How much estimated tax to pay for 2008

First be sure you are properly accounting for taxable gain from the house sale. If she jointly owned the property with a deceased spouse, then she may have a "stepped-up" basis on half of the property when she inherited it (or maybe all of it, in a community property state). Adjust for cost of sale, any improvements made over the years, and so on. Finally, she most likely will qualify for the section 121 exclusion of $250K gain from taxes for a single filer. (I'm making some assumptions here, a competent professional should be able to guide you further).

As for estimated taxes, you can time the estimated payment against the income. For example, if the sale completes after Sep 15th, then both the income and corresponding estimated tax payment will only count for the fourth "quarterly" payment, due Jan 15th 2009.

The mechanics of making the payment is simple, you can find blank vouchers at the IRS web site or from any tax prep software. In fact, I suspect that if you simply send in a check to the correct IRS address for your location, payable to U.S. Treasury with "2008 Form 1040-ES" and her taxpayer ID (SSN) shown on the check, the IRS will properly credit it to her account as of the date received.

-Mark Bole

There are at least a couple of ways to handle this. I believe you can rely on the safe harbor rule (100%/110% of last year's taxes paid in estimates), and then pay the rest with the return in 2008. See the instructions for Line 14c of the estimated tax worksheet on p. 21 of Publication 505.

Another way is to make estimates according to the income generated in each quarter (or more - the IRS is always happy if you pay up front, as you've been doing). There is a tax form, 2210, that contains schedule 2210AI (annualized income). This lets you show the IRS that you've paid at least as much as you were supposed to according to your income on a quarter-by-quarter basis.

The latter is not a simple form to deal with (it's not complex, but breaking down income and expenses on a quarterly basis can be tedious). Simply paying 100%/110% of last year's taxes is likely the easier approach. It will also likely result in your paying less money up front.

Mark Freeland snipped-for-privacy@sbcglobal.net

AlPastor wrote: ...

See Pub 523 for the full scoop, but there's at least a $250K exclusion (maybe $500K if married) and the eligibility rules for ownership and residence are relaxed in cases of disability. The rule for estimated payments, etc., are also discussed. In general, I'd not worry about prepaying at all--if the worksheet shows you may need to pay some capital gains, I'd just wait and plan on holding out some of the proceeds in the quarter following the sale. Of course, make sure you're accounting for all possible increases in basis when you make the calculations -- significant renovations, etc., as well as just the initial purchase price can make a big difference.

I came back to mention the possibility of the step-up in basis in case of a previously deceased spouse but see somebody else already mentioned it...

Queries for the experts: Depending on the mother's income, and whether the payment for her presumably acute care comes from her funds, might not her medical deduction be of a magnitude that would greatly reduce -- if not eliminate -- any tax obligation other than possibly for the house sale?

Should this be the case, might there be justification to reduce or even eliminate estimated payments pending sale of the house?

Bill

[...] [...]

Quite possibly yes (if there is no long-term care insurance to cover the bill). On the other hand, if the estimated taxable home-sale gain really is $400K, and the annual cost of dementia care plus other deductible medical expenses is, say, $100K, then probably not. Really, it's still a timing issue -- withholding and equal quarterly estimated payments are simpler when avoiding any underpayment penalty than are ad hoc estimated payments.

This brings us back to the first sentence from the OP. As a POA, he or she should strive for what's best for mom, not what's simplest for him or her. (IANAL). Matching the estimated payments to the income is the optimum solution.

-Mark Bole

Thank you for the reply.

I am relying on the safe harbor rule for 2007 as I discovered my mom had been sold an annuity (when she was 72!) paying 2 3/4% which I had to get her out of. The resulting 10k gain was not accounted for in my estimated tax payment for 2007. But I did make sure and pay 110% of

2006 taxes so she won't be penalized. However, now I believe that makes paying 110% for 2008 skewed as the 2007 tax due will be artificially high due to the closing out of the annuity. But, of course, with the house selling in 2008 I need to be sure to pay enough taxes. Sorry if that wasn't clear.

