Clear View Wealth Advisors, LLC
Managing Member / Financial Planner
As a CERTIFIED FINANCIAL PLANNER ™ Professional, Steve Stanganelli has been providing financial, tax, retirement and college funding advice for more than 30 years to individuals, families and business owners throughout Greater Boston, the Merrimack Valley and New Hampshire Seacoast.
Professionally, Steve sees himself as a financial coach or navigator. His role is to help clients navigate the sea of confusion that is personal finance. He has worked hard to develop his experience and assemble the kinds of tools that are needed to help his clients with a variety of financial challenges including divorce, funding college tuition, and building efficient portfolios for long-term investing goals.
In his professional work, Steve is humbled knowing that people entrust him with their hard-earned wealth — regardless of the amount — or seek his guidance on any number of life-changing issues that can affect their personal bottom line. He finds it rewarding and humbling each time a client entrusts him not just with their money to manage but their dreams. Like many of his peers, Steve is a member of the “Sandwich Generation” helping to care for elderly parents while raising a family of his own.
Steve knows what it feels like trying to deal with the frustrating details of Medicare and the Part D “donut hole.” He knows what it feels like to juggle the responsibilities as an elder care giver with the demanding schedule of school-age kids. Steve knows all too well the sense of loss created by an unexpected corporate downsizing or downturn in business or sudden death of a loved one.
Like many of you who may read this, Steve leads a complex life – husband, father, son, homeowner, landlord, professional by day, weekend athlete (road cyclist). He can relate to the challenges his clients have faced or will meet. And he genuinely wants to share his insights, experience, and training to help others make the most with their lives.
Initially, Steve was a registered representative affiliated with an independent broker-dealer. Then he affiliated with a national wire house broker completing their extensive training programs and using the opportunity to complete the educational requirements for both of Steve's financial planning designations. Ultimately, Steve decided that he did not fit into the culture of a broker-dealer and turned toward more fee-only planning-oriented firms. In 2010 he consolidated his practice into his own firm, a state-registered investment advisor, to offer flexible financial and tax planning services as well as low-cost ETF investing solutions.
BA, Economics, University of Massachusetts at Lowell
MS, Finance, Bentley University
Assets Under Management:
As an owner of investment real estate, you'e decided to sell. But unlocking the value and turning it into cash can also result in a large tax bill especially if your asset has appreciated since your initial investment back in the 1980s.
First things first: Since you no longer occupy the property as your primary residence, you cannot use the Section 121 exemption of $500,000 over basis (married filing jointly) to shield yourself from a capital gain tax liability.
Second, you could add someone to the title and that person would need to occupy as his primary residence for two of the last five years. So, no, he wouldn't need to live there for five years.
Third, if you choose not to live in the property while your son does, you each must apply Section 121 individally. If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Each of you applies the rules on Section 121 found in IRS Publication 523 on an individual basis. So, unless you move back into the property for at least two years out of the past five, then you won't be sheltering any of the gain for your portion of the property.
Now, you may think it's hopeless and you should just pay the tax. While that is an option there are innovative strategies available to you if you want to lower your income tax bill when you sell and investment property (or business for that matter).
Typically, when a business or real estate owner sells they will need to deal with capital gains tax, state taxes, depreciation recapture and, in some cases, the alternative minimum tax. But through savvy tax and estate planning, you can take advantage of opportunities in the tax code to minimize your current tax liability while allowing you the flexibility to control the sale proceeds.
Real estate investors can use a 1031 Exchange, a provision of the Internal Revenue Code which allows an owner to relinquish property and replace it with a similar type of asset without recognizing gain and deferring taxes.
While a 1031 Exchange offers tax deferral, it is ONLY a replacement option. You must replace income-producing property with other income-producing property but you may not receive cash upon the sale without paying tax on the gain.
Other options offer even more flexibility to sell highly appreciated assets like stock in a privately-held business or ownership of residential rental or commercial real estate while also controlling use of the cash that is freed up from the sale. These include a strategy like a “monetized installment sale” (M453) previously referred to as a “collateralized” or C453 installment sale.
This option is based on the installment sale rules contained in Section 453 of the Internal Revenue Code. This offers you options to salvage a failed 1031 Exchange which can occur if a seller of a property cannot locate a suitable replacement property or a closing fails to occur within the 180 days required by law.
In addition to deferring taxes while freeing up cash that can be used today, it also offers you a great estate planning tool. This is because of the discount that an estate receives for something called ‘lack of marketability.’
Monetized Installment Sale (formerly Collateralized Installment Sale)
Another variation on the standard installment agreement is a monetized installment sale previously called a ‘Collateralized Installment Sale Agreement’ and sometimes referred to as a C453 installment sale. This strategy has a longer track record.
There are two distinct transactions as part of this strategy. The seller agrees to sell the property or a business to a dealer who resells the property to a final buyer using the original terms. Separately, the seller receives a limited-recourse loan from a lender typically equal to 95% of the resale proceeds. The seller can then take the non-taxable loan proceeds and reinvest however he sees fit. Proceeds can be used to pay off debt, invest in another business or property or in securities without the limitations of a 1031 Exchange. The dealer receives cash from the final buyer in a lump sum or through a lump sum plus one or more installments which offloads the risk of an installment sale onto the dealer. The lender’s loan to the original seller is repaid by automatic payments from the money that the dealer pays to the seller on the installment contract.
Unlike a 1031 Exchange, these installment sale variations can be used for the sale of more than just real estate. It can be used to handle the sale of an interest in an operating business as well offering more flexibility to an investor.
