December 24, 2024 • 29 mins
In this festive edition of the Teaching Tax Flow podcast, episode 115 brings listeners intriguing insights into what can be considered 'gifts' from the IRS. Chris Picciurro and John Tripolsky delve into the intricacies of tax benefits that many taxpayers may overlook. These gifts, appropriate for taxpayers from various income brackets, serve as a crucial reminder of the opportunities within tax law to ease financial burdens, especially during the holiday season.
Throughout the episode, Chris highlights five significant tax code sections, including the 1031 Exchange, Health Savings Accounts, and the Augusta Rule, among others. Each section promises a myriad of advantages, urging the audience to capitalize on these provisions to manage capital gains, medical costs, and even property sales more effectively. With an engaging and informative tone, this episode is a treasure trove for anyone looking to deepen their understanding of beneficial yet lesser-known elements of the tax code.
Key Takeaways:
- 1031 Exchange: Enables taxpayers to defer capital gains taxes on real estate by reinvesting the proceeds into "like-kind" property, thereby enhancing investment potential.
- Health Savings Accounts (HSA): This triple tax-advantage tool offers deductions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
- Section 121 Exclusion: Allows homeowners to exclude up to $500,000 in capital gains from the sale of a primary residence if specific criteria are met.
- Augusta Rule: Homeowners can rent their primary residence for up to 14 days tax-free, opening opportunities for additional income during high-demand events.
- Step-Up in Basis: Offers substantial tax savings by resetting the cost basis of an inherited asset to its fair market value at the time of the original owner’s death.
Notable Quotes:
- “You get a deduction for putting the money in. The money grows tax-deferred, and it gets taken out in a qualified distribution, tax-free.” – Chris Picciurro
- “The IRS doesn’t give us too many gifts, but I wanted to identify my five favorite gifts that the IRS gives us.” – Chris Picciurro
- “This could be a great opportunity for you if you're in a situation where you're selling property and you don't need the cash.” – Chris Picciurro
- “Remember, you’ve got to identify the replacement property within 45 days, and you’ve got to close within 180.” – Chris Picciurro
- “If you inherit an asset, your cost basis in that asset is the fair market value of the asset the day you inherited it.” – Chris Picciurro
Ep. 73 | Understanding 'Step-Up in Basis' for Minimizing Taxes
https://share.transistor.fm/s/d62de4b2
Ep. 85 | 1031 Exchange Update
https://share.transistor.fm/s/4dcdb380
Episode Sponsor:
Legacy Lock (www.teachingtaxflow.com/legacy)
DISCOUNT CODE: Magic1495
- (00:00) - Top Five IRS Gifts You Can Benefit From
- (04:39) - Understanding 1031 Exchanges and Health Savings Accounts
- (10:16) - Understanding the Section 121 Exclusion for Capital Gains
- (17:16) - Understanding the Augusta Rule for Tax-Free Rental Income
- (22:22) - Understanding Step-Up in Basis and Inherited Assets
- (27:19) - Tax Tips and Podcast Highlights from Teaching Tax Law
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro (00:06):
Welcome back to the podcast, everybody. Today,
episode 115. We are gonna diveinto the top 5 gifts from the
IRS. That's right. It's theholiday season. Are
they really in the, the seasonof giving? We're about to find
out. But before we do that,let's take a brief moment and
thank our episode sponsor.
Ad Read (00:29):
This podcast is brought to you by Legacy Lock. If you
are new to estate planning orsimply need to review your
current plan, Legacy Lock makesit as easy as pie. Legacy Lock
is a unique platform thatenables you to to easily
complete your attorney drafteddocuments conveniently from the
comfort of your home or office.Your first step to this peace of
mind is simply visiting teachingtax flow.com/legacy.
John Tripolsky (00:53):
Back here again on the podcast, as you heard of
the intro, seen in the title, oryou just read it or seen it
somewhere else, we're gonna talkabout those top 5 gifts. That's
right. Gifts, not gifts, j If's. As you know, you've
probably seen enough of those onsocial media over the past
decade. We're talking aboutgifts, presents from the IRS.
(01:15):
So we're gonna jump into these,and the good thing about these
is if you actually are a diehard subscriber of the podcast,
you've heard a little bit abouteach one of these as we've gone
along or, I should say,progressed along. But now we're
gonna run through them a littlebit more condensed version. And,
again, they're gifts. It'ssomething that the IRS is giving
you. It's up to you to use it.
(01:36):
So best guy we can always thinkof to tell us exactly how to do
this. My brother from anothermother, but he also has much
less hair. If anybody's watchingthis, you can kinda see I need
to I need to take a gift, givemyself a gift, and go to the
barber. But, Chris Pacquero,how's it going, brother?
Chris Picciurro (01:54):
It's going well. Happy holidays, and I know
that I'm on Santa's good list. Ican't I can't speak for you, but
I know I'm on Santa's good list.You know? And,
John Tripolsky (02:04):
I'm I'm at, like, 80%, I'd say. I got, you
know, there's always room forimprovement. Right? So
Chris Picciurro (02:10):
Well, I would say that I'm definitely on the
good list, and and since it is aholiday season, that was the
inspiration for this podcastepisode, and the IRS doesn't
give us too many gifts. But Iwanted to identify my 5 favorite
gifts that the IRS gives us, andthese gifts are good because
they're not specifically forcertain high income or high net
(02:34):
worth people. These are giftsthat any almost anyone can use.
And, I'm excited about that andyou might say, well, what do you
mean that what is a gift in yourmind? A gift is when, in the
teaching tax law system, we callthis a a goal diagnosis, but a
gift is when you get some typeof financial benefit and don't
have to pay tax on it.
(02:55):
Think about like that. That'svery rare. Right? Typically, we
have to pay tax on it. We'resupposed to pay tax on all of
our income.
John Tripolsky (03:03):
And I love that you came up with this title
because it is it's somethingthat I wouldn't say they're so
easy, but these are all pre andwe reviewed these obviously
before we talked about them.There's something that so many
people can take advantage of,and and here I am staring down
at at number 1 here. I'll letyou say what it is. I'm not
gonna spoil it for you. It's ait is amazing to me how many
(03:25):
people don't know about these.
So, basically, this is our gift.We've been gifted the gift to
regift to the community. Solet's run through these things,
shall we?
Chris Picciurro (03:34):
Yeah. I've and I've used 4 of the 5. Thank
goodness I haven't used the 5thone yet. So which I'll which I
will explain. So yeah.
So the first one was gonna beand and like you said, John,
many of these, there's actuallyadditional content. All of
these, there's additionalcontent on the teaching tax flow
YouTube channel. Many have theirown tax TTF podcast episodes.
(04:00):
But the first one's gonna be the1031 exchange. This is one we've
used.
What that means is that section1031 of the tax code allows you
to sell real estate at a gainand defer any payment of the tax
on that gain if you reinvest itinto like kind property. And
(04:24):
like kind property, there is apretty general concept. Right?
So you can sell, like,commercial property and buy
residential property. You cansell an apartment complex and go
and buy 5 or 6 short term rentalproperties.
