Insurance reimbursements are never taxable income. The only concern would be if you took a medical expense deduction on your 2018 return for the full amount of the dental care. In that case, the insurance reimbursement might be the reimbursement of a tax deduction, and reimbursed tax deductions are taxable to the extent that you received a tax benefit from the previous deduction.  This is complicated, and would require an analysis of all your medical expenses on your 2018 tax return. ... View more

@Starrynights11 wrote: Thanks to you both! I have looked for the substantial improvement language and can not find it in regards to using an IRA. I wonder if rebuilding has replaced it. We would have no problem using the funds within 60 days of withdrawal. Of course, I’d prefer not to make the repair with money that requires a 10% penalty.  You are looking for IRC §72(t)(2)(F) and 72(t)(8). Section 72(t)(2)(F) is the penalty exemption for first time home buyers and section 72(t)(8) is the definition of a first time homebuyer.   For purposes of this paragraph, the term “qualified acquisition costs” means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.   This is a bit odd because in other places, "qualified acquisition cost" for a primary residence is defined as "buy, build or make substantial improvement to", such as section 163 on mortgage interest.   I don't know why Congress used "reconstruct" in one law and "substantial improvement" in a different law. I would hope that an auditor would not make a big deal of it, but I am not an attorney.    https://www.law.cornell.edu/uscode/text/26/72 ... View more

Unfortunately, there’s nothing you can do this year until the IRS either approve your tax return or send you a letter, both of which are obviously delayed due to the coronavirus.  For the future, you may want to check the IRS website to see if you are eligible for the identity protection pin opt-in program.  If you are assigned a six digit IP pin, and include it with your tax returns in the future, it should speed processing because it pre-clears you for identity theft issues.  https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin ... View more

Unfortunately, the law doesn’t have your particular situation in mind.  A sellers concession is treated as a reduction in the sales price, and it doesn’t really matter what the reason is. You must use the IRA proceeds to pay for “qualified acquisition costs”. Qualified acquisition costs are costs used to buy, build, or substantially improve your home, plus any usual settlement fees associated with the transaction.  For example, if you were paying for an attorney or a survey or inspections out of pocket that is not going to be part of the $5000 you pay at the bank closing, you can include those costs as part of your “qualified acquisition costs.” You may also be able to invoke the “substantial improvement“ part of the definition of acquisition costs depending on what the repair is.  There are three elements here. First is the definition of an improvement. An “improvement“ is a permanent upgrade to the property that adds value or extends the working life of the property or one of its systems.  For example, a new roof would be an improvement because it extends the working life of the roof.  So would a new electrical system or tearing out recalled plastic plumbing.  Repairs maintain the property in as-is condition and are not improvements. This would include cleaning and painting.   The second element is whether an improvement is “substantial“.  There is no particular IRS guidance on what constitutes a substantial improvement.  If audited, you would have to explain to the auditor’s satisfaction.   The third element is that to be eligible for the penalty exemption, you must pay for the substantial improvement within 120 days of the date that you withdrew the money from the IRA.   So, if you believe that the work that needs to be done constitutes a substantial improvement, and if you can complete it within 120 days of the date you withdrew the money from the IRA, you can use the IRA money for the improvement and still be exempt from the penalty.  In TurboTax, when you enter the 1099 – R for the IRA withdrawal, you will only be asked to certify that you meet the exemption. You do not send proof with your tax return, but you should keep the proof on hand for at least seven years in case of audit.   If the work that needs to be done would not be considered a substantial improvement, you could still withdraw money from your IRA to pay for it, you will just have to pay the 10% penalty tax along with regular income tax.   You are never “out” the repair credit, it still is a price reduction on the cost of the house. The issue is whether or not you qualify for this particular tax exemption when you pay for the repairs.     ... View more

If you are only paying $5000 of your own cash to close on this house, then only $5000 of the IRA withdrawal is eligible for the penalty exception.   If you have already withdrawn the $10,000, you have 120 days to pay it back without penalty. (The normal period of time to repay a distribution is 60 days, so you will have to advise the plan trustee that this was for a home purchase and that the 120 day rule applies.)     Remember that distributions from an IRA are always subject to regular income tax. The only thing we are talking about here is the 10% additional tax penalty for early withdrawal. ... View more

That’s called “depreciation recapture“. Because you took a tax deduction for the depreciation, and the depreciation is now paid back in the form of profit, you have to repay the tax deduction you previously took. Depreciation recapture is never covered by the capital gains exclusion, although the rest of the gain is covered.   ... View more

On what account? Your credit report? The credit report tells lenders whether you pay your monthly bills on time. Making extra payments does not get included in your credit report. However, when you apply for a loan, the lender will take into account your total debt as well as whether or not you pay your monthly bills on time, so having lower overall debt will improve your chances of getting the next loan you apply for.   ... View more

First, do you have to prepare an Arizona non-resident return that list only your income earned in the state of Arizona. You owe Arizona income tax on this income. Then, you prepare a California state resident return that lists all your worldwide income and you pay California state income tax on all your income. You will get a credit for the tax you paid in Arizona, so your combined tax bill will not be any larger than if you paid California tax only.  In TurboTax, you have to prepare the Arizona nonresident return first in order for the credