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I am a widow and I have some money in a life insurance account

that is earning 1% interest...
I am a widow and I have some money in a life insurance account that is earning 1% interest and is not taxable. I am thinking of moving to a new location and buying another property (other than my house) using a large portion of this money. I have a few questions about the wisdom of using this $, which is also my retirement cushion. Once I move it out of the account and invest it, I assume the investment is no longer tax free (property tax etc) is that true? Will the money invested in real estate gain more value than sitting in an account earning 1%? And lastly, if I sell the house I am currently in and then invest some of the proceeds of that in an annuity account, is that taxable? Or am I better off keeping the money in annuities and the like, and just selling my house and using that money to buy a new house? Thank you
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Answered in 3 minutes by:
7/28/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,224
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Hello and thank you for using Just Answer,
I assume the investment is no longer tax free (property tax etc) is that true? That is correct. If you move the money to something else the new investment will be subject to tax based on the investment.
Will the money invested in real estate gain more value than sitting in an account earning 1%? That would depend on the investment and it's use. If rental then you may find the income to be more than the 1% but tax will be applied so that may cancel out any increase.

Robin D :

if I sell the house I am currently in and then invest some of the proceeds of that in an annuity account, is that taxable? If this has been your main home for 2 out of the last 5 years before you sale you would be allowed to exclude gain up to $250,000 but tax would apply to remaing gain

Robin D :

Or am I better off keeping the money in annuities and the like, and just selling my house and using that money to buy a new house?

A more comprehensive evaluation by your financial advisor would be needed but I would leave the money in the annuities and use your main home to sale unless you anticipating getting more then $250,000 for the house then you have invested in it.

Robin D :

When you look to your investment in your home make sure you calculate your basis or cost correctly.

Robin D :

You said you are a widow, if you inherited your husband's portion when they passed then you did so at the amount that the house was worth when he passed.

Robin D :

To make it simple if you together purchased at $100,000 you each had $50,000 of basis. When he passed the house was worth $200,000. You inherited his half at $100,000 and your own basis of $50,000.

Robin D :

Now your basis is $150,000. If you sale for $300,000 you would have a gain of $150,000 but you can exclude that so you would not really owe tax on the sale.

Robin D :

I hope this information is helpful as you make your choices.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,224
Experience: 15years with H & R Block. Divisional leader, Instructor
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Customer reply replied 4 years ago

Hi Robin, This may also be a real estate question: The house I live in is paid for. I bought it after my husband died. I have lived in it for 2 years. If I buy the other house and move into it before I sell this one: Question 1: does the house I am buying qualify for a home loan or for an investment loan considering that at one point I may own two homes before the other one sells , and what if I decide to rent the original house out? Question # 2 is there a tax advantage to getting my real estate license and keeping one of the properties as an investment property and keep buying more properties as investments, as a business?

If you get your real estate lic and rent the first property out then you would not be held to passive income rules which means you could use more of any loss on the rental income against other income.
Even if you still own your first home getting a loan for another home should not matter for tax purposes. You would be allowed to use the interest on the second home and the real estate taxes on both when completing your Schedule A for itemizing.
The loan part I really could not say but it would not appear to matter that you own a home already. I would think as you are looking to purchase the property it too could be a home loan based on your using it for a second home and not what you may do with your present home or the new property in the future.

If you need more info about rental Just Answer may require you post a new question but you can always ask for me.
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Robin D.
Robin D.
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