The key is though, now we haveto remember with the 10/31
exchange, is that you can't takecash to complete a full
(04:45):
exchange. You can't take cash orwhat they call boot out of the
deal. You have to and you can'tput the money, from the exchange
in your bank account. You haveto use a qualified intermediary
or QI. So the the process lookslike this.
I go to sell my property. Ibefore I close, I contact a
qualified intermediary. Let themknow I I'm gonna do a 10 30 one
(05:07):
exchange. My property sells. Thefunds from my property get wired
right to the qualifiedintermediary for my benefit.
So it's kinda like an escrowaccount or trust account in a
way, and they sit there until Ibuy replacement property. Now
there are rules for replacementproperty. You've got to identify
the replacement property within45 days. You've got to close
within a 180, and that'ssomething that you're gonna work
(05:30):
with your qualified intermediaryand your real estate
professionals. And the point is,if you can defer any of the
gain, that's pretty attractive.
Right? And you just deploy itinto a different asset class.
And this one actually could getpaired with our final one, but
that it, but, yeah, the 10 30one exchange is really a gift
(05:50):
from the IRS.
John Tripolsky (05:52):
And, really, with this one, Chris, too. So,
you know, anybody that'slistening to this, you know, we
talk about capital gains a lotbecause that that is a let's put
it what it is. That is a giantkick in the you know what if you
don't see it coming. Right? Soif somebody you know, say you're
listening to this and you say,oh, well, I don't really know
what capital gains is.
Go go do a little research onit. I mean and, honestly, Chris,
(06:15):
I don't know if we've actuallyreally broken down too much on a
specific episode that I canthink of of what exactly it is.
So may maybe that's something welook in the future, but my my
little advice to anybody on thisone again, you know, I Chris
brings the knowledge. I bringthe I don't know. I'll figure
out what I bring one day.
But, get a good grasp of whatcapital gains are or is, and
(06:36):
then you will immediatelyrealize how powerful a 10 30 one
exchange is. So it's kinda likea secret weapon, but a lot of
people don't know about it.Right?
Chris Picciurro (06:44):
Absolutely. No. It's it's it's a really powerful
tool. So I'll I, I've used itmyself, and in in, you know,
practically speaking that itcould the exchange could
straddle over a year. So, again,work with a tax professional,
work with the people that youneed to work with to make this
happen.
If you're in a situation whereyou're selling property and you
don't need the cash and youwanna deploy it into something
(07:06):
else real estate related, thiscould be a great opportunity for
you. So that's number 1.
John Tripolsky (07:12):
And here's a bad example of that of what not to
do is it's not like you callingyour significant other or
saying, hey. I'll call you on myway home and you forget to call
them and then you get home andthey're mad at you. You if
you're too late to start at10:31 in your process, you can't
go back. So you need to toinitiate that early on. So
Chris Picciurro (07:33):
alright. It's interesting, though. There are
reverse 1031 exchanges where youactually buy the replacement
property before you sell theproperty because sometimes you
have timing issues. But but youcan't but if once you close on a
property and put the money inyour account, you can't do the
1031 exchange. So definitelytalk to a QI qualified
intermediary.
(07:54):
Number 2, health savingsaccounts. I know I talk about
these a lot. They arephenomenal. They've got they
they are what we call the thethe a triangle tool. Right?
3 a triple tax advantage tool.It's kinda like a remember those
old well, that was an thoseninjas, that was like a
(08:15):
triangle, you know, that the,
John Tripolsky (08:18):
Oh, the little Chinese star?
Chris Picciurro (08:21):
Yeah. So that's a star, but a triangle. What do
I mean by 3 3 triple taxadvantage tool? 1, when you
contribute to a health savingsaccount, you get a tax deduction
for that in the year youcontribute. So that's a tax
that's a tax deduction.
You actually have until April15th, just like an IRA, to
contribute to the house savingsaccount, and count it for the
(08:43):
previous year.
John Tripolsky (08:45):
So you
Chris Picciurro (08:45):
have April 15th and count it for the previous
year. So that's number 1. Number2, the money grows tax deferred.
So you could have your HSA couldbe invested in savings. You
could actually buy CDs.
Some people just leave it in achecking account, but most
people want it to grow. Right?And in earn money. So all of the
income you receive from it, aslong as it's in the health
(09:07):
savings account, is taxdeferred. Part 3, when you take
a distribution from the healthsavings account, that is tax
free.
As long as the distribution isused for medical expenses. So
that is the 3 pronged healthsavings account. Think about it
(09:29):
this way. You get a deductionfor putting the money in, the
money grows tax deferred, and itgets taken out in a in a
qualified distribution tax free.
John Tripolsky (09:40):
That's a beautiful one. That's beautiful.
Hopefully, you never need it,but if you do, it's there.
Chris Picciurro (09:48):
Well, later on in life, you could actually use
it to pay your Medicarepremiums. There's a ton of
flexibility now with thosehealth savings account assets.
So I hope you do need it in away that means you've lived long
enough to use that. I mean,we're all gonna have medical
expenses at some point. Right?
John Tripolsky (10:02):
So Absolutely.
Chris Picciurro (10:03):
But yeah. So that is, that's that is number
2. Number 3, the section 121exclusion. What the heck is
that? AKA, this is the capitalgain exclusion from the sale of
a primary residence.
So if you have a primaryresidence and it's been your
(10:26):
primary residence 2 out of thelast 5 years before you sell it,
you could typically exclude thecapital gain from being taxable.
Now there are certain rules, ifyou've used it as a rental
property in the past, if you,there there could be unique
situations. But for the vastmajority of people, this is the
(10:48):
primary residence exclusion orsection 121 exclusion. If you
are married filing jointly, youcan exclude up to a half a
$1,000,000 of capital gain. Allothers can exclude $250,000 of
capital gain.
So this is one of those threelaws of teaching tax flow. We
talk about tax flow and cashflow are different. So I'll give
(11:09):
you an example, John. Let'spretend you bought a home, where
do you wanna move, John? Ialways shouldn't say that, but
let's say you move to where arewe gonna put you?
John Tripolsky (11:20):
Well, let's say, somewhere in Montana. Stick me
out there for a while.
Chris Picciurro (11:25):
Ute, Montana or something. Cyan or I do.
Whatever. You buy a home inMontana for for for $400,000.
Right?
And you we have a $300,000mortgage. You live there for for
10 years. The property goes upin value to $800,000. Let's
(11:46):
assume you're married, and let'ssay you paid the mortgage down
to $100,000. Are you with me?
So when you sell that property,you have $800,000 it's worth,
minus $100,000 of mortgage, youwalk away with $700,000 This is
where cash flow and tax flowcome in. You might be saying,
because this happens all thetime in the teaching tax flow
(12:06):
community, awesome. I have thishouse. I could just walk away
with 700,000. I know the first500,000 is tax free, so I have
to pay tax on 200.
Actually, the news is betterthan that. Your basis in the
house, meaning what you paid forit, is 400. You sold it for 800.
So you have a $400,000 capitalgain, which is less than the
(12:27):
exclusion of $500,000. So theentire $700,000 you walk away
with is tax free.
That's the section 121exclusion.
