Financial Benefits of no AGI?

[ivanl3]

In order to facilitate an ER, I may choose to take a loss on the sale of a Rental property that will allow me to write down my ordinary income to 0.

I will have the option to write this down and file an amended return in the previous years (2) or recognize loss in the year of the sale and carry over any additional loss going forward.

My wheels are turning as to what financial benefits there are of having no AGI? For example, I should now be able to contribute to a Roth. May now be eligible for state sponsored programs for energy assistance and home winterization.

What other opportunities might this temporary situation present?

Which, if any, of these opportunities can still be done in previous years, versus only in current and future years?That answer could affect if I file amended returns for an immediate refund.

Thanks.

 

[ivanl3]

ACA subsidies come to mind but I am not expecting to be getting my HC from the ACA during ER--at least not the first couple years.

 

[cathy63]

...My wheels are turning as to what financial benefits there are of having no AGI? For example, I should now be able to contribute to a Roth.

...

Which, if any, of these opportunities can still be done in previous years, versus only in current and future years?That answer could affect if I file amended returns for an immediate refund.

Thanks.

Do you have some other earned income from a job or a business on which you pay self-employment taxes? If not, you will not be able to contribute to a Roth. If you are able to contribute to a Roth, you cannot do it retroactively except for the period between Jan 1 and April 15 when you can contribute for the prior year.

 

[ivanl3]

Do you have some other earned income from a job or a business on which you pay self-employment taxes? If not, you will not be able to contribute to a Roth. If you are able to contribute to a Roth, you cannot do it retroactively except for the period between Jan 1 and April 15 when you can contribute for the prior year.

Total MAGI for return will be 0, so we should be eligible.

Good info on the prev year window.

Thanks.

 

[Koolau]

I've never done this nor do I know much about it. But I was thinking you didn't have to go to "0" on anything to reap various tax benefits. I though you just had to under a certain "maximum" to qualify for most tax benefits. YMMV

 

[ivanl3]

I've never done this nor do I know much about it. But I was thinking you didn't have to go to "0" on anything to reap various tax benefits. I though you just had to under a certain "maximum" to qualify for most tax benefits. YMMV

True, so assuming I am below that threshold (which I would be since I am at 0), know of any benefits that I would become eligible for (tax or otherwise)?

If so, what are they?

Thanks.

 

[gerntz]

Not trying to be political, but aren't there large numbers of folks here & in western Europe that live on government assistance; i.e., little or no AGI?

 

[Blue Collar Guy]

I know a guy with no AGI, He gets food stamps, medicare, medicaid, doesnt have the 104.90 a month deducted from his check. He has a free cell phone, got free dentures., Im sure his is missing out on a few things,but he is happy as a clam. Worries? He doesnt have a single one. He has money for cigarettes, lottery tickets, & gambling. He has a car, life is good for him. I wouldnt trade places with him, but Im not smart, I seem to like to worry.

 

[sengsational]

What you can do is take your tax software and run the scenario. There's quite a few things that can pop into action if you're below certain levels (or explained another way, there are lots of phase-outs if you make too much money).

When I say run scenarios, I'm thinking of Roth conversions. To me, unless you fill-up the low brackets, you're "wasting" that low tax "space". So enter your rental loss scenario in the tax software and keep increasing your Roth conversions until the marginal rate comes up to where you think it will be in the future. Don't worry about using last year's tax software...it's not going to be perfect, but it's going to be your best way of estimating.

Quite a few benefits are only granted if you have very few assets. So you wouldn't qualify for those, since you're a real-estate magnate. It's the income-based ones that you might qualify for.

 

[Koolau]

What you can do is take your tax software and run the scenario. There's quite a few things that can pop into action if you're below certain levels (or explained another way, there are lots of phase-outs if you make too much money).

When I say run scenarios, I'm thinking of Roth conversions. To me, unless you fill-up the low brackets, you're "wasting" that low tax "space". So enter your rental loss scenario in the tax software and keep increasing your Roth conversions until the marginal rate comes up to where you think it will be in the future. Don't worry about using last year's tax software...it's not going to be perfect, but it's going to be your best way of estimating.

Quite a few benefits are only granted if you have very few assets. So you wouldn't qualify for those, since you're a real-estate magnate. It's the income-based ones that you might qualify for.

Yes, Roth conversions are the only thing I can think of with a major pay-out potential for low AGI. I suppose if one is 65+ then the monthly Medicare cost would also be useful. I'm sure there are many more but none I've ever been eligible for. YMMV

 

[Texas Proud]

Some of the 'free' stuff also requires little to no assets... need to check them out...


I would also make sure it is only AGI they look at.... IOW, there might be something based on other income that is not a capital loss...


Last... are you sure you are going to zero? I thought the capital loss is limited to $3K per year.... need more info to know...

 

[ivanl3]

Some of the 'free' stuff also requires little to no assets... need to check them out...


I would also make sure it is only AGI they look at.... IOW, there might be something based on other income that is not a capital loss...


Last... are you sure you are going to zero? I thought the capital loss is limited to $3K per year.... need more info to know...

