Let's say my company's stock trades at $9 but the exercise price of my stock options is $12. Would I be able to exercise at $12 and take a tax deduction or credit for the $3 difference?
-- Kyle Bennett
No. Nice try though.
You can't take a deduction or a credit, or anything else, for the difference between your stock's sunken trading price and your exercise price, says Rande Spiegelman, a senior manager in
investment advisory-services group in San Francisco. Your stock options are underwater, and there's not much you can do about it except to say a few prayers to get the stock price back up.
If you're dying to own the stock, why not just buy it at $9, suggests Spiegelman.
Soon-to-Be Single Wants Roth
As a married person filing separately, I am not allowed to convert my traditional IRA to a Roth IRA. However, my wife and I have filed for an uncontested divorce in Washington state, which will take effect in July. Since the Nasdaq and my portfolio are down some, I would like to convert to a Roth IRA now and save on the tax bite payable next year. Can I do this? By the end of July (and especially, this year) I will be divorced and filing single, and I plan to cap my total gross income this year to stay within Roth IRA limits to qualify for the conversion. -- Dirk Davis
With the Nasdaq down around 16% since the beginning of March, converting now is a great idea.
As you know, married taxpayers who are filing separately are not allowed to convert their traditional IRAs to Roth IRAs. I know, stupid rule.
But until you are officially divorced, your IRA custodian shouldn't convert your account, says Maggie Doedtman, a senior tax research and training specialist at
in Kansas City, Mo.
But there's some hope.
If you did not live with your spouse at any time during this calendar year, you are considered single, at least for the purposes of qualifying for an IRA, says Doedtman. (Read
Internal Revenue Service
-- Individual Retirement Arrangements
for more details.)
If that's the case for you, then convert away.
If not, you're probably better off waiting. Granted, your status on Dec. 31 counts as your filing status for the whole year. But if for some reason you're not divorced by Dec. 31 and you have already converted your IRA to a Roth, you'll have to convert your Roth back to an IRA. In addition, you'll owe tax on any appreciation the Roth earned during its short life. (Check out our Roth IRA
reporting guide for more details.)
Can I Sell My House for a Buck?
I have a house and an adjacent piece of property. I am in the process of selling the property to a developer. I would like to sell the house, which I am living in, to my son for $1 and close on the same day when I sell the adjacent property. Can I consider this one sale and claim that I do not have to pay tax on the sale because this is my principal residence, which I have owned for 40 years? -- Ed Berger
If you sell your house to your kid for $1, you are giving it to him. That's not a sale.
So you would not be eligible for the personal home sale exclusion of $250,000. Remember, the home sale rules say that if you lived in your home and owned it for two of the previous five years, a single person can exclude up to $250,000 of the gain from taxable income; if you're married, the exclusion is $500,000.
Since it's a gift, the house's fair market value would cut into your lifetime unified gift and estate tax freebie of $675,000 for single people; or double that for married couples. Even worse, if the market value is more than $675,000, you may owe gift tax.
In this instance, you'd have two separate transactions: a gift to your son and the sale of the land. The land sale would not qualify for the home sale exclusion in this situation. So any gain on that sale would be fully taxable.
Consider selling the house for closer to fair market value. That way, you'll avoid gift-tax issues. And then, even though you're selling two properties to two people, you can claim it as one sale as long as you can prove the land was part of the home and has been used for personal purposes, says Doedtman. So is there a garage on the property? Picnic tables? Badminton nets? If so, you'll be able to use the home sale exclusion on the overall amount of the sale.
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