John Tripolsky (12:35):
And this one's so interesting to me. And,
honestly, like, I I really don'tknow it. I know we talk about
this. I you know, the concept. Idon't know a lot of the details
on this one.
So so here's a question too.Like, I I'm gonna feel that the
older generation, they tend tostay in their homes a lot
longer. So without getting into,number 5, which we're gonna talk
about. I don't wanna say what itis. We're gonna we'll leave that
(12:57):
as
Chris Picciurro (12:57):
a small cliffhanger.
John Tripolsky (12:59):
So with this, though, I mean, what's the is
there a caveat to this at all?Like, is this is there any
recapture or anything anywheredown the line, or is this
basically truly a gift from theIRS that some people just may
not know to take advantage ofjust like this. Gift.
Chris Picciurro (13:14):
Now you can only use this once every 2
years. Okay. If you're not therethe entire 2 years, there could
be unforeseen circumstances andI mean, we I think we have a
whole podcast episode just onthis topic alone. So yeah. No.
It's just the gift from theirs.It's commonly thought by many of
the tax planners out there thatthis section 121 exclusion was
put in the law because of 2years is the is the term for
(13:38):
someone in the house ofrepresentatives. Just think
about this, John. You now livein Montana, not Wyoming. So I
was wrong.
I'm like, you live now inMontana. You become popular as
normal, and you get elected tothe house of representatives.
Good for you. You move toWashington DC and you buy a
(14:02):
home. You serve your 2 yearterm.
You still have your house inMontana. Right? You still but,
you know, you used to serve your2 year term, and you do a
terrible job, and you don't getreelected. Sorry to hear that.
You then sell your house inWashington DC after living there
2 years, but because of markethas gone up, you make $200,000
(14:26):
as a parting gift, like someloser on a on a game show.
You get to walk away with aparting gift of a $200,000
capital gain excluded from taxand go back to the house you
lived in on Montana. And you aslong as you stay in that house
for the next 2 years, you can gosell that one and get another
121 exclusion because the ruleis you've got a you can only you
(14:47):
can only be claimed once every 2years.
John Tripolsky (14:50):
So, really, with that being tied to politics,
it's kinda like the powers thatbe. It's probably pretty safe to
say that this isn't gonna changefor a while
Chris Picciurro (14:59):
Right.
John Tripolsky (14:59):
If that's the case.
Chris Picciurro (15:00):
No. I don't think this is gonna change. In a
lot of times, you sell yourhouse to the next next person
that's gonna be in the house ofrepresentatives.
John Tripolsky (15:09):
Right. Right.
Chris Picciurro (15:10):
But so yeah. So it's pretty cool. I mean, that
is a really nice nice benefit.So up to half a $1,000,000 of
capital. Yeah.
Now when you're calculatingthis, remember to include any
improvements that you had onyour house. And sometimes
someone buys a new home and theyput an addition on or they do
landscaping or they they youknow, anything like that, you
can add to the basis when you'refiguring out that gain.
John Tripolsky (15:35):
And, actually, before we skip a lot of that
too, Chris, if you don't if Ican ask you this. So how many
times in your career, you know,in your private practice have
you seen say somebody's doingtheir own tax prep. They're
using a DIY service. Mhmm. Andthen, you know, you get
introduced to them and you goyou're like, wow.
You just sold your house acouple years ago and you paid
capital gains to it. Do you haveyou seen that a lot in the past
(15:57):
where you have to really go backand do an amended return and get
get things?
Chris Picciurro (16:02):
We haven't had to do the people that we amended
a return because they paid taxon it. But a lot of times,
before someone's gonna selltheir homework, working through
the tax ramifications. First ofall, figuring out if it's even
gonna be over that threshold,and then if it does, how to plan
around it, especially over thelast few years in some of the
higher, area or some of theirgeographic areas that we've seen
(16:28):
a a large increase in househouse pricing. I've had quite a
few people that are over thehalf $1,000,000, which is Good.
I mean, good for you.
Right?
John Tripolsky (16:38):
Right. Awesome. No. As you can tell, I'm super
intrigued with that one. So I'mhovering around the 121.
So without further ado, let'skeep moving along here.
Chris Picciurro (16:48):
Alright. Number 4 gift from your friends with
the IRS.
John Tripolsky (16:55):
It's section 280
Chris Picciurro (16:55):
a, you're saying. Section 280 a, you're
saying. What the heck is that?The Augusta rule. Why is it
called the Augusta rule?
Well, the Augusta rule is namedafter Augusta, Georgia where the
Masters Golf Tournament takesplace every year. And have you
ever been to Augusta, Georgia,John? I'm wondering because you
were pretty close in Charleston.
John Tripolsky (17:16):
Yep. Yep. I've actually been through there a
couple of times. Obviously, notanywhere near the golf course
during the Masters, but youknow?
Chris Picciurro (17:25):
Well, it's it's there's not tons and tons of
hotels, and and a lot of timesthese golfers have a team of
people or families, so they rentout of a home. And what the gust
rule says is it says you canrent your so, yeah, there's a
couple applications. Let's talkabout the the bottom line is you
can rent your primary home, upto 14 days without having to pay
(17:49):
any tax on that rental income.So it's tax free rental income.
Right?
And it could work a coupledifferent ways. One, it could be
just somebody like, we've usedthis here in in Franklin. We've
had people because we had travelout of town for Thanksgiving and
Christmas. Excuse me. We've hadpeople during Thanksgiving rent
(18:09):
our house for a week.
And because there's only oneweek of the year, I don't have
to pay tax on our rental incomeunder the Augusta rule. So if
you own a home, you can rent itout for up to 14 days a year tax
free. So if you live in like,you know, you live near a
certain school that that I don'tcare for in Ann Arbor, Michigan.
John Tripolsky (18:29):
You're gonna say it. One day one day, you're
gonna say it. One day, I'll pryit out of you.
Chris Picciurro (18:35):
And when you they play football games. Right?
You could rent your house outevery home football game for the
weekend, or let's say you woulddo 4 of them for 2 nights or,
you know, whatever. Let's saythere's 6 of them at 2 nights
each, 12 nights, and pocket allthat money tax free if you want
it. Now the practical part isyou gotta get the family out,
(18:56):
get Cooper out of there, and andthat sort of stuff.
But for a lot of people, thencollege towns, near big
festivals, These areopportunities to do that.
Absolutely. About the Olympics.Like, if the when the Olympics
are gonna be going to LosAngeles, next summer Olympics, I
believe, there's gonna be a lotof opportunity there.
John Tripolsky (19:19):
Mhmm. Then What is this? So it's 14 or 15 days,
and it they don't have to beconsecutive. Just 15 days within
a calendar year.
Chris Picciurro (19:27):
It's up to 14. Yeah. Under 15, but up to 14
days. Correct.
John Tripolsky (19:31):
Awesome.
Chris Picciurro (19:32):
And it's tax free. And then there's another
more advanced application ofthis where, let's say, you own a
business and you utilize yourhome for business. The business
can rent the home out, at fairmarket value and pay no tax on
it, and the business gets adeduction. So an example of that
would be someone that that thatowns a business and has a
(19:55):
holiday party there. Let's sayyou have someone that is a that
is a business coach and theyhave retreats there, or what if
they're marriage counselors andthey have retreats at their
house?
