Ask Terry Questions Social Security Issue

Social Security Issue

By Terry Savage on May 15, 2023 | Financial Planning / Retirement

My Mother In Law has land in Mississippi that she needs to sell, she just keeps telling us that she CAN’T sell it because she will LOSE her social security payments? Is there any advice you can offer? Thanks in advance for your help.

Terry Says

She is misinformed. She earned her Social Security benefits and they cannot be reduced. But they CAN be partially taxed if she earns “too much” in one year. The sales proceeds would count as “income.”

BUT, if she has held the property for longer than a year, she could get “capital gains” tax treatment of this sale, meaning any gains would be taxed at a lower rate.
In 2023,

    individual filers won’t pay any capital gains tax if their total taxable income is $44,625 or less

. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300.
Also see the note I just added at the bottom regarding taxation of gains at death.

Here’s the level at which SS benefits are partially taxed as income:

Your Social Security benefits could be taxable, depending on your situation. According to the IRS, the best way to see if you’ll owe taxes on your Social Security income is to take one-half of your Social Security benefits and add that amount to all your other income. This includes tax-exempt interest. This number is known as your combined income, and this is how it’s calculated:

Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + 1/2 of Social Security benefits

If your combined income is above a certain limit (the IRS calls this limit the base amount), you will need to pay at least some tax. The limit for 2023 is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The 2023 limit for joint filers is $32,000.

If you file your income tax return as an individual with a total income that’s less than $25,000, you won’t have to pay taxes on your Social Security benefits. Single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income is more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.

Read this article for more details:

ONE MORE IMPORTANT THING: Under current estate law, if she die WITHOUT selling the property, the heirs get a “stepped up” valuation to the date of death. That avoids ALL taxes on the gains. Something to consider in this decision.

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