The year something changed.
A house sold, a parent’s estate, a divorce, a death, a first year of retirement. On these returns the tax turns on basis, timing, and filing status more than on how much came in. A decision made in the moment is often locked in by the time anyone looks at it.
Five events, five different rules.
Each of these changes what a return looks like.
Selling the House: the Sale-of-Home Exclusion
The exclusion is not automatic and it is not unlimited. Rental use, a past home office, or the timing of the sale can change it.
Inheriting Property: Step-Up Basis
Basis steps to the value at the date of death. Document that value now; the alternative years later is reconstruction.
Divorce, Alimony & the Year Filing Status Changes
Filing status turns on year-end marital status, and an equal split of value is not always an equal split of after-tax value.
The Final Return After a Death
A final return for the person, a Form 1041 if the estate has income, and filing-status options for the survivor.
Retirement, Social Security, Pensions & RMDs
Social Security taxability depends on other income, which makes the order of withdrawals a real decision.
Where a Valuation Is Needed
Some of these events need a number attached to a business or an interest in one: an estate, a buy-out, a property settlement. We perform that as a calculation engagement, which results in a calculated value. Where a matter requires a valuation engagement or a credential this firm does not hold, we say so and coordinate rather than overstate what we can sign. See business valuation.
Questions people ask in a year like this.
Do I owe tax when I sell my house?
Often not, or not on all of it. A gain on a primary residence can be excluded within statutory limits when ownership and use tests are met. The situations that change the answer are rental periods, a previously claimed home office, a sale before the use test is satisfied, or a gain above the limit. It is worth checking before you assume either way.
What is stepped-up basis on inherited property?
Inherited property generally takes a new basis equal to its value at the date of death rather than what the person who died originally paid. That can substantially reduce or eliminate gain on a later sale. The practical issue is documentation. Establishing that value contemporaneously is far easier than proving it years afterward.
How does divorce change my tax return?
Filing status turns on marital status at the end of the year, so the timing of a decree matters. Transfers of property between spouses incident to divorce are generally not taxable at the time, but the receiving spouse takes the existing basis. Two assets of equal current value can have very different after-tax values. Alimony treatment depends on when the agreement was executed.
What returns are needed after a spouse dies?
Generally a final individual return covering the year of death, and separately a Form 1041 for the estate if it has income while administration is open. Which items belong on which return depends on timing. A surviving spouse may also have filing-status options in the years that follow that are worth planning around.
When do required minimum distributions start?
RMDs begin at an age set by statute, and the age has changed with recent legislation, so the answer depends on birth year. Shortfalls carry a penalty. Because Social Security taxability also depends on total income, the order and size of withdrawals is a planning question rather than a purely administrative one.