You know, there there could be alot of different applications,
for that. You know, holidayparties, But I
John Tripolsky (20:15):
love that they come up with these names too.
Like, I I I would love to be ina meeting or some form where
they they name these wherethey're having, like, a really
structured, extremely seriousconversation. And then someone
goes, just name it. You know?Surprised they don't name it
like the, well, like the ComicCon rule or something.
You know? It's it could beanything.
Chris Picciurro (20:35):
Well, I was thinking that the gust rule I
wonder if there was a a someonefrom from Georgia then that,
came up with this.
John Tripolsky (20:44):
You know
Chris Picciurro (20:44):
what I mean? Maybe maybe if someone in the
house of representatives.
John Tripolsky (20:49):
And, like, some laws, right, or or bills that
passed, they're they're almostnamed, like, after the lawsuit
or something. Right? So maybesomebody got PO ed. They they
couldn't run out their house,you know, for, 20,000 a night,
which they probably get if theylive near, near that course. But
this is a great one too.
And and I like that you didkinda bring in the the other
(21:10):
side of it from, you know, thebusiness side of it because
that's another one. I mean, I'velearned that from you a while
back. That's another one I very,very, very rarely ever hear
anybody mention. You'll hear theAugusta rule mentioned a lot,
but very rarely how a businesscould take advantage of it,
which is extremely powerful.Right?
Chris Picciurro (21:28):
Remember your first condo in Charleston.
Right? Very desirable area. Youended up putting it on Airbnb,
but let's say you didn't youlive there all the time and it
just you know, you knew you'regonna come up to Michigan for a
couple weeks, in the summer toescape the heat and humidity
down there, and you rent and theonly time you rented that cat in
a while was for those 2 weeks.You could have pocketed that
(21:49):
cash.
It had been a pretty penny taxfree. Now once you converted
your property to an Airbnb andyou're remember, you're renting
it out more than 14 days. We hadto we had to really look at how
many personal use days versushow many rental days. It's just
to get the tax free treatment.It's that that, that 14 day
rule.
John Tripolsky (22:09):
Awesome. Awesome. Well, let's, my dad
joke. Here we go. You ready forready for my dad joke?
Oh, yeah. Let's take a swing atnumber 5.
Chris Picciurro (22:17):
Number 5. Right. The number
John Tripolsky (22:18):
5 joke There you go.
Chris Picciurro (22:21):
Is a step up. I know. That was that was that was
amazing. Well, Chris, the stepup in basis is number 5. You
might be saying, what's that?
Well, the step up in basis meansthat if you inherit an asset,
your cost basis on that asset isthe fair market value of the
asset the day you inherit it.What the person that that
(22:43):
basically, left it for you orpassed away, their basis is
irrelevant. So this is a hugeopportunity, and this even this
plays a role between spouses.There are special rules in the
states that have, that are,common law states, common law
marriage states. So let me letme give you an example, John.
(23:03):
Your your uncle. Right? We don'twanna knock out our parents yet.
Right? Your own distant uncle.
He lives in Texas somewhere.Many years ago, bought one share
of stock in, an oil company fora $100. Right? That stock share
(23:30):
is now worth $10,000. Your unclepasses away, and for some reason
the uncle remembered you andsaid, I leave to Johnny t this
one share of oil stock.
You get the share of oil stock,and you say, you know what? I
don't want this oil stock. Iwanna go take my daughter on a
(23:52):
shopping spree at American Girlstore.
John Tripolsky (23:54):
That stock ain't gonna get very far.
Chris Picciurro (23:56):
You're not gonna get far for the $10.
John Tripolsky (23:58):
Uh-uh. Nope.
Chris Picciurro (24:01):
And, oh, American Girl, if we're happy to
to have real sponsorshipopportunity on the show, and and
and, we'll retract thesestatements. We'll change our
tune. Yeah. We'll change ourtune. We'll pick on somebody
else.
You go, you sell it. Right? Andby the time you sell it, the
stock goes up to be worth a$100,200. Wait. No.
(24:23):
I said 10 I'm sorry. $10,200.You've got tax flow versus cash
flow. You got $10,200 in yourpocket. Your uncle paid,
wouldn't I say $100 for it?
John Tripolsky (24:33):
Yep. $100.
Chris Picciurro (24:33):
That's irrelevant. Your basis on the
stock is a fair market valuewhen you inherited it when he
passed away at $10,000. On yourtax return you're gonna report I
sold a share of oil stock for$10,200. My cost basis is
$10,000. You will pay tax on awhopping $200.
That's it. Mhmm. That's why alot of times you're gonna
John Tripolsky (24:56):
Oh, Oh, no. Go ahead. I'm sorry. I got you.
Yeah.
Chris Picciurro (24:58):
You're gonna hear people a lot of times say,
it's much better to inherit anasset than gift it. Because if
he would've gifted it it giftedit to you a day before he died,
you would've taken over his costbasis. You wouldn't have got the
step up in basis.
John Tripolsky (25:12):
And that's exactly what I was gonna ask
you. Right? Because sometimesyou might run it and not to
sound morbid at all. Right? Youmight have a a family member or
somebody or and they you know,they're they're on their last,
you know, run.
And they say, hey. I want you toI want you to have this. I wanna
make sure that you have this. Iwanna watch you have this kind
of deal, and then they gift itto you. You're you're in trouble
(25:36):
potentially.
Mhmm. And, I mean, I could Icould see that being an issue.
Say somebody got a, I mean, youknow, crazy scenario. Say
somebody was, you know, at amodest lifestyle, average
household income, and then theywere gifted a multi,
multimillion dollar home thathas, you know, been in the
(25:58):
family for eons. Right?
And they and they can't takeadvantage of that step up in
basis. That can cause a seriousproblem where it's like, don't
gift it to me. Like, kick thecan first and then give it to
you. And I get that, you know,there's some emotional ties in
that decision making process,but I love the way that you
described that as well too. It'slike the really the the pinnacle
(26:20):
or, if you will, the the fork inthe road is really once that
person is no longer an activeSocial Security number or
actively on the census, weshould say.
Chris Picciurro (26:30):
Right.
John Tripolsky (26:31):
Right.
Chris Picciurro (26:31):
So So those are the 5 gifts, man. And here's one
more thing and as we wrap it upon the step up in basis. We know
well, you know, because you golisten to this podcast. Long
term capital gains are taxed ata much less rate than short term
capital gains. The great thingabout inheriting something is
even if you don't own long termgains are triggered when you own
something for a year or more,any inherited property
(26:54):
automatically gets long termcapital gain treatment even if
you only owned it for 2 days orone day.
So you'll get that long termcapital gain treatment. And,
yeah, those are our 5 gifts fromIRS. So I hope that your gift
giving and giving season isgreat as well, and thank you so
much, for listening to thispodcast. We've been really we've
(27:16):
really enjoyed it. We enjoyeddoing it.
We've we're excited about a lotof new topics, and and if and,
again, run into the teachingtextile YouTube channel and hit
subscribe because we've got alot of other content on these 5
topics and more.
