In the first episode of their new podcast, Senior Tax Manager, Christopher Ficocelli and Tax Manager Daniel Horvath discuss key year-end tax planning considerations for clients as the calendar year comes to a close.

Many tax strategies must be implemented before year-end to be effective. This episode highlights timely ideas that may help individuals and business owners plan proactively and avoid last-minute surprises.

🎧 We invite you to listen and contact our team to discuss how these strategies may apply to your specific situation.

https://open.spotify.com/episode/0oqWMBe8YBgglAhlXP527h?si=qonNPeqQTyy7m73fL1nqFQ

The IRS has issued new guidance regarding Trump Accounts, including the release of Notice on Trump Accounts, draft Form 4547, and related draft instructions. As this new program continues to take shape, staying informed will be essential for families and advisors preparing for its implementation.

To help taxpayers and practitioners monitor developments, the IRS has also introduced a new resource outlining a timeline of released guidance, along with key insights into how the program is expected to function once effective.

Overview of Trump Accounts

Trump Accounts are designed to support long-term savings for eligible children, with federal “seed” contributions initiating each account. While final regulations are still forthcoming, the IRS has signaled several important features and planning considerations.

Program Availability

The Trump Account program is expected to become available in mid-2026, with federal contributions scheduled to begin on July 4, 2026.

Eligibility is limited to:

Eligible Beneficiaries

Eligibility for Trump Accounts is limited to children who have not yet reached age 18 by the end of the calendar year and who have a valid Social Security Number. Each qualifying child may have only one funded Trump Account.

Account Setup

Accounts will be established by an authorized individual, which may include:

• A parent
• A legal guardian
• An adult sibling
• A grandparent

The authorized individual will serve as the trustee during the child’s minority, overseeing the account throughout its designated “growth period.”

Setup will be completed using IRS Form 4547 or via an expected online portal, according to the draft instructions released in December 2025.

Planning Considerations

As with any federally funded savings program, there are potential planning opportunities.

Once the initial governmental seed money is deposited, families may want to evaluate the benefits of completing a 100% trustee-to-trustee transfer to a qualified financial institution of their choosing. This strategy may provide greater flexibility in managing the account, depending on final regulations and custodial options.

Advisors should monitor forthcoming regulatory updates to ensure proper handling and compliance once transfers are permitted.

What Comes Next?

The IRS has announced a notice of intent to issue regulations interpreting Section 530A, which governs Trump Accounts. Final instructions for Form 4547 and updated rules for account administration are expected as we approach the program’s launch.

Our firm will continue to review new releases as they become available and provide timely updates to keep you informed.

The qualified business income (QBI) deduction was a centerpiece of the Tax Cuts and Jobs Act, which went into effect in 2018. Initially, it was only available through 2025, but the write-off was made permanent in a law enacted on July 4, 2025, and it’s available to eligible individuals.

The QBI deduction can be up to 20% of:

• QBI earned from a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for federal income tax purposes, plus,
• QBI from a pass-through business entity, meaning a partnership, an LLC that’s treated as a partnership for federal income tax purposes or an S corporation.

Pass-through businesses report their federal income tax items to their owners, who then take them into account on their owner-level returns. The QBI deduction, when allowed, is then written off at the owner level, and it can potentially be a big tax-saver.

Deduction Basics

QBI means qualified income and gains from an eligible business reduced by related deductions and losses. According to the IRS, QBI from a business is reduced by:

1. The allocable deduction for a contribution to a self-employed retirement plan,
2. The allocable deduction for 50% of your self-employment tax bill, and
3. The allocable deduction for self-employed health insurance premiums.

Income from the business of being an employee doesn’t count as QBI. The same is true of guaranteed payments received by a partner or an LLC member treated as a partner for tax purposes for services rendered to a partnership or LLC (often called partner salaries). Salary collected by an S corporation shareholder-employee does not count as QBI, nor does salary collected by a C corporation shareholder-employee.

On your Form 1040, the QBI deduction doesn’t reduce adjusted gross income (AGI). In effect, it’s treated the same as an allowable itemized deduction.

Unfortunately, the QBI deduction also doesn’t reduce your net earnings from self-employment for purposes of the self-employment tax nor does it reduce your net investment income for purposes of the 3.8% net investment income tax (NIIT) that can hit higher-income individuals.

Deduction Limitations

At higher income levels, unfavorable QBI deduction limitations come into play. For 2025, the limitations begin to phase in when taxable income (calculated before any QBI deduction) exceeds $201,750 ($403,500 if you’re a married joint filer). These amounts are up from $197,300 and $394,600, respectively, in 2025.

