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Hey folks,

A pal of mine is freaking out about a 1099-R he got. He inherited an IRA and his understanding is that inheritance is not taxable until you get to mega-amounts, which I believe is true. The amount is $91K.

But he withdrew the money to improve a vacation rental he has. Turbo tax is telling him he owes much bucks for this action. Is this correct even if it's an inherited IRA?

Thanks,
RB
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yup.

(been there...
did Not withdraw it all at once because of the tax
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Thanks.

So he wants to make up for the tax he owes by expensing a huge amount of improvements he made to his vacation rental. Normally it looks like it must be depreciated over 39 years. But why isn't Turbo Tax offering to allow him the Section 179 deduction?

Stuff like:
Construction costs
Furnishings
Landscaping
Etc.

Thanks,
RB
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So he wants to make up for the tax he owes by expensing a huge amount of improvements he made to his vacation rental. Normally it looks like it must be depreciated over 39 years. But why isn't Turbo Tax offering to allow him the Section 179 deduction?
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Because 179 is available only for the "active conduct of a trade or business," and that does not include rental real estate, for that purpose.

Bill
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I was going to pile on your friend, but I'll just leave it with a lesson hopefully learned by you and lurkers, since you don't seem to understand the law either.

Ask before you act.

Phil
Rule Your Retirement Home Fool
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A pal of mine is freaking out about a 1099-R he got. He inherited an IRA and his understanding is that inheritance is not taxable until you get to mega-amounts, which I believe is true. The amount is $91K.

He is confusing estate and income taxes.

Estate's must exceed a specific size (depending on the tax year and previous gifts) before estate taxes are due. It is independent of how much a single individual inherits.

Most inherited assets receive a new basis. The new basis could be higher or lower than the cost.

An inherited IRA does not receive a stepped up basis. Most contributions to a traditional IRA are pre-tax. It isn't likely, but he could ask the executor if there were after tax contributions to the IRA. The IRA administrator does not have that information.
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Ok, so how would one categorize it if you buy a house, fix it up, and rent it out for weekends or maybe a week at a time? I assumed that would be a schedule E vacation rental. Then there is the question of if it is active or passive. From what I've read, if you spend more than 750 hours per year AND 50% or more of your work-related hours on this vacation rental business, then it is active and thus your losses are not limited as in a passive business.

Either that or is it a schedule C self-employment business, where again your losses aren't limited. But the downside here is that when you have gains you have to pay SE tax, whereas with Sch E you don't.

RB
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RBMunkin: "A pal of mine is freaking out about a 1099-R he got. He inherited an IRA and his understanding is that inheritance is not taxable until you get to mega-amounts, which I believe is true. The amount is $91K.

But he withdrew the money to improve a vacation rental he has. Turbo tax is telling him he owes much bucks for this action. Is this correct even if it's an inherited IRA?"


WRT to federal taxes, he is not being taxed because he inherited. He does, however, owe income tax for withdrawing from an IRA.

For many federal tax purposes, withdrawing from an IRA is withdrawing from an IRA, regardless of whether the withdrawee funded the IRA or inherited it.

No comment WRT to possible state inheritance tax (or estate tax).

Regards, JAFO
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