 

[Surewhitey]

If you itemize, the margin interest is deductible. The money you use to pay it back is not taxable.

I read he will have to take $ from his IRA to repay the money so it's taxable...

 

[Time2]

To answer a couple of questions, I owe $233k on a loan. At some time I need to pay it back, that money has to come from somewhere. If I take it from IRAs, it is taxable, If I take from taxable accounts, it will be taxable as Long Term Capital gains, If I take it from a Roth, there is no tax, and I don't have $233k sitting in a savings account. Just listing my options helps.

Cocheesehead, The interest won't get me above the standard deduction. Is interest reportable before the standard deduction? also, doesn't what the money was used for matter about deductibility?
It seems it would matter where I got the money from as whether it was taxable or not.

Thanks Souschef, a little further research shows, you don't file the 709 form with your taxes.

 

[SecondCor521]

To answer a couple of questions, I owe $233k on a loan. At some time I need to pay it back, that money has to come from somewhere. If I take it from IRAs, it is taxable, If I take from taxable accounts, it will be taxable as Long Term Capital gains, If I take it from a Roth, there is no tax, and I don't have $233k sitting in a savings account. Just listing my options helps.

Cocheesehead,

Not COcheesehead.

The interest won't get me above the standard deduction. Is interest reportable before the standard deduction?

No.

also, doesn't what the money was used for matter about deductibility?

It can. But if you borrowed money then gifted it to your son to buy a house, which is what I read you as saying, then there is no deductibility for you.

It seems it would matter where I got the money from as whether it was taxable or not.

Only indirectly. If you take a distribution from your traditional IRA to pay back the loan, for example, that distribution is taxable. But it's the distribution from the traditional IRA that is taxable regardless of whether you use that money to pay back the margin loan, buy groceries, or set it on fire.

Thanks Souschef, a little further research shows, you don't file the 709 form with your taxes.

Right. You do file it with the IRS as mentioned, but it's a separate form from your regular 1040 and associated schedules and forms.

I think I created a problem, I solved one, (bought a house) but it seems to have caused a tax problem.
Last year I borrowed on margin $233k, I gifted $220k to my son to buy a house.
I have not paid back the margin, but I now realize (I think) any money I use to pay back the margin loan is going to be taxable.
We have generally stayed in the 12% bracket, If I paid this all in one year, I would need an income of $300k putting me above the 12% bracket. I have plenty in Roth/IRAs I could pay it with. Is there any way out of this? I know I can split it into two or three years.
Suggestions?

Next time you'll do better if you have a plan ahead of time.

Splitting it across several years makes sense.

See if you have any extra already taxed income you're not using (dividends, for example) and use that to pay back the margin loan.

As an odd note I sent a quarterly in using EFTPS it was cashed, but never credited to my IRS account. I'm going to the bank this morning, but, I don't think I will learn much. Any suggestions?

Check your IRS transcripts for all recent years. Maybe it got applied to the wrong year. Ultimately, you'll probably have to reach out to the IRS to get it straightened out. This could take some time. @cathy63 probably knows more.

 

[COcheesehead]

I read he will have to take $ from his IRA to repay the money so it's taxable...

Oh, well that little detail was left out. LOL.

 

[COcheesehead]

To answer a couple of questions, I owe $233k on a loan. At some time I need to pay it back, that money has to come from somewhere. If I take it from IRAs, it is taxable, If I take from taxable accounts, it will be taxable as Long Term Capital gains, If I take it from a Roth, there is no tax, and I don't have $233k sitting in a savings account. Just listing my options helps.

Cocheesehead, The interest won't get me above the standard deduction. Is interest reportable before the standard deduction? also, doesn't what the money was used for matter about deductibility?
It seems it would matter where I got the money from as whether it was taxable or not.

Thanks Souschef, a little further research shows, you don't file the 709 form with your taxes.

Margin interest on that amount of money has got to be pretty high. Add in property taxes, donations, etc, you might be surprised and be over the standard deduction. There are many places I have read that margin is deductible without qualification of how it was used. So that seems gray to me.

 

[SecondCor521]

Margin interest on that amount of money has got to be pretty high. Add in property taxes, donations, etc, you might be surprised and be over the standard deduction.

Maybe. It's harder for married folks, and harder for older folks, because those two things make the standard deduction somewhere in the $32K range.

There are many places I have read that margin is deductible without qualification of how it was used. So that seems gray to me.

Probably from places who offer margin loans. The IRS guidance seems pretty clear, at least for OP's situation. See Topic no. 505, Interest expense | Internal Revenue Service.

 

[COcheesehead]

Maybe. It's harder for married folks, and harder for older folks, because those two things make the standard deduction somewhere in the $32K range.



Probably from places who offer margin loans. The IRS guidance seems pretty clear, at least for OP's situation. See Topic no. 505, Interest expense | Internal Revenue Service.

The source I used for deductibility of margin interest was TurboTax. The link you provided, unless I missed it, doesn’t address margin interest
I was surprised this year that my wife and I made it over the standard deduction limits. It’s worth tracking, you never know.

 

[all4j]

Try irs pub 550 (& sched A instructions et al) & I also don't see gray area. The margin loan must be for taxable investment purposes & there are other limits. Tax laws have changed over the years & so particularly any reference other than IRS should be checked.

 

[Time2]

"To deduct margin interest, it must qualify as investment interest under the Internal Revenue Code. Investment interest is defined as interest paid on funds borrowed to purchase or carry property held for investment purposes. The property must generate taxable income, such as stocks or bonds. Personal interest, such as that on loans for non-investment purposes, is generally not deductible."

Is Margin Interest Deductible on Your Taxes?

