Four Types of Income Tax Exclusions

Four Types of Income Tax Exclusions

We are all interested in saving taxes. Through effective tax planning, you can preserve more of your wealth (or wealth that passes to your heirs) through eliminating income taxes on the gain. There are four types of income that may be excluded permanently.

Income Exclusion #1 – Excluding Gain Realized Appreciation of Personal Residence

Due to the recent housing stimulus package, tax-free gains from the exclusion of a primary residence will now be more limited. (1/29/2009)

This tax rule makes home ownership a must. If you sell your home at a gain that was your primary residence 2 of the past 5 years, you can exclude up to $500,000(jointly owned) of the residence gain. If the gain is owned by only one individual the gain is limited to $250,000. The gain on sale of residence can only be used only once every five years. For more information on this rule please reference IRS Publication 523 http://www.irs.gov/pub/irs-pdf/p523.pdf

Income Exclusion #2 – Excluding Gain on Community Renewal Property

If you purchase a piece of property in a community renewal area and then sell the property at a gain, you will pay no tax on the capital gain. Any portion of the gain attributable to periods before January 1, 2002 and after December 31, 2009 will not qualify. There are 40 authorized community renewal area across the United States. A community renewal area is designated by the Secretary of Housing and Urban Development and Agriculture. The community renewal areas are not necessarily in low income areas. For example, in San Francisco, the community renewal area takes in most of San Francisco’s financial district. For more information on the 40 community renewal areas please visit the United States Housing and Urban Development website at http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm.

Income Exclusion #3 – Excluding Gain on Property Due to Death

When a person dies, all the property that they own is revalued to the market value as of the date of death. This means if the decedent owned stock worth $1 million as of the date of death, new cost bases for the stock will be $1 million. The surviving spouse and/or heirs disregard the actual cost of stock. This special rule should encourage individuals to hold onto highly appreciate assets and let the transfer of assets occur after the date of death. Thus, Uncle Sam will not capture the income tax on appreciated property. This special property revaluation does not apply to stock or assets held in an IRA account or Qualified Pension.

Income Exclusion #4 – Excluding Gain on Life Insurance Proceeds

Life Insurance proceeds received by an individual are excluded from income tax unless the policy was turned over to you for a price. This same rule applies even if the proceeds were turned over under an accident or health insurance policy or endowment contract. For more information on excluding Gain on Life Insurance Proceeds see IRS Publication 554 http://www.irs.gov/pub/irs-pdf/p554.pdf.

We hope you found this article about “Four Types of Income Tax Exclusions” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or website www.GROCO.com.

To receive our free newsletter, contact us here.

Subscribe our YouTube Channel for more updates.

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

GROCO.com is a proud sponsor of The American Dreams Show.

The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.