Yes, positive. Thanks.

 

[Texas Proud]

Just another thought on this.... reread the first post and see it is rental property....

Are you sure you are going to have a loss when you look at adjusted basis I would think that the depreciation taken over the years would lower your basis quite a bit... maybe the loss is from purchase price and not adj basis....

 

[RE2Boys]

As you probably know, if you had suspended losses in your rental activity due to income limitations in previous years, all suspended losses are released in the year that you substantially dispose of the rental activity to an unrelated party.

Even property sold at a loss could have reportable gain. Example, purchase property for $150K, sell for $100K, but had allowed or allowable depreciation of $75K (whether you actually took depreciation or not), you would have a $25K gain to report.

If you had earned income in the year of sale, but have AGI of zero, you could make an Roth IRA contribution and could be eligible for the refundable credits such as EIC, refundable portion of AOC, refundable portion of the Child Tax Credit, If in the two previous years, you may become eligible for some of the above credits that your previous years income made you ineligible.

I see that you are a resident of PA. PA classifies income into 8(?) categories. A loss in one category can not be used to offset income in another category. Thus no matter how big your rental loss or cap gains loss is, you still must pay taxes on positive income in other categories (compensation, interest, dividends, etc). And nothing can be carried back or to the future.

 

[ivinsfan]

Is rental property income loss exempt from the loss limit imposed on other gains. I.E. offset investing income from that year and an additional 3000?. It's still a long term capital gain/loss even through it is a rental property.

 

[RE2Boys]

This may help

https://turbotax.intuit.com/tax-too...ng-Rental-Real-Estate-at-a-Loss/INF12125.html

 

[RE2Boys]

You enter the loss sale transaction in Part 1 of Form 4797. If the total on line 7 is a loss, you transfer to line 11. If no further adjustments, enter on 1040 line 14 bypassing the $3k limitation on capital losses.
If sold at a gain, you enter in Part III of Form 4797.

 

[gerntz]

Is rental property income loss exempt from the loss limit imposed on other gains. I.E. offset investing income from that year and an additional 3000?. It's still a long term capital gain/loss even through it is a rental property.

Perhaps I'm wrong, but I didn't think depreciation lowered basis on rental property. Rather, the total depreciation amount is taxed at 25% Fed regardless of other incomes & you use the original property cost as the basis versus sale price & that number if income is taxed at cap gains rate.

No?

 

[Texas Proud]

Perhaps I'm wrong, but I didn't think depreciation lowered basis on rental property. Rather, the total depreciation amount is taxed at 25% Fed regardless of other incomes & you use the original property cost as the basis versus sale price & that number if income is taxed at cap gains rate.

No?

No.

 

[Fermion]

If you have earned income but have just reduced your AGI to zero, then the saver's credit comes to mind as one of the bennies you might go for.

I think it is a 50% match for the first $2000 into a retirement account (T-IRA or Roth I guess).

In this economy, a guaranteed 50% return isn't so bad.

 

[ivanl3]

Just another thought on this.... reread the first post and see it is rental property....

Are you sure you are going to have a loss when you look at adjusted basis I would think that the depreciation taken over the years would lower your basis quite a bit... maybe the loss is from purchase price and not adj basis....

100% positive

 

[ivanl3]

If you have earned income but have just reduced your AGI to zero, then the saver's credit comes to mind as one of the bennies you might go for.

I think it is a 50% match for the first $2000 into a retirement account (T-IRA or Roth I guess).

In this economy, a guaranteed 50% return isn't so bad.

Thanks a lot. Will research

 

[Texas Proud]

If you have earned income but have just reduced your AGI to zero, then the saver's credit comes to mind as one of the bennies you might go for.

I think it is a 50% match for the first $2000 into a retirement account (T-IRA or Roth I guess).

In this economy, a guaranteed 50% return isn't so bad.

I would have to check, but I do not think the savers credit is a refundable credit.... if so, then if you do not pay taxes you do not get it...

I tried to get it a couple of years ago and did not as I had no tax liability...

 

[Texas Proud]

100% positive

Yes.

Here is an article with a gain.... yes, you recapture your depreciation with a gain and add it back... that is not what you are saying you have...


How to Figure Capital Gain on a Rental House | Finance - Zacks

Here is an answer from turbotax talking about a loss.... their bold...

https://ttlc.intuit.com/questions/3...he-assets-on-sale-of-rental-property-for-loss

The formula for calculating your cost basis on rental property is as follows:
* Purchase price
* + Purchase costs (title & escrow fees, real estate agent commissions, etc.)
* + Improvements (replacing the roof, new furnace, etc.)
* + Selling costs (title & escrow fees, real estate agent commissions, etc.)
* - Accumulated depreciation (as reported on your tax forms)
* = Cost Basis
​

 

[Onward]

Lots of benefits to low AGI:

ACA subsidies or free Medicaid
No fees for Medicare Part B or D
Potential for low-tax Roth conversions
Zero fed tax on capital gains
Saver's credit for retirement-account contributions
Possible Earned Income Credit
Refundable child-tax credit if you have kids

And that's just off the top of my head.