John Tripolsky (27:29):
Absolutely. And all the quick tips that are
rolling out there, little 60 to72nd, little tips, little reels
are are fantastic. We got intoendless amount of those. And
what we'll do too in the shownotes here, whether you're
watching this on YouTube orwherever you, you know,
subscribe to the podcast or evenjust listen to in the show
notes, we'll we'll go throughand we'll put links of previous,
episodes that touch on each ofthese because you might look at
(27:51):
and say, oh, you know, I'm notinterested in this one. But,
hey.
You know, I wanna learn moreabout the Augusta rule. We'll
put those links in there. Solook at the show notes. Direct
links are in there. And as Chrismentioned as well, you know, get
on YouTube, subscribe there.
Subscribe to the podcast if youhaven't already. You'll get a
notification. Usually, we dropthese things about 4 or 5 AM
every Tuesday. So think about itas something you can listen to
in, the way into work or put inyour headphones and let your
(28:14):
kids scream in the backgroundand pretend like you're
listening to them. Either way,it's, it's, we appreciate having
it, and hopefully, you enjoy theenjoy the content as well.
So everybody, you have a greatweek. We'll see you next week as
we do the very last podcast fromus for 2024. So we got a good
one coming up as we wrap it up,and we'll see everybody back
here again next week, roughlythe same time, different topic
(28:37):
on the Teaching Tax Clubpodcast.
Disclaimer (28:40):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(29:01):
securities. Offerings can onlybe made through an offering
memorandum and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
Welcome back to the podcast, everybody. Today,
episode 115. We are gonna diveinto the top 5 gifts from the
IRS. That's right. It's theholiday season. Are
they really in the, the seasonof giving? We're about to find
out. But before we do that,let's take a brief moment and
thank our episode sponsor.
Ad Read (00:29):
This podcast is brought to you by Legacy Lock. If you
are new to estate planning orsimply need to review your
current plan, Legacy Lock makesit as easy as pie. Legacy Lock
is a unique platform thatenables you to to easily
complete your attorney drafteddocuments conveniently from the
comfort of your home or office.Your first step to this peace of
mind is simply visiting teachingtax flow.com/legacy.
John Tripolsky (00:53):
Back here again on the podcast, as you heard of
the intro, seen in the title, oryou just read it or seen it
somewhere else, we're gonna talkabout those top 5 gifts. That's
right. Gifts, not gifts, j If's. As you know, you've
probably seen enough of those onsocial media over the past
decade. We're talking aboutgifts, presents from the IRS.
(01:15):
So we're gonna jump into these,and the good thing about these
is if you actually are a diehard subscriber of the podcast,
you've heard a little bit abouteach one of these as we've gone
along or, I should say,progressed along. But now we're
gonna run through them a littlebit more condensed version. And,
again, they're gifts. It'ssomething that the IRS is giving
you. It's up to you to use it.
(01:36):
So best guy we can always thinkof to tell us exactly how to do
this. My brother from anothermother, but he also has much
less hair. If anybody's watchingthis, you can kinda see I need
to I need to take a gift, givemyself a gift, and go to the
barber. But, Chris Pacquero,how's it going, brother?
Chris Picciurro (01:54):
It's going well. Happy holidays, and I know
that I'm on Santa's good list. Ican't I can't speak for you, but
I know I'm on Santa's good list.You know? And,
John Tripolsky (02:04):
I'm I'm at, like, 80%, I'd say. I got, you
know, there's always room forimprovement. Right? So
Chris Picciurro (02:10):
Well, I would say that I'm definitely on the
good list, and and since it is aholiday season, that was the
inspiration for this podcastepisode, and the IRS doesn't
give us too many gifts. But Iwanted to identify my 5 favorite
gifts that the IRS gives us, andthese gifts are good because
they're not specifically forcertain high income or high net
(02:34):
worth people. These are giftsthat any almost anyone can use.
And, I'm excited about that andyou might say, well, what do you
mean that what is a gift in yourmind? A gift is when, in the
teaching tax law system, we callthis a a goal diagnosis, but a
gift is when you get some typeof financial benefit and don't
have to pay tax on it.
(02:55):
Think about like that. That'svery rare. Right? Typically, we
have to pay tax on it. We'resupposed to pay tax on all of
our income.
John Tripolsky (03:03):
And I love that you came up with this title
because it is it's somethingthat I wouldn't say they're so
easy, but these are all pre andwe reviewed these obviously
before we talked about them.There's something that so many
people can take advantage of,and and here I am staring down
at at number 1 here. I'll letyou say what it is. I'm not
gonna spoil it for you. It's ait is amazing to me how many
(03:25):
people don't know about these.
So, basically, this is our gift.We've been gifted the gift to
regift to the community. Solet's run through these things,
shall we?
Chris Picciurro (03:34):
Yeah. I've and I've used 4 of the 5. Thank
goodness I haven't used the 5thone yet. So which I'll which I
will explain. So yeah.
So the first one was gonna beand and like you said, John,
many of these, there's actuallyadditional content. All of
these, there's additionalcontent on the teaching tax flow
YouTube channel. Many have theirown tax TTF podcast episodes.
(04:00):
But the first one's gonna be the1031 exchange. This is one we've
used.
What that means is that section1031 of the tax code allows you
to sell real estate at a gainand defer any payment of the tax
on that gain if you reinvest itinto like kind property. And
(04:24):
like kind property, there is apretty general concept. Right?
So you can sell, like,commercial property and buy
residential property. You cansell an apartment complex and go
and buy 5 or 6 short term rentalproperties.
The key is though, now we haveto remember with the 10/31
exchange, is that you can't takecash to complete a full
(04:45):
exchange. You can't take cash orwhat they call boot out of the
deal. You have to and you can'tput the money, from the exchange
in your bank account. You haveto use a qualified intermediary
or QI. So the the process lookslike this.
I go to sell my property. Ibefore I close, I contact a
qualified intermediary. Let themknow I I'm gonna do a 10 30 one
(05:07):
exchange. My property sells. Thefunds from my property get wired
right to the qualifiedintermediary for my benefit.
So it's kinda like an escrowaccount or trust account in a
way, and they sit there until Ibuy replacement property. Now
there are rules for replacementproperty. You've got to identify
the replacement property within45 days. You've got to close
within a 180, and that'ssomething that you're gonna work
(05:30):
with your qualified intermediaryand your real estate
professionals. And the point is,if you can defer any of the
gain, that's pretty attractive.
Right? And you just deploy itinto a different asset class.
And this one actually could getpaired with our final one, but
that it, but, yeah, the 10 30one exchange is really a gift
(05:50):
from the IRS.
John Tripolsky (05:52):
And, really, with this one, Chris, too. So,
you know, anybody that'slistening to this, you know, we
talk about capital gains a lotbecause that that is a let's put
it what it is. That is a giantkick in the you know what if you
don't see it coming. Right? Soif somebody you know, say you're
listening to this and you say,oh, well, I don't really know
what capital gains is.
Go go do a little research onit. I mean and, honestly, Chris,
(06:15):
I don't know if we've actuallyreally broken down too much on a
specific episode that I canthink of of what exactly it is.