If your income exceeds the applicable phased-in number, your QBI deduction is limited to the greater of: 1) your share of 50% of W-2 wages paid to employees during the tax year and properly allocable to QBI, or 2) the sum of your share of 25% of such W-2 wages plus your share of 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.

The limitation based on the UBIA of qualified property is intended to benefit capital-intensive businesses like manufacturing or hotel operations. Qualified property means depreciable tangible property (including real estate) that’s owned by a qualified business and used by that business for the production of QBI. The UBIA of qualified property generally equals its original cost when it was first put to use in your business.

Finally, your QBI deduction can’t exceed 20% of your taxable income calculated before any QBI deduction and before any net capital gain amount (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

Unfavorable Rules for Specified Service Trades or Businesses

If your operation is a specified service trade or business (SSTB), QBI deductions begin to be phased out when your taxable income (calculated before any QBI deduction) exceeds an applicable threshold. See the right-hand box for what counts as an SSTB.

Bottom Line: If your taxable income exceeds the applicable complete phase-out number, you’re not allowed to claim any QBI deduction based on income from any SSTB.

Aggregating Businesses

Aggregating businesses can allow an individual with taxable income high enough to be affected by the limitations based on W-2 wages and the UBIA of qualified property to claim a bigger QBI deduction than if the businesses were considered separately.

For example, say you are a high-income individual who owns an interest in one business with lots of QBI but little or no W-2 wages and an interest in a second business with minimal QBI but lots of W-2 wages. Aggregating the two businesses can result in a healthy QBI deduction while keeping them separate could result in a lower deduction or maybe no deduction. However, you must pass tests set forth in IRS regulations to be allowed to aggregate businesses.

Key Point: You can’t aggregate a SSTB with any other business, including another SSTB.

Maximize the Benefits

The QBI deduction rules are explained in detail in IRS regulations that are lengthy and complex.  Your tax professional can advise you on how to get the best QBI deduction results and the best overall federal tax results in your specific circumstances.

Connecticut has enacted a new First-Time Home Buyer Savings Program designed to help residents save for homeownership while offering meaningful tax incentives to individuals and employers. The program was established under Act 25-1 (H.B. 8002), passed during the November 2025 Special Session, and becomes effective January 1, 2026.

Overview of the Program

Beginning with the 2027 tax year, eligible Connecticut residents will be able to deduct qualified contributions, interest, and certain withdrawals from a designated First-Time Home Buyer Savings Account. Additionally, employers who contribute to their employees’ accounts may qualify for a new business tax credit.

The program is intended to support first-time home buyers amid rising housing costs and encourage employers to participate in helping their workforce achieve homeownership.

Key Tax Benefits for Individuals

Individuals who open and contribute to a First-Time Home Buyer Savings Account may begin claiming tax deductions in the 2027 tax year. However, the program allows the 2027 deduction to include eligible contributions made as early as the 2026 tax year.

To qualify, account holders must meet federal adjusted gross income (AGI) limits:

• Single filers: AGI below $125,000
• Joint filers: AGI below $250,000

Eligible individuals may deduct:

• Annual contributions to the account, up to $2,500 for single filers or $5,000 for joint filers
• Accrued interest earned on the account
• Qualified withdrawals used by the account holder/beneficiary to pay or reimburse eligible first-time home buyer costs

Employer Tax Credits

Starting in the 2027 tax or income year, employers may receive a corporate business tax or personal income tax credit (excluding withholding tax) when they contribute to their employees’ First-Time Home Buyer Savings Accounts.

• The credit equals 10% of employer contributions,
• Capped at $2,500 per employee per year

This incentive provides employers an opportunity to support employee financial well-being while also benefiting from a state tax credit.

When Benefits Begin

Although the program is effective January 1, 2026, both deductions and credits first apply in the 2027 tax year. Importantly, contributions made in the 2026 tax or income year may still be counted toward the 2027 deduction or credit.

What This Means for Connecticut Residents and Employers

The First-Time Home Buyer Savings Program represents a significant step in supporting future homeowners and strengthening Connecticut’s workforce benefits landscape.

Individuals planning to purchase their first home can begin contributing to these accounts as early as 2026 to maximize future deductions. Employers may also wish to consider incorporating contributions into their benefits packages starting in 2026 to take full advantage of the 2027 credit.

Our team at Beers, Hamerman, Cohen & Burger, P.C. is available to help individuals and employers evaluate eligibility and plan ahead for these new opportunities. If you have questions about how this program may impact your tax planning, please contact us.

