What tax considerations should be addressed when a married couple with $200,000 AGI in 2024 withdraws $60,000 from a non-retirement brokerage account for a home purchase in New York?
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When a married couple with $200,000 AGI in 2024 withdraws $60,000 from a non-retirement brokerage account for a home purchase in New York, several federal and New York State tax considerations must be addressed. Below is a comprehensive analysis of the relevant issues:
1. Federal Tax Considerations
a. Nature of the Withdrawal
- Non-retirement brokerage account withdrawals are not themselves taxable events. The tax consequences depend on whether the withdrawal involves the sale of securities or other investments, and if so, whether there is a gain or loss on those sales.
b. Capital Gains and Losses
- If the $60,000 is raised by selling investments (stocks, bonds, mutual funds, etc.), the couple must determine the cost basis of the assets sold and calculate the capital gain or loss.
- Long-term capital gains (assets held >1 year) are taxed at preferential rates: 0%, 15%, or 20%, depending on taxable income.
- For 2024, the 15% capital gains rate applies to married filing jointly taxpayers with taxable income up to $553,850; the 0% rate applies up to $89,250. With $200,000 AGI, the couple will likely pay the 15% rate on most or all of their long-term capital gains.
- Short-term capital gains (assets held ≤1 year) are taxed as ordinary income at the couple’s marginal tax rate.
c. Reporting
- The sale of investments must be reported on Form 8949 and Schedule D of Form 1040.
- The brokerage will issue a Form 1099-B showing proceeds, cost basis, and gain/loss.
d. Net Investment Income Tax (NIIT)
- The couple’s AGI ($200,000) is below the $250,000 threshold for married filing jointly, so the 3.8% NIIT on net investment income does not apply.
e. Use of Funds
- There is no federal tax deduction or exclusion for using non-retirement funds to purchase a home. The use of the funds (for a home purchase) does not affect the taxability of the gains.
f. Capital Losses
- If the sale of investments results in a net capital loss, up to $3,000 can be deducted against ordinary income, with the remainder carried forward to future years.
2. New York State Tax Considerations
a. Taxation of Capital Gains
- New York State taxes capital gains as ordinary income. There is no preferential rate for long-term capital gains; they are included in New York adjusted gross income (NYAGI) and taxed at the applicable state rates.
b. Reporting for Married Couples
- If the couple files a joint federal return but separate New York State returns, each spouse must report their share of income from jointly owned property (such as a joint brokerage account) as if they had filed separate federal returns.
- For joint tenants or tenants by the entirety, each spouse reports half the income from the property.
- For tenants in common, income is reported in proportion to each spouse’s ownership interest.
c. Capital Loss Carryover
- The New York State capital loss carryover is determined by what would be allowable for federal purposes if separate federal returns had been filed.
d. Deductions and Credits
- There is no New York State deduction or credit for using non-retirement funds to purchase a home.
3. Other Considerations
a. Documentation
- The couple should retain records of the cost basis, date of acquisition, and sale of any investments liquidated to fund the withdrawal.
b. Gift Tax
- If the funds are used to purchase a home jointly, there are no gift tax issues. If one spouse gifts their share to the other, or to another person, federal gift tax rules may apply, but this is not typical for a joint home purchase.
c. Home Purchase Tax Benefits
- The purchase of a home may entitle the couple to deduct mortgage interest and property taxes if they itemize deductions, but this is separate from the tax treatment of the brokerage account withdrawal.
Summary:
- The withdrawal itself is not taxable, but the sale of investments to fund the withdrawal may trigger capital gains or losses, which must be reported on both federal and New York State returns.
- Long-term capital gains are taxed at 15% federally for this income level, and at ordinary rates in New York.
- There is no special federal or New York State tax benefit for using non-retirement funds for a home purchase.
- Proper reporting and documentation are essential, and the couple should consider the timing and tax impact of any investment sales.
If you need a calculation of the specific tax impact based on the cost basis and holding period of the investments to be sold, please provide those details.
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