So may maybe that's something welook in the future, but my my
little advice to anybody on thisone again, you know, I Chris
brings the knowledge. I bringthe I don't know. I'll figure
out what I bring one day.
But, get a good grasp of whatcapital gains are or is, and
(06:36):
then you will immediatelyrealize how powerful a 10 30 one
exchange is. So it's kinda likea secret weapon, but a lot of
people don't know about it.Right?
Chris Picciurro (06:44):
Absolutely. No. It's it's it's a really powerful
tool. So I'll I, I've used itmyself, and in in, you know,
practically speaking that itcould the exchange could
straddle over a year. So, again,work with a tax professional,
work with the people that youneed to work with to make this
happen.
If you're in a situation whereyou're selling property and you
don't need the cash and youwanna deploy it into something
(07:06):
else real estate related, thiscould be a great opportunity for
you. So that's number 1.
John Tripolsky (07:12):
And here's a bad example of that of what not to
do is it's not like you callingyour significant other or
saying, hey. I'll call you on myway home and you forget to call
them and then you get home andthey're mad at you. You if
you're too late to start at10:31 in your process, you can't
go back. So you need to toinitiate that early on. So
Chris Picciurro (07:33):
alright. It's interesting, though. There are
reverse 1031 exchanges where youactually buy the replacement
property before you sell theproperty because sometimes you
have timing issues. But but youcan't but if once you close on a
property and put the money inyour account, you can't do the
1031 exchange. So definitelytalk to a QI qualified
intermediary.
(07:54):
Number 2, health savingsaccounts. I know I talk about
these a lot. They arephenomenal. They've got they
they are what we call the thethe a triangle tool. Right?
3 a triple tax advantage tool.It's kinda like a remember those
old well, that was an thoseninjas, that was like a
(08:15):
triangle, you know, that the,
John Tripolsky (08:18):
Oh, the little Chinese star?
Chris Picciurro (08:21):
Yeah. So that's a star, but a triangle. What do
I mean by 3 3 triple taxadvantage tool? 1, when you
contribute to a health savingsaccount, you get a tax deduction
for that in the year youcontribute. So that's a tax
that's a tax deduction.
You actually have until April15th, just like an IRA, to
contribute to the house savingsaccount, and count it for the
(08:43):
previous year.
John Tripolsky (08:45):
So you
Chris Picciurro (08:45):
have April 15th and count it for the previous
year. So that's number 1. Number2, the money grows tax deferred.
So you could have your HSA couldbe invested in savings. You
could actually buy CDs.
Some people just leave it in achecking account, but most
people want it to grow. Right?And in earn money. So all of the
income you receive from it, aslong as it's in the health
(09:07):
savings account, is taxdeferred. Part 3, when you take
a distribution from the healthsavings account, that is tax
free.
As long as the distribution isused for medical expenses. So
that is the 3 pronged healthsavings account. Think about it
(09:29):
this way. You get a deductionfor putting the money in, the
money grows tax deferred, and itgets taken out in a in a
qualified distribution tax free.
John Tripolsky (09:40):
That's a beautiful one. That's beautiful.
Hopefully, you never need it,but if you do, it's there.
Chris Picciurro (09:48):
Well, later on in life, you could actually use
it to pay your Medicarepremiums. There's a ton of
flexibility now with thosehealth savings account assets.
So I hope you do need it in away that means you've lived long
enough to use that. I mean,we're all gonna have medical
expenses at some point. Right?
John Tripolsky (10:02):
So Absolutely.
Chris Picciurro (10:03):
But yeah. So that is, that's that is number
2. Number 3, the section 121exclusion. What the heck is
that? AKA, this is the capitalgain exclusion from the sale of
a primary residence.
So if you have a primaryresidence and it's been your
(10:26):
primary residence 2 out of thelast 5 years before you sell it,
you could typically exclude thecapital gain from being taxable.
Now there are certain rules, ifyou've used it as a rental
property in the past, if you,there there could be unique
situations. But for the vastmajority of people, this is the
(10:48):
primary residence exclusion orsection 121 exclusion. If you
are married filing jointly, youcan exclude up to a half a
$1,000,000 of capital gain. Allothers can exclude $250,000 of
capital gain.
So this is one of those threelaws of teaching tax flow. We
talk about tax flow and cashflow are different. So I'll give
(11:09):
you an example, John. Let'spretend you bought a home, where
do you wanna move, John? Ialways shouldn't say that, but
let's say you move to where arewe gonna put you?
John Tripolsky (11:20):
Well, let's say, somewhere in Montana. Stick me
out there for a while.
Chris Picciurro (11:25):
Ute, Montana or something. Cyan or I do.
Whatever. You buy a home inMontana for for for $400,000.
Right?
And you we have a $300,000mortgage. You live there for for
10 years. The property goes upin value to $800,000. Let's
(11:46):
assume you're married, and let'ssay you paid the mortgage down
to $100,000. Are you with me?
So when you sell that property,you have $800,000 it's worth,
minus $100,000 of mortgage, youwalk away with $700,000 This is
where cash flow and tax flowcome in. You might be saying,
because this happens all thetime in the teaching tax flow
(12:06):
community, awesome. I have thishouse. I could just walk away
with 700,000. I know the first500,000 is tax free, so I have
to pay tax on 200.
Actually, the news is betterthan that. Your basis in the
house, meaning what you paid forit, is 400. You sold it for 800.
So you have a $400,000 capitalgain, which is less than the
(12:27):
exclusion of $500,000. So theentire $700,000 you walk away
with is tax free.
That's the section 121exclusion.
John Tripolsky (12:35):
And this one's so interesting to me. And,
honestly, like, I I really don'tknow it. I know we talk about
this. I you know, the concept. Idon't know a lot of the details
on this one.
So so here's a question too.Like, I I'm gonna feel that the
older generation, they tend tostay in their homes a lot
longer. So without getting into,number 5, which we're gonna talk
about. I don't wanna say what itis. We're gonna we'll leave that
(12:57):
as
Chris Picciurro (12:57):
a small cliffhanger.
John Tripolsky (12:59):
So with this, though, I mean, what's the is
there a caveat to this at all?Like, is this is there any
recapture or anything anywheredown the line, or is this
basically truly a gift from theIRS that some people just may
not know to take advantage ofjust like this. Gift.
Chris Picciurro (13:14):
Now you can only use this once every 2
years. Okay. If you're not therethe entire 2 years, there could
be unforeseen circumstances andI mean, we I think we have a
whole podcast episode just onthis topic alone. So yeah. No.
It's just the gift from theirs.It's commonly thought by many of
the tax planners out there thatthis section 121 exclusion was
put in the law because of 2years is the is the term for
(13:38):
someone in the house ofrepresentatives. Just think
about this, John. You now livein Montana, not Wyoming. So I
was wrong.
I'm like, you live now inMontana. You become popular as
normal, and you get elected tothe house of representatives.
Good for you. You move toWashington DC and you buy a
(14:02):
home. You serve your 2 yearterm.
You still have your house inMontana. Right? You still but,
you know, you used to serve your2 year term, and you do a
terrible job, and you don't getreelected. Sorry to hear that.