One could say that there are only two key milestones in retirement planning: the day you begin participating in a retirement savings account and the day you begin drawing money from it. But, of course, there are others as well.

One is the day you turn 50 years old. Why? Because those age 50 or older on December 31 of any given year can start making “catch-up” contributions to their employer-sponsored retirement plans by that date. These are additional contributions to certain retirement accounts beyond the regular annual limits.

Maybe you haven’t yet saved as much for retirement as you’d like to. Or perhaps you’d just like to make the most of tax-advantaged savings opportunities. Whatever the case may be, let’s get caught up with the latest catch-up contribution amounts.

401(k)s and SIMPLEs

Under 2026 limits for 401(k)s, if you’re age 50 or older, after you’ve reached the $24,500 maximum limit for all employees, you can contribute an extra $8,000, for a total of $32,500. (In 2025, the contribution limit was $23,500 with a $7,500 catch-up contribution for those age 50 or older.) 

If your employer offers a Savings Incentive Match Plan for Employees (SIMPLE) instead, your regular contribution maxes out at $17,000 in 2026 (up from $16,500 in 2025). If you’re 50 or older, you’re allowed to contribute an additional $4,000 in 2026 (up from $3,500 in 2025). That means if you’re eligible for catch-up contributions in 2026, you can contribute $21,000 in total for the year.

But check with your employer because, while most 401(k) plans and SIMPLEs offer catch-up contributions, not all do.

Self-Employed Plans

If you’re self-employed, retirement plans such as an individual 401(k) — or solo 401(k) — also allow catch-up contributions. A solo 401(k) is a plan for those with no other employees. You can defer 100% of your self-employment income or compensation, up to the limit of $24,500 in 2026, plus an $8,000 catch-up contribution. These amounts are up from $23,500 in 2025, plus a $7,500 catch-up contribution. 

Keep in mind that this is just the employee salary deferral portion of the contribution. You can also make an “employer” contribution of up to 20% of self-employment income or 25% of compensation. 

IRAs, Too

Catch-up contributions to a traditional (non-Roth) account not only can enlarge your retirement nest egg but also may reduce your tax liability. And keep in mind that catch-up contributions are available for IRAs, too, and the deadline for 2026 contributions is April 15, 2027. The amount you can contribute to a traditional or Roth IRA in 2026 is $7,500 with a $1,100 catch-up contribution (up from $7,000 and $1,000, respectively, for 2025. If you have questions about catch-up contributions or other retirement saving strategies, contact your tax advisor.

As we approach the end of the 2025 tax year, we want to bring to your attention a valuable tax planning strategy known as “bunching” itemized deductions. For 2025, the standard deduction amounts have increased to $31,500 for married filing jointly, $23,625 for head of household, and $15,750 for single or married filing separately. These amounts are adjusted annually for inflation.

Recent legislation has temporarily increased the State and Local Tax (SALT) deduction limit for individuals who itemize deductions on Schedule A (Form 1040). For 2025, the maximum SALT deduction is $40,000 ($20,000 if married filing separately). This limit applies to state and local income taxes, general sales taxes (if elected instead of income taxes), real property taxes, and personal property taxes.

Please note, if your modified adjusted gross income (AGI) exceeds $500,000 ($250,000 if married filing separately), the deduction begins to phase out but cannot be reduced below $10,000 ($5,000 if married filing separately).
If your annual itemized deductions are close to the standard deduction, you may benefit by timing certain deductible expenses—such as charitable contributions, medical expenses, or state and local taxes—so that they are concentrated in one year. This can allow you to exceed the standard deduction in that year and itemize, while taking the standard deduction in alternate years. This approach may help maximize your overall tax savings over multiple years.
Careful planning is needed, especially for taxpayers who may be subject to the alternative minimum tax (AMT), as certain itemized deductions do not reduce AMT liability.

Additionally, for tax years beginning after 2025, high-income taxpayers may face a phaseout of itemized deductions. If your adjusted gross income (AGI) exceeds a certain threshold, your allowable itemized deductions may be reduced, which can limit the effectiveness of bunching deductions.

We recommend reviewing your anticipated deductible expenses for 2025 and 2026 to determine if bunching could be advantageous for you.

Beers, Hamerman, Cohen & Burger, PC would like to wish you and your family a very Happy Thanksgiving. Both offices will close early on Wednesday November 26th and resume normal business orders on Monday December 1st.

