Question: I sold my house. Is buying another house the only way I won’t have to pay so much in taxes?
-Inez R., Brooklyn, New York
Answer: There used to be a rule that you could avoid any tax if you rolled over your proceeds from a sale into a new home of equal or greater value. But that’s not how it works today.
There’s a good chance you may not owe any tax on your sale, based on cur- rent law. For starters, you are eligible for a big federal tax break when you sell your home. There is no tax at all if you sell your home and your profit—the capital gain—is less than $250,000. If you are married, the capital gains exclusion is $500,000. The one catch is that the home must have been your primary resi- dence (not a vacation home) and you must have lived in it for at least two of the past five years.
It’s important to understand that what you paid for the house is just the starting point for figuring out your profit. You can also add to it the cost of any work you did to the house that improved or extended the life of the house. This is called the adjusted cost basis. Subtract that amount from your sale price. If it’s below $250,000/$500,000, you do not owe any capital gains tax.
If your profit is above those limits, you owe capital gains tax—but only on the amount that is above $250,000/ $500,000. You can learn more about the tax rules when selling a home in IRS Publication 523 (irs.gov/pub/irs-pdf/ p523.pdf ).
Question: I would like to know at what age does my husband have to withdraw money from his 401(k). He is 67 years old.
-Magda E., Knoxville, Tennessee
Answer: Money invested in a traditional 401(k) is subject to required minimum distribu- tions (RMDs) imposed by the Internal Revenue Service. The general rule is that you must begin to take RMDs by April in the year following when you turn 70 1/2, and then take annual RMDs every sub- sequent year.
One exception is if your husband is still working for the company where he has his 401(k). He may be able to delay taking RMDs on a 401(k) from a current employer until April after the year he retires, but he will need to check with the plan. Any 401(k)s from old jobs are not exempt;thoseRMDsmuststartat701/2.
If you also have traditional IRAs, there is no way to delay RMDs past age 70 1/2.