Explore the nuances of margin interest tax deductibility, including criteria, calculations, and documentation essentials.

accountinginsights.org

caveat, "Personal interest, such as that on loans for non-investment purposes, is generally not deductible."
Generally?

As to getting over the Standard Deduction, the interest is about $13,000, I don't have much else to deduct, so not likely to go above the Standard Deduction.

 

[COcheesehead]

Try irs pub 550 (& sched A instructions et al) & I also don't see gray area. The margin loan must be for taxable investment purposes & there are other limits. Tax laws have changed over the years & so particularly any reference other than IRS should be checked.

The pub in the link posted above was 505 so 550 helps.

 

[SecondCor521]

The source I used for deductibility of margin interest was TurboTax. The link you provided, unless I missed it, doesn’t address margin interest
I was surprised this year that my wife and I made it over the standard deduction limits. It’s worth tracking, you never know.

From the link I gave:

"Investment interest (limited to your net investment income; see Publication 550, Investment Income and Expenses)"

Margin interest can be investment interest if you use it to buy investments, but not in OP's case.

The pub in the link posted above was 505 so 550 helps.

The tax topic was 505, but it referenced IRS Pub 550.

 

[Koolau]

I can relate to the issue of taxable income from qualified money. In my case, it's my 401(k) - I currently have no more tIRAs (all converted to Roth).

So when ever I want more cash than I get from SS and Pension, I have to take from my 401(k). I'm taking RMDs too. So, the taxable adds up quickly. Then, there is IRMAA and other potentially looming "gotchas."

So to the "young-uns" in the group, at least consider doing more taxable investing and perhaps less qualified investing on the way to FIRE. One has to sharpen the tax-pencil in all of this.

 

[COcheesehead]

I can relate to the issue of taxable income from qualified money. In my case, it's my 401(k) - I currently have no more tIRAs (all converted to Roth).

So when ever I want more cash than I get from SS and Pension, I have to take from my 401(k). I'm taking RMDs too. So, the taxable adds up quickly. Then, there is IRMAA and other potentially looming "gotchas."

So to the "young-uns" in the group, at least consider doing more taxable investing and perhaps less qualified investing on the way to FIRE. One has to sharpen the tax-pencil in all of this.

I agree with this. Taxable or Roth funds provide a lot of flexibility

 

[Exchme]

If I take from taxable accounts, it will be taxable as Long Term Capital gains,

Only the gains are taxable and those will be taxed at the LTCG rate, so look for something to sell that doesn't have a lot of gains in it. Had you decided before the end of the year that you had to pay the loan back you could have spread out the sale from taxable over last year and this.

 

[cathy63]

We have generally stayed in the 12% bracket, If I paid this all in one year, I would need an income of $300k putting me above the 12% bracket. I have plenty in Roth/IRAs I could pay it with. Is there any way out of this? I know I can split it into two or three years.
Suggestions?

Not a suggestion, but a warning. If you go above $250K AGI on a married-filing-jointly return, you'll be subject to Net Investment Income Tax of 3.8% on some of the income.

As an odd note I sent a quarterly in using EFTPS it was cashed, but never credited to my IRS account. I'm going to the bank this morning, but, I don't think I will learn much. Any suggestions?

Whose SSN was listed first on the 1040-ES? Any chance it was your spouse's? If so, it's in their account and won't show up in your account until your joint return is filed.

If it's not in either account, file your return and include the payment on Line 26. Save a printout that shows both sides of the cancelled check just in case there are any questions later on.

 

[Time2]

Not a suggestion, but a warning. If you go above $250K AGI on a married-filing-jointly return, you'll be subject to Net Investment Income Tax of 3.8% on some of the income.

Whose SSN was listed first on the 1040-ES? Any chance it was your spouse's? If so, it's in their account and won't show up in your account until your joint return is filed.

If it's not in either account, file your return and include the payment on Line 26. Save a printout that shows both sides of the cancelled check just in case there are any questions later on.

My wife does not have an EFTPS account so it didn't go to that. Also, It was an ACH transfer from my bank,
The only thing the bank could give me was an ACH Transaction Trace Number.

 

[gauss]

As an odd note I sent a quarterly in using EFTPS it was cashed, but never credited to my IRS account. I'm going to the bank this morning, but, I don't think I will learn much. Any suggestions?

Did you go back to EFTPS and check on the status of the payment yet (ie Check Payment History)?
ie Was it applied to 1040?
Was it applied to the correct tax year?
Does the status show as settled?

"tax form" , "tax period", "status" and "amount' are columns for each payment in the list.

If you click on the green $ by the payment it will give you a full page of details regarding the payment.

-gauss

 

[2retireearly]

I think I created a problem, I solved one, (bought a house) but it seems to have caused a tax problem.
Last year I borrowed on margin $233k, I gifted $220k to my son to buy a house.
I have not paid back the margin, but I now realize (I think) any money I use to pay back the margin loan is going to be taxable.
We have generally stayed in the 12% bracket, If I paid this all in one year, I would need an income of $300k putting me above the 12% bracket. I have plenty in Roth/IRAs I could pay it with. Is there any way out of this? I know I can split it into two or three years.
Suggestions?

And then, I have to fill out a 709 form (large Gift Form), I'm using TurboTax Deluxe, Do I upgrade? And, what has form 709? Can I just fill out the form and send it alone to the IRS.

As an odd note I sent a quarterly in using EFTPS it was cashed, but never credited to my IRS account. I'm going to the bank this morning, but, I don't think I will learn much. Any suggestions?

Without going through all the details, I'm only here to say using your Roth will not increase your taxable income. you already paid taxes on the Roth when you put it into the IRA .no more taxes are to be paid

 

[Stormy Kromer]

Wow. This gets complicated. I pay my CPA $545 a year to do my taxes and keep me from messing up when I get crazy ideas.