Connecticut residents now have access to a groundbreaking student loan reimbursement program designed to ease the financial burden faced by many college graduates. As of January 1, 2025, eligible participants may receive up to $5,000 per year for a maximum of four years, totaling up to $20,000 in student loan forgiveness. The program is funded with $6 million in the current budget cycle and awards are being distributed on a first-come, first-served basis.

This initiative—led by legislative efforts in Hartford—marks the first program of its kind in the country and reflects a collaborative, bipartisan commitment to strengthening the state’s workforce and economy.

Eligibility Requirements

The Office of Higher Education (OHE) may approve applicants who meet the following criteria:

• Educational Requirement
  Graduated from a Connecticut public or private college or university with a bachelor’s or associate degree, or earned an occupational/professional license or certificate. Individuals who left a Connecticut institution in good standing and received a hardship waiver from OHE may also qualify.
• Residency
  Must have been a Connecticut resident for at least five years.
• Income Qualifications
  • Single filers: Connecticut adjusted gross income of $125,000 or less and must file as unmarried.
  • Married or head-of-household filers: Connecticut adjusted gross income of $175,000 or less and must file as head of household, married filing jointly, or surviving spouse.
• Loan Status
  Must have an outstanding student loan balance and have made payments in 2024 toward one or more of the following:
  Federal Direct Loans, Federal Direct PLUS Loans, Federal Perkins Loans, CHESLA loans, other state-sponsored student loans, or private student loans.
• Service Requirement
  Must have completed at least 50 volunteer hours after January 1, 2024, at a Connecticut nonprofit registered with the Department of Consumer Protection, a municipal government, a nonprofit Board of Directors, or through military service.

This reimbursement program represents an important investment in Connecticut’s future by supporting graduates who contribute to the local community and economy.

For more information: https://portal.ct.gov/ohe?language=en_US

As a Partner at Beers, Hamerman, Cohen & Burger, Shari specializes in tax services, providing clients with strategic consulting, planning, and compliance guidance. Beyond client work, she is deeply committed to supporting the growth and success of her team and the firm. She strives to foster collaboration, mentor emerging professionals, and contribute to an environment where everyone can thrive both personally and professionally.

What inspired you to pursue the CPA career path?
My interest in accounting began in high school, when I took my first accounting class and discovered how much I enjoyed the logic and structure of the subject. Encouraged by my father, I decided to pursue a degree in accounting and began working for a small CPA firm after college. That early experience confirmed my passion for the profession and set me on the path toward a rewarding and dynamic career as a CPA.

What professional accomplishment are you most proud of?
I am most proud of becoming one of the first female equity partners at Beers, Hamerman, Cohen & Burger, alongside two other accomplished women. This milestone represents not only a personal achievement, but also meaningful progress toward greater representation and leadership opportunities for women in our firm and within the accounting profession.

What is your next major goal?
My next major goal is to contribute to the continued growth and success of Beers, Hamerman, Cohen & Burger. I am passionate about helping the firm expand its client relationships, strengthen its culture of excellence, and support the next generation of professionals as they develop their skills and leadership potential.

What is your favorite thing to do outside of work?
Outside of work, I love spending time with my family, golfing, playing pickleball, reading, and traveling. These activities help me recharge, stay balanced, and bring fresh energy and perspective to my professional life. 

For one reason or another, you may need to take
some money out of an IRA before reaching retirement. You can withdraw money from an IRA at any time and for any reason, but it’s important to keep in mind that most IRA withdrawals are at least partially taxable. In other words, you’ll owe regular income tax on the amount. In addition, the taxable portion of a withdrawal taken before age 59 1/2, which is called an “early withdrawal,” will be hit with a 10% penalty — unless you qualify for an exception.

The exceptions apply to traditional IRAs, SEP-IRAs and SIMPLE-IRAs. (However, some early withdrawals from SIMPLE-IRAs are hit with a 25% penalty rather than the standard 10% penalty. For simplicity, the rest of this article will ignore that higher 25% rate.)

Also, be aware that different rules apply to withdrawals from Roth IRAs and qualified plans, such as 401(k) plans.

Exceptions to the Penalty

So what are the exceptions to the 10% early withdrawal penalty? Let’s take a look:

1. Withdrawals for medical expenses. If you have qualified medical expenses in excess of 7.5% of your adjusted gross income (AGI) early IRA withdrawals up to the amount of that excess are exempt from the 10% penalty. To take advantage of this exception, you don’t need to trace the withdrawn amount to the medical expenses. However, those expenses must be paid in the same year during which you take the early withdrawal.