You then sell your house inWashington DC after living there
2 years, but because of markethas gone up, you make $200,000
(14:26):
as a parting gift, like someloser on a on a game show.
You get to walk away with aparting gift of a $200,000
capital gain excluded from taxand go back to the house you
lived in on Montana. And you aslong as you stay in that house
for the next 2 years, you can gosell that one and get another
121 exclusion because the ruleis you've got a you can only you
(14:47):
can only be claimed once every 2years.
John Tripolsky (14:50):
So, really, with that being tied to politics,
it's kinda like the powers thatbe. It's probably pretty safe to
say that this isn't gonna changefor a while
Chris Picciurro (14:59):
Right.
John Tripolsky (14:59):
If that's the case.
Chris Picciurro (15:00):
No. I don't think this is gonna change. In a
lot of times, you sell yourhouse to the next next person
that's gonna be in the house ofrepresentatives.
John Tripolsky (15:09):
Right. Right.
Chris Picciurro (15:10):
But so yeah. So it's pretty cool. I mean, that
is a really nice nice benefit.So up to half a $1,000,000 of
capital. Yeah.
Now when you're calculatingthis, remember to include any
improvements that you had onyour house. And sometimes
someone buys a new home and theyput an addition on or they do
landscaping or they they youknow, anything like that, you
can add to the basis when you'refiguring out that gain.
John Tripolsky (15:35):
And, actually, before we skip a lot of that
too, Chris, if you don't if Ican ask you this. So how many
times in your career, you know,in your private practice have
you seen say somebody's doingtheir own tax prep. They're
using a DIY service. Mhmm. Andthen, you know, you get
introduced to them and you goyou're like, wow.
You just sold your house acouple years ago and you paid
capital gains to it. Do you haveyou seen that a lot in the past
(15:57):
where you have to really go backand do an amended return and get
get things?
Chris Picciurro (16:02):
We haven't had to do the people that we amended
a return because they paid taxon it. But a lot of times,
before someone's gonna selltheir homework, working through
the tax ramifications. First ofall, figuring out if it's even
gonna be over that threshold,and then if it does, how to plan
around it, especially over thelast few years in some of the
higher, area or some of theirgeographic areas that we've seen
(16:28):
a a large increase in househouse pricing. I've had quite a
few people that are over thehalf $1,000,000, which is Good.
I mean, good for you.
Right?
John Tripolsky (16:38):
Right. Awesome. No. As you can tell, I'm super
intrigued with that one. So I'mhovering around the 121.
So without further ado, let'skeep moving along here.
Chris Picciurro (16:48):
Alright. Number 4 gift from your friends with
the IRS.
John Tripolsky (16:55):
It's section 280
Chris Picciurro (16:55):
a, you're saying. Section 280 a, you're
saying. What the heck is that?The Augusta rule. Why is it
called the Augusta rule?
Well, the Augusta rule is namedafter Augusta, Georgia where the
Masters Golf Tournament takesplace every year. And have you
ever been to Augusta, Georgia,John? I'm wondering because you
were pretty close in Charleston.
John Tripolsky (17:16):
Yep. Yep. I've actually been through there a
couple of times. Obviously, notanywhere near the golf course
during the Masters, but youknow?
Chris Picciurro (17:25):
Well, it's it's there's not tons and tons of
hotels, and and a lot of timesthese golfers have a team of
people or families, so they rentout of a home. And what the gust
rule says is it says you canrent your so, yeah, there's a
couple applications. Let's talkabout the the bottom line is you
can rent your primary home, upto 14 days without having to pay
(17:49):
any tax on that rental income.So it's tax free rental income.
Right?
And it could work a coupledifferent ways. One, it could be
just somebody like, we've usedthis here in in Franklin. We've
had people because we had travelout of town for Thanksgiving and
Christmas. Excuse me. We've hadpeople during Thanksgiving rent
(18:09):
our house for a week.
And because there's only oneweek of the year, I don't have
to pay tax on our rental incomeunder the Augusta rule. So if
you own a home, you can rent itout for up to 14 days a year tax
free. So if you live in like,you know, you live near a
certain school that that I don'tcare for in Ann Arbor, Michigan.
John Tripolsky (18:29):
You're gonna say it. One day one day, you're
gonna say it. One day, I'll pryit out of you.
Chris Picciurro (18:35):
And when you they play football games. Right?
You could rent your house outevery home football game for the
weekend, or let's say you woulddo 4 of them for 2 nights or,
you know, whatever. Let's saythere's 6 of them at 2 nights
each, 12 nights, and pocket allthat money tax free if you want
it. Now the practical part isyou gotta get the family out,
(18:56):
get Cooper out of there, and andthat sort of stuff.
But for a lot of people, thencollege towns, near big
festivals, These areopportunities to do that.
Absolutely. About the Olympics.Like, if the when the Olympics
are gonna be going to LosAngeles, next summer Olympics, I
believe, there's gonna be a lotof opportunity there.
John Tripolsky (19:19):
Mhmm. Then What is this? So it's 14 or 15 days,
and it they don't have to beconsecutive. Just 15 days within
a calendar year.
Chris Picciurro (19:27):
It's up to 14. Yeah. Under 15, but up to 14
days. Correct.
John Tripolsky (19:31):
Awesome.
Chris Picciurro (19:32):
And it's tax free. And then there's another
more advanced application ofthis where, let's say, you own a
business and you utilize yourhome for business. The business
can rent the home out, at fairmarket value and pay no tax on
it, and the business gets adeduction. So an example of that
would be someone that that thatowns a business and has a
(19:55):
holiday party there. Let's sayyou have someone that is a that
is a business coach and theyhave retreats there, or what if
they're marriage counselors andthey have retreats at their
house?
You know, there there could be alot of different applications,
for that. You know, holidayparties, But I
John Tripolsky (20:15):
love that they come up with these names too.
Like, I I I would love to be ina meeting or some form where
they they name these wherethey're having, like, a really
structured, extremely seriousconversation. And then someone
goes, just name it. You know?Surprised they don't name it
like the, well, like the ComicCon rule or something.
You know? It's it could beanything.
Chris Picciurro (20:35):
Well, I was thinking that the gust rule I
wonder if there was a a someonefrom from Georgia then that,
came up with this.
John Tripolsky (20:44):
You know
Chris Picciurro (20:44):
what I mean? Maybe maybe if someone in the
house of representatives.
John Tripolsky (20:49):
And, like, some laws, right, or or bills that
passed, they're they're almostnamed, like, after the lawsuit
or something. Right? So maybesomebody got PO ed. They they
couldn't run out their house,you know, for, 20,000 a night,
which they probably get if theylive near, near that course. But
this is a great one too.
And and I like that you didkinda bring in the the other
(21:10):
side of it from, you know, thebusiness side of it because
that's another one. I mean, I'velearned that from you a while
back. That's another one I very,very, very rarely ever hear
anybody mention. You'll hear theAugusta rule mentioned a lot,
but very rarely how a businesscould take advantage of it,
which is extremely powerful.Right?
Chris Picciurro (21:28):
Remember your first condo in Charleston.