So, it sounds to me like the best way to handle this is to pay 110% of

2007 taxes and pay any remaining capital gains tax with her 2008 return.

Cheers, Pat

========================================= MODERATOR'S COMMENT: When responding to a post, please delete those parts of the prior post that are not necessary to context, or are not the parts to which you are responding. Thank you for your assistance.

Thank you for the reply. I've embedded a few comments to your replies below.

The house is in California and was purchased in 1978. In 1980 my parents divorced and my mom received the house and I don't believe that affected the cost basis. I was aware of adjusting for the cost of the sale. However, I didn't know about adjusting for improvements and this will be tricky to determine. My mom can't remember anything about it. She had the kitchen extensively remodeled 5 years ago but I am unable to find any records on how much she paid to have this done. So I suppose I am out of luck in adjusting the cost basis.

As for competent professional, I hired a person to do her taxes in

2006 and found myself having to correct her work. I tried to locate another person in 2007 but again couldn't find anyone with knowledge about my mom's particular situation. So I did her taxes using Turbo Tax. Any advice on selecting a competent professional. Or anyone know of any in the Camarillo, California area? I'd be willing to go 45 miles in either direction. I need someone who is familiar with the issues relating to dementia care (i.e. it seems very unclear to me what is needed to deduct the cost of her care to satisfy the IRS). She lives in a $4200/mo dementia care facility and needs help remembering to eat, dress, bath, etc. The bill from the place doesn't break out what is rent and what is care.

Again, thank you for your time in sending a reply.

Cheers, Pat

Thank you for the reply and the link to the IRS pub. I will read it next. I posted to another reply, she received the house in her divorce settlement and she did have the kitchen remodled, but she has no recollection of how much she paid or to who and I can't find any records to determine the cost of the renovation.

Cheers, Pat

Thank you for the reply. I've commented inline to your comments below.

She receives approx. $775 in Soc Sec. and $1800 in alimony. She is paying for her care ($4200/mo) out of her funds (managed by me). I am having great difficulty determining what is deductible for her dementia care. Some of what I've read seems to indicate the cost of her special care is deductible but not the rent, other things seem to indicate the entire monthly amount is deductible. Unfortunately, the place she is living does not break out the rent from the cost of the other care (i.e. managing her medications, bathing, dressing, eating).

As I posted to another reply, I tried to find a knowledgeable tax professional to help me but in interviewing none seemed to know anymore than I did about the particulars involving dementia care and the tax ramifications. I got frustrated and decided I'd try to learn about it and do them myself. But I am terrified about making a mistake and costing my mom interest and penalties from her very limited assets.

Cheers, Pat

text -

Thanks for the reply. I've added some comments in the sections below.

No long-term care insurance. I appreciate you comment on the nature of my ad hoc estimated payments but I have a few other personal issues that I have to content with and I really do need to make this as simple for me as possible.

I agree it would be optimal. But I just don't have the time to manage all this on a constant basis due to the fore mentioned personal issues. I am trying to do the best I can.

AlPastor wrote: ...

In general, if she is in an facility owing to needing the care (as it sounds as if she is), the whole thing of rent/meals/care is deductible as medical. Been thru the process /w my mother; fortunately she did have a LTC policy that helped significantly.

All you need is a letter for your files from her attending physician attesting that she is in need of 24/7 care. As I recall, the only expense the nursing home charged not deducted was the TV cable bill as it was considered an amenity by our particular accountant. (Of course, the LTC reimbursement came off the total, but since you don't have any, that's not an issue).

...

It's hard to imagine any CPA or other tax professional in these days wouldn't have experience w/ the situation. I can only recommend to keeping looking. Perhaps you have other acquaintances or coworkers who could have recommendations as to who they use that seemed satisfactory. You do, of course, probably want to stay away from the shopping-mall kiosk kind of shops that proliferate this time of year...