2. Substantially equal periodic payments (SEPPs). These are annual annuity-like withdrawals that must be taken for at least five years or until you reach age 59 1/2, whichever comes later. The rules for SEPPs are complicated, so you may want to get your tax advisor involved to avoid pitfalls.

3. Withdrawals after death. Amounts withdrawn from an IRA after the IRA owner’s death are always free of the 10% penalty. However, this exception isn’t available for funds rolled over into a surviving spouse’s IRA or if the surviving spouse elects to treat the inherited IRA as his or her own account. If the surviving spouse needs some of the inherited funds, they should be left in the inherited IRA (in other words, the one set up for the deceased spouse). Then, the surviving spouse can withdraw the needed funds from the inherited IRA without any 10% penalty.

4. Withdrawals after disability. This exception applies to amounts paid to an IRA owner who is found to be physically or mentally disabled to the extent that he or she cannot engage in his or her customary paid job or a comparable one. In addition, the disability must be expected to:

• Lead to death, or
• Be of long or indefinite duration. However, it doesn’t need to be expected to be permanent.

5. Withdrawals for first-time home purchases (up to a lifetime limit). This exception allows penalty-free IRA withdrawals to the extent the money is spent by the IRA owner within 120 days to pay for qualified acquisition costs for a principal residence. However, there’s a lifetime $10,000 limit on this exception. The principal residence can be acquired by:

• The IRA owner or the IRA owner’s spouse,
• The IRA owner’s child, grandchild or grandparent, or
• The spouse’s child, grandchild or grandparent.

The buyer of the principal residence (and the spouse if the buyer is married) must not have owned a present interest in a principal residence within the two-year period that ends on the acquisition date. Qualified acquisition costs are defined as costs to acquire, construct or reconstruct a principal residence — including closing costs.

6. Withdrawals for qualified higher education expenses. Early IRA withdrawals are penalty-free to the extent of qualified higher education expenses paid during the same year. The qualified expenses must be for the education of:

• The IRA owner or the IRA owner’s spouse, or
• A child, stepchild or adopted child of the IRA owner or the IRA owner’s spouse.

7. Withdrawals for health insurance during unemployment. This exception is available to an IRA owner who has received unemployment compensation payments for 12 consecutive weeks under any federal or state unemployment compensation law during the year in question or the preceding year. If this condition is satisfied, the IRA owner’s early withdrawals during the year in question are penalty-free up to the amount paid during that year for health insurance premiums to cover the IRA owner and his or her spouse and dependents. However, early withdrawals after the IRA owner has regained employment for at least 60 days don’t qualify for this exception.

8. Withdrawals by military reservists called to active duty. This exception applies to certain early IRA withdrawals taken by military reserve members who are called to active duty for at least 180 days or for an indefinite period.

9. Withdrawals for IRS levies. This exception applies to early IRA withdrawals taken to pay IRS levies against the account. However, this exception is not available when the IRS levies against the IRA owner (as opposed to the IRA itself), and the owner then withdraws IRA funds to pay the levy.

Before and After a Withdrawal

With some exceptions, IRA owners who make IRA withdrawals before age 59 1/2 must file a form with their tax returns. Specifically, they must file Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.”

If you think you qualify for an exception to the 10% penalty on early traditional IRA withdrawals, consider involving your tax pro before making a big early withdrawal. You want to be sure that you do indeed qualify. Better safe than sorry!

Early Withdrawal Downsides

Even if you qualify for an exception to the 10% early withdrawal penalty, remember that you still have to pay regular income tax on the amount. And you’ll lose out on the benefit of future tax-deferred compounding growth on the withdrawn funds.

Are you ready to move and want to sell your home, but you’re worried about a slowing real estate market? You’re not alone. Many homeowners want to move up to a bigger home or downsize to a smaller one. However, they’re currently unable to sell their homes for the price they want. Fortunately, selling isn’t your only option. The current market could be an opportunity to rethink your next step, especially when you take the tax implications into account.

Basic Home Sale Rules

First, let’s review the tax implications if you do sell your home. You may owe capital gains tax on the profit. Fortunately, many homeowners qualify for a capital gains exclusion.

If the home was your primary residence for at least two of the last five years, you may generally exclude gain up to:

• $250,000 if single, or
• $500,000 if married and filing jointly.

