Category Archives: Taxes

The Catch With Winning A Free House

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My friend that won the house ran into one problem with her great score!  

Big time taxes

Taxes!!!

The $200,000 that my friend won in the post “My friend won a house“, had the taxman at her door wanting his fair share!  

Luckily my friend “Sis” wasn’t making as much money as she does now.  But still the capital gains on $200,000 is quite substantial.  I’m not privy to the actual tax amount she paid, but from what I read it would have been taxed as if it were regular federal income tax rate, and then the state tax rates too…  So I’m sure it turned out to be a pretty penny, but not 50% like I’ve heard in the past.  

(Check out this funny and informational post by www.bargaineering.com: “Prize Winnings Tax” ) 

So how did she pay for the winnings?  

To start, she sold the new car that was part of the prize package (it was a hyundai).  Next she sold some of the gift certificates to friends.  She used some of the money that she had in savings, but I doubt that was enough either.  I’m guessing that she probably borrowed the rest from her parents.  I do know that she was pretty stressed out coming up with the money for the taxes.  

So I started wondering what would I do in her case?  

  • First, I’d have to liquidate all of my regular stock account holdings.
  • then I’d have to take a $50,000 loan against my 401(k).
  • I would expect that should do it, but if it didn’t, then I’d also take a home equity loan against the house I just won :(.

I guess in this case, every silver lining has it cloud.  😉  

But hey, it’s still good!

Cash For Clunkers Program

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I had to think long and hard about not buying a new car, after hearing about the “Cash for Clunkers” government program.

 

Is this wasteful?

Disposable cars...

 

In the end I decided not to because:

  • My car was worth (a little) more than the government exchange amount.
  • My car is paid off.
  • I don’t have the cash in hand, to pay for it outright.
  • I would have to take out a car loan.
  • It kind of seems wasteful for me to throw away a perfectly good car.

For some negative effects for our governmental stimulus programs. and why they may not have been such a great deal for you, go to “GetRichSlowly.org” and read Adam Baker’s writeup.

If the program came out in 2011 or maybe even at the end of 2010, I most assuredly would have jumped on it.  If your car was from the 90’s, well this was a great bargain…

Investment Losses

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Well, we are finally in the 4th quarter of 2009!  Time to start looking at any losses in our brokerage accounts (this past year was bad for me, too many high beta stock).  Beta is the risk factor the stock is rated at, 1 being average risk, and anything higher than 1 being more risky.

If your losses are greater than you gains, you can take the losses as a deduction against your earned income but only up to $3,000 worth.  The amount over $3,000 will have to be taken against future years gains (or it’s also possible to take it against past years gains, but that’s a bit more tricky).

Hopefully, you don’t have any wash sales (I’ll explain this in a future post)…

As for me, I won’t be taking any losses, at least not this October or November.  Depending on how the market does in December, I might cash some stocks in.  Most likely, I won’t even cash out then either.  I’ll wait until next year to consider losses.  I don’t like to sell low and buy high…

Hopefully, the market and labor market will be back fully back on track sometime in 2010.

-D