Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Knowing the step-up basis can help clients curb the tax impact when selling their homes, according to Huffington Post. Capital gains of up to $250,000 for individuals or $500,000 for couples will be exempted from tax, provided the property involved has been the seller's primary home for two of the five years before closing the deal. The step-up in home basis should be considered when selling the property especially if the home value has appreciated or depreciated considerably over time, and hiring a professional can help how the step-up basis can be applied to reduce the tax liability. -- Huffington Post
While 529 plans are exempt from federal taxes, clients who consider investing in college-savings plans are advised to consider the state-specific tax benefits of these plans before deciding whether to stay in-state or pick an outside 529 plan, according to Morningstar. State-specific tax benefits will spell the difference among 529 plan options that share similar investment merits but have differing fees, or plans with the sane fees but less-competitive investment choices. Clients have the best incentives to stay if their 529 plan's tax benefit is equivalent to at least 5% of their investment in the first year. -- Morningstar
Tax-loss harvesting is a strategy that clients can use to make market volatility work in their favor, according to the Christian Science Monitor. Such a strategy will enable them to reduce their capital gains tax by selling a losing security and use the loss to offset any investment gain. An IRA conversion is another strategy that can be useful for clients amid volatile markets since income taxes generated by the conversion will be smaller because of decline in stock prices. -- Christian Science Monitor
Aside from building emergency funds, maxing out retirement plan contributions and investing in a Roth account, clients who have 20 years before retirement need to allocate assets across taxable, tax-deferred and tax-free accounts to create tax diversification and build a well-balanced investment portfolio, according to Yahoo Finance. Those who have 10 years before retiring are advised to achieve tax efficiency in their investments and determine their tax obligations with their portfolio and gain from their savings using tax optimization strategies. -- Yahoo Finance
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