This means you won’t owe tax on gains below that threshold. Above that amount, you could owe up to 20% capital gains tax, depending on your income, if you owned the house for more than a year. (See “Proposal in Washington to Eliminate Capital Gains Taxes on Home Sales” for information about a bill introduced in Congress that could change the rules.) Different rules apply in the case of a divorce or when a homeowner is on qualified military duty. And you may be eligible for a partial capital gains tax exclusion in certain situations when you don’t meet the two-out-of-five-year rule.

What happens if you need to sell quickly for a loss — perhaps due to relocation, health issues or financial reasons? Unfortunately, a capital loss for personal-use property like a home isn’t deductible on your tax return. Only losses on investment property are deductible under specific rules.

Other Routes to Consider

With the basic home sale tax rules in mind, here are four options to consider if your home isn’t selling, along with the tax issues involved:

1. Rent out the property. If your home isn’t generating acceptable offers, turning it into a rental property may provide steady income while you wait for the market to rebound. This approach can help offset mortgage, tax and maintenance costs — and may even offer tax benefits.

For tax purposes, once your home becomes a rental, it’s treated as an investment property. That means:

• You’ll report rental income on your tax return.
• You can deduct related expenses, such as mortgage interest, property taxes, insurance, repairs and depreciation.
• You may lose the ability to exclude capital gains under the $250,000/$500,000 primary residence exclusion if you eventually sell. If you rent for too long, you may forfeit that benefit. Consult with your tax advisor to determine how long you can rent without losing eligibility for this exclusion.

Important: The tax rules differ if you rent out your home for 14 days or less during the year. In that case, the rental income is tax-free. You don’t have to report it on your tax return, but you can’t deduct any rental-related expenses (such as cleaning or advertising) for those days.

2. Offer seller financing. In a seller-financed sale, you act as the lender and receive payments from the buyer over time instead of receiving the full purchase price upfront. In a slow market, this might attract buyers who don’t qualify for traditional loans or prefer different terms.

For tax purposes, you may qualify to report the gain over time using the IRS installment sale method, spreading out the capital gains tax liability across the payment schedule. You must report the interest portion of each payment as ordinary income on your tax return.

Of course, there’s potential risk. If the buyer defaults, you may face repossession issues and complex tax treatment depending on how much gain was previously recognized.

3. Make strategic improvements. If your home isn’t attracting offers, the problem might not be related to the market alone — it could be the property’s condition, layout or features. Investing in key updates could improve your resale value or help it sell faster.

Capital improvements made while the property is your primary residence can increase your tax basis, which reduces your taxable gain when you sell. Qualifying improvements must add value, prolong the property’s useful life or adapt the home for new uses. Keep detailed records and receipts to prove the basis for capital improvements. Regular maintenance doesn’t qualify as an improvement for tax purposes.

However, not all upgrades are equal. A real estate agent can identify improvements with a high rate of return on investment, and your tax pro can assess how these costs would impact your eventual capital gains calculation.

4. Engage in a rent-to-own agreement. This arrangement allows the tenant to rent the home with the option to buy it later. A portion of the rent may go toward the eventual purchase price.

For tax purposes, you’ll report all rent as rental income until the sale occurs. You won’t recognize a capital gain until the option is exercised and the sale is finalized. What if the tenant pays an upfront option fee? It’s typically treated as advance rent (taxable income) until the sale occurs — or potentially nonrefundable income if the tenant doesn’t exercise the option.

This structure may affect your ability to claim the primary residence exclusion. Timing is critical. If you rent the property for too long before the sale, you may no longer meet the two-out-of-five-year rule.

Moving Forward

Figuring out what to do if your home isn’t selling is frustrating, especially if your financial plans hinge on the sale. But by understanding your options, you can make a well-informed decision that helps support your financial goals and takes advantage of potential federal tax breaks. State taxes may also apply. Consult with your tax advisor before deciding on the optimal strategy for your situation.

Proposal in Washington to Eliminate Capital Gains Taxes on Home Sales

If a new bill gains traction, there could be good news ahead for homeowners looking to sell their homes. Currently, qualified sellers can exclude up to $250,000 in capital gains from the sale of a primary residence ($500,000 for married couples filing jointly). This limit was set in 1997. U.S. Rep. Marjorie Taylor Greene (R-GA) has introduced a bill to raise or eliminate that exclusion, calling the current threshold “an outdated, unfair burden,” particularly in today’s high-priced housing market. She says the change could boost the housing supply by removing a financial barrier to selling. The “No Tax on Home Sales Act” is still in its early stages so it’s unclear whether it could be enacted. But it has caught the attention of President Trump who said he’s “thinking about no tax on capital gains on houses.”