Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Is it possible to create tax-free income for life?
Clients can use tax-free, non-alternative minimum tax municipal bonds to create a source of tax-free income, an advisor on CNBC writes. While long-term investors will be better off building a portfolio of equities and bonds than having a 100% bond portfolio, muni bonds are a good alternative to annuities and other fixed-income vehicles, according to the expert. Clients who invest in annuities will incur taxes and other costs, but they "can invest the same amount into a diversified municipal bond portfolio and pay no taxes and receive tax-free income until the bonds are called or mature."
How your home sale will be taxed
Clients are entitled to capital gains exclusion up to $250,000 ($500,000 for couples) from the proceeds of a home sale, provided they meet certain requirements, according to an expert interviewed by Kiplinger. To qualify for the exclusion, clients should have lived in the property for at least two of the past five years prior to the sale. Those who gained more than the threshold are advised to include major home improvement expenses, settlement fees and closing costs in their tax basis to minimize their tax bill.
The new law gives rental property owners breaks — and one important change
Clients can expect their net income from rental property taxed at personal federal income tax rates which are reduced under the Tax Cuts and Jobs Act, according to MarketWatch. Long-term real estate gains tax rates remain the same under the law, and the new limitations on personal resident mortgage interest and state and local taxes are not applicable to rental properties, unless these properties are used for personal purposes.
Steps to control your clients’ investment taxes
Making 401(k) or other employer-sponsored retirement plan contributions is one way for clients to minimize their investment-related taxes, according to the Journal-Advocate. They should also consider contributing to an IRA and adopting a buy-and-hold investing strategy. Those who are in a higher tax bracket may opt for federal tax-exempt muni bond investments. "Interest from some types of municipal bonds may be subject to the alternative minimum tax,” an expert writes. “However, because of the new tax laws, the AMT exemption amounts were increased significantly."
7 things clients need to know about Social Security disability benefits
Social Security offers two forms of disability insurance: the Social Security disability insurance and the Supplemental Security Income, according to Motley Fool. To qualify, workers should pass the duration of work test if they are unable to work because of disability. Social Security calculates disability benefits based on the workers' average taxed earnings, which can be slightly lower than their full retirement benefits.