EXAMPLE: Mike and Karen purchased their home in 1960 for $60,000. In 2009, its worth $1 million. If they sold the house in 2009, they would have a $940,000 gain, far in excess of their $500,000 home sale exclusion. Instead, they continue to live in it. Assume they both die in 2013 leaving the home to their daughter Sarah. At their death, the home is worth $1.3 million - this becomes its value in Sarah's hand for tax purposes. If Sarah later sells the home, her taxable gain will be the amount she earns in excess of the home's $1.3 million tax basis
People often wait till December to start thinking about ways to reduce their taxes for the year. This is too late.
If you really want to save some cash, start planning no later than October but earlier in the year is usually better. For example, the best time to contribute to tax deferred accounts is at the beginning of the year. because you'll get a whole years worth of tax deferred income.
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