Ultimately, this strategy allows a seller to defer taxes while investing the proceeds today to generate replacement income and cash flow (or to use however the owner deems fit). Clients win by deferring taxation of gains and by having full control of the wealth unlocked from the sale of the highly appreciated asset. In the case of a monetized installment sale (or C453 sale), the client has full control of non-taxable loan proceeds. Clients also win by having more flexibility to invest in other property, businesses or securities that may produce higher income over time than the business or real estate being relinquished. As the saying goes, a bird in the hand is worth more than a bird in the bush and with these strategies investors have more in hand to invest.
You can read more about this and watch a video that helps explain the concept here.
If you still need this account or want the flexibility of having access to this account for the future, you should check with the credit union on its policies. They may require that you do a certain number of transactions or type of transactions during a set period. Check with them.
There are a host of differences between a savings account and a Roth IRA.
First, a savings account is typically offered through a bank. As a bank deposit, these funds are guaranteed by depositor insurance in case the financial institution were to fail. Because these accounts have little risk, you are paid an interest rate that reflects this. You'll find savings account interest rates hover near 0%. You'll also receive a Form 1099-INT from the bank annually (assuming you earn at least $10 per year in interest) that will also be reported to the IRS. You'll have to include this interest income on your tax return which will become part of your taxable income. Savings accounts are great vehicles to build up money that you can access for emergencies or unexpected expenses.
A Roth IRA is a retirement account. You can set these up through a bank, brokerage firm, mutual fund company, or an investment management account through a Registered Investment Advisor.
With a Roth IRA, you'll have access to a variety of investments beyond just a money market account, which is the closest approximation with a bank savings account. You may invest in stocks, bonds, mutual funds, unit investment trusts, master limited partnerships, and more. You have a greater potential for gain and accordingly have more risk and exposure to volatility in returns.
Unlike a savings account, you do not need to pay taxes on earnings (dividends, interest or capital appreciation) each year. And in retirement, you do not pay income on these earnings either. Why? Because you don't take a tax deduction for contributions to a Roth, you are investing "after-tax" money" so you don't pay taxes on the gains later when you make withdrawals in retirement.
Another feature of a Roth IRA is that you don't have to take distributions in retirement. Unlike a traditional IRA or your 401(k) plan at work, you are not required to take any distributions. You could, in effect, choose to let the money compound through retirement and then potentially leave a bigger pie as a legacy for your beneficiaries who inherit the funds.
Unlike a savings account, there are limits on how much you can contribute each year based on your age and adjusted gross income.
One great feature of a Roth IRA is that you can access your principal (what you contributed from time to time) without a tax penalty for early withdrawals. There are exceptions that allow investors to access the funds to help pay for college or a first-time home purchase. This is why these are great savings vehicles by parents of college-bound students or by students themselves. Unlike a 529 savings plan which requires the funds to be used for qualified education expenses, a Roth IRA can be used for other things allowing more flexibility. So a parent wouldn't have to tie up funds in a 529 for a student who might not use the funds because he chose not to go to college or trade school, or received a scholarship and didn't need the 529 funds.
There are two parts to this question as I understand it: Social Security withholdings on earned income and taxation of Social Security benefits.
As is the case with most things in life, it depends. In this case, it depends on which question you're asking. For completeness, I'll cover both.
If you're still working, whether in a self-employed capacity or for an employer, then the answer is a very simple 'yes'. As long as you are working and earning an income, then you'll be required to contribute to Social Security.
For the other side of this question, you may or may not need to pay taxes on your Social Security benefits. This depends on whether or not your Modified Adjusted Gross Income (MAGI) is above a certain threshold that depends on your filing status (i.e. single or married filing jointly, for instance).
Up to 85% of a taxpayer's Social Security benefits may be taxable. This will depend on your MAGI and filing status: above $32,000 and filing jointly, or above $25,000 and filing single, head of household, or filing separately.
To calculate your MAGI,
- Take one-half the total of your Social Security or Railroad Retirement benefits from your SSA-1099 or RRB-1099 (these are reported on Form 1040, line 20a);
- Add earnings from W2s (Form 1040, line 7);
- Add taxable interest from 1099-INTs (Form 1040, line 8a);
- Add ordinary dividends from 1099-DIV (Form 1040, line 9a);
- Add other gains from Form 4797 (Form 1040, line 14);
- Add IRA distributions from 1099-R (Form 1040, line 15b);
- Add taxable pensions from 1099-R (Form 1040, line 16b);
- Add Schedule E income (rental real estate, royalties, partnerships, etc.);
- Add farm income (Form 1040, line 18);
- Add unemployment compensation (Form 1040, line 19)
- Add any other income that is reported on Form 1040, line 21;
In addition to these forms of income, you also need to add back any tax-exempt interest from investments like municipal bonds (reported on Form 1040, line 8b).
Whether or not you are exempt from tax will depend on your filing status, the amount of the gain, and your occupancy status for the property sold.
Under Internal Revenue Code Section 121, you only pay taxes when your gain is more than $250,000 above your 'basis' if you are a single filer, or $500,000 if you are filing jointly.
Your gain is figured by determining your basis. Your basis consists of what you originally paid for the property plus certain closing costs at the time. Then you add in major home improvements (i.e. new kitchen, adding a room, etc.). Then you add in whatever real estate transaction fees you incurred.
To figure out the gain, take your sale price less this 'basis'. If the difference is less than $250,000 (single filier) or $500,000 (filing jointly), then you will have no tax on any of your gain.
You will need to file a form with your taxes to document this.
To best determine whether or not your property sale is exempt, you may want to speak with a qualified tax planner. You can also review the relevant IRS publication: https://www.irs.gov/publications/p523/ar02.html