Question About TIPRA

Q: I just read that the TIPRA act states that people in the 10 or 15% tax brackets can sell assets without paying capital gains in 2008. Can this be true?

My 75-year-old mother (good health) is planning on building an in-law suite, which will connect to my house, and she will need to sell securities to come up with the 140K it will cost her.

Without considering assets, she is "low-income", making only... 20K from social security and dividend income (no substantial pension or other benefits), but the asset sale would throw her into another tax bracket for the year (or so I thought), causing her to lose prescription benefits (another issue complicating matters!!).

Any advice/guidance on what to sell (she has several long-held blue chips, mutual funds held for various periods). I'm not sure where to start! Given that people live so long these days, I'd like her money to be invested in such a way that it keeps growing at a decent rate (double digits??).

She also wants to gift some money to my kids for a 529... any thoughts?

I feel like I need to be in a room with a personal advisor, a elder attorney!

A: There are a few different ways to look at this.

First, she wants to put up the money to build onto your home. If her name isn't going to be on the deed (tenents in common with the appropriate % ownership), then the money she would put toward it will be considered a gift.

That gets into some issues with the annual limit of $12k per person per year on gifts. If there aren't state gift tax issues, the Federal gift taxes can be avoided by her filing the correct tax forms.

If it's a gift, then it would affect Medicaid eligibility were she to apply for it within 5 years.

Second, you should talk to a tax person about the tax situation on selling the securities. Since it would be considered capital gains it may not affect her tax bracket and her limited income may mean she only pays 5 or 10% in capital gains tax.

Third, another possibility (if selling the securities causes problems) would be for her to borrow the money to build the addition and to use income/sale of investments each year to cover the payment. There is still the gift/ownership issue with this option.

I hope this helps and I would be happy to review any investments and make suggestions on how her money can continue to work for her.

Your posted comments on this and other questions are welcome.
If you have a question for Jeff an answer is just a click away.
Find a wealth of information at Jeff's website.