Optimal Finance Daily - Financial Independence and Money Advice
2849: Tax Basis For Beginners by Sean Mullaney of FI Tax Guy on Double Taxation & Clarifies Taxable Gains
Aug 31, 2024
Sean Mullaney, an expert on taxation and financial planning, breaks down the often-puzzling concept of tax basis. He explains how it helps avoid double taxation and determines taxable gains. Listeners learn about depreciation methods, particularly regarding rental properties, and discover the advantages of a stepped-up basis for inherited assets. Mullaney also shares insights on tax loss harvesting as a strategic tool, with tips for retirement accounts versus taxable ones, emphasizing the importance of smart portfolio management.
13:09
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Quick takeaways
- Understanding tax basis is crucial for determining taxable gains or losses on asset sales, influencing overall taxable income significantly.
- Depreciation allows for tax deductions on business assets over time, while inherited assets benefit from a step-up in basis to fair market value.
Deep dives
Understanding Tax Basis
Tax basis is a critical concept that determines whether a sale of an asset triggers a taxable gain or loss. In the examples of Mark and Judy, the difference in their taxable income stems from their respective tax bases on the stocks they sold. Mark sells his stock for the same price he purchased it, resulting in no taxable income, whereas Judy realizes a gain because her stock appreciated significantly before selling. The tax basis is essentially calculated as the purchase price adjusted for any reinvested distributions or returns of capital, which ensures individuals are not taxed more than once on their investments.
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