Right? Very desirable area. Youended up putting it on Airbnb,
but let's say you didn't youlive there all the time and it
just you know, you knew you'regonna come up to Michigan for a
couple weeks, in the summer toescape the heat and humidity
down there, and you rent and theonly time you rented that cat in
a while was for those 2 weeks.You could have pocketed that
(21:49):
cash.
It had been a pretty penny taxfree. Now once you converted
your property to an Airbnb andyou're remember, you're renting
it out more than 14 days. We hadto we had to really look at how
many personal use days versushow many rental days. It's just
to get the tax free treatment.It's that that, that 14 day
rule.
John Tripolsky (22:09):
Awesome. Awesome. Well, let's, my dad
joke. Here we go. You ready forready for my dad joke?
Oh, yeah. Let's take a swing atnumber 5.
Chris Picciurro (22:17):
Number 5. Right. The number
John Tripolsky (22:18):
5 joke There you go.
Chris Picciurro (22:21):
Is a step up. I know. That was that was that was
amazing. Well, Chris, the stepup in basis is number 5. You
might be saying, what's that?
Well, the step up in basis meansthat if you inherit an asset,
your cost basis on that asset isthe fair market value of the
asset the day you inherit it.What the person that that
(22:43):
basically, left it for you orpassed away, their basis is
irrelevant. So this is a hugeopportunity, and this even this
plays a role between spouses.There are special rules in the
states that have, that are,common law states, common law
marriage states. So let me letme give you an example, John.
(23:03):
Your your uncle. Right? We don'twanna knock out our parents yet.
Right? Your own distant uncle.
He lives in Texas somewhere.Many years ago, bought one share
of stock in, an oil company fora $100. Right? That stock share
(23:30):
is now worth $10,000. Your unclepasses away, and for some reason
the uncle remembered you andsaid, I leave to Johnny t this
one share of oil stock.
You get the share of oil stock,and you say, you know what? I
don't want this oil stock. Iwanna go take my daughter on a
(23:52):
shopping spree at American Girlstore.
John Tripolsky (23:54):
That stock ain't gonna get very far.
Chris Picciurro (23:56):
You're not gonna get far for the $10.
John Tripolsky (23:58):
Uh-uh. Nope.
Chris Picciurro (24:01):
And, oh, American Girl, if we're happy to
to have real sponsorshipopportunity on the show, and and
and, we'll retract thesestatements. We'll change our
tune. Yeah. We'll change ourtune. We'll pick on somebody
else.
You go, you sell it. Right? Andby the time you sell it, the
stock goes up to be worth a$100,200. Wait. No.
(24:23):
I said 10 I'm sorry. $10,200.You've got tax flow versus cash
flow. You got $10,200 in yourpocket. Your uncle paid,
wouldn't I say $100 for it?
John Tripolsky (24:33):
Yep. $100.
Chris Picciurro (24:33):
That's irrelevant. Your basis on the
stock is a fair market valuewhen you inherited it when he
passed away at $10,000. On yourtax return you're gonna report I
sold a share of oil stock for$10,200. My cost basis is
$10,000. You will pay tax on awhopping $200.
That's it. Mhmm. That's why alot of times you're gonna
John Tripolsky (24:56):
Oh, Oh, no. Go ahead. I'm sorry. I got you.
Yeah.
Chris Picciurro (24:58):
You're gonna hear people a lot of times say,
it's much better to inherit anasset than gift it. Because if
he would've gifted it it giftedit to you a day before he died,
you would've taken over his costbasis. You wouldn't have got the
step up in basis.
John Tripolsky (25:12):
And that's exactly what I was gonna ask
you. Right? Because sometimesyou might run it and not to
sound morbid at all. Right? Youmight have a a family member or
somebody or and they you know,they're they're on their last,
you know, run.
And they say, hey. I want you toI want you to have this. I wanna
make sure that you have this. Iwanna watch you have this kind
of deal, and then they gift itto you. You're you're in trouble
(25:36):
potentially.
Mhmm. And, I mean, I could Icould see that being an issue.
Say somebody got a, I mean, youknow, crazy scenario. Say
somebody was, you know, at amodest lifestyle, average
household income, and then theywere gifted a multi,
multimillion dollar home thathas, you know, been in the
(25:58):
family for eons. Right?
And they and they can't takeadvantage of that step up in
basis. That can cause a seriousproblem where it's like, don't
gift it to me. Like, kick thecan first and then give it to
you. And I get that, you know,there's some emotional ties in
that decision making process,but I love the way that you
described that as well too. It'slike the really the the pinnacle
(26:20):
or, if you will, the the fork inthe road is really once that
person is no longer an activeSocial Security number or
actively on the census, weshould say.
Chris Picciurro (26:30):
Right.
John Tripolsky (26:31):
Right.
Chris Picciurro (26:31):
So So those are the 5 gifts, man. And here's one
more thing and as we wrap it upon the step up in basis. We know
well, you know, because you golisten to this podcast. Long
term capital gains are taxed ata much less rate than short term
capital gains. The great thingabout inheriting something is
even if you don't own long termgains are triggered when you own
something for a year or more,any inherited property
(26:54):
automatically gets long termcapital gain treatment even if
you only owned it for 2 days orone day.
So you'll get that long termcapital gain treatment. And,
yeah, those are our 5 gifts fromIRS. So I hope that your gift
giving and giving season isgreat as well, and thank you so
much, for listening to thispodcast. We've been really we've
(27:16):
really enjoyed it. We enjoyeddoing it.
We've we're excited about a lotof new topics, and and if and,
again, run into the teachingtextile YouTube channel and hit
subscribe because we've got alot of other content on these 5
topics and more.
John Tripolsky (27:29):
Absolutely. And all the quick tips that are
rolling out there, little 60 to72nd, little tips, little reels
are are fantastic. We got intoendless amount of those. And
what we'll do too in the shownotes here, whether you're
watching this on YouTube orwherever you, you know,
subscribe to the podcast or evenjust listen to in the show
notes, we'll we'll go throughand we'll put links of previous,
episodes that touch on each ofthese because you might look at
(27:51):
and say, oh, you know, I'm notinterested in this one. But,
hey.
You know, I wanna learn moreabout the Augusta rule. We'll
put those links in there. Solook at the show notes. Direct
links are in there. And as Chrismentioned as well, you know, get
on YouTube, subscribe there.
Subscribe to the podcast if youhaven't already. You'll get a
notification. Usually, we dropthese things about 4 or 5 AM
every Tuesday. So think about itas something you can listen to
in, the way into work or put inyour headphones and let your
(28:14):
kids scream in the backgroundand pretend like you're
listening to them. Either way,it's, it's, we appreciate having
it, and hopefully, you enjoy theenjoy the content as well.
So everybody, you have a greatweek. We'll see you next week as
we do the very last podcast fromus for 2024. So we got a good
one coming up as we wrap it up,and we'll see everybody back
here again next week, roughlythe same time, different topic
(28:37):
on the Teaching Tax Clubpodcast.
Disclaimer (28:40):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(29:01):
securities. Offerings can onlybe made through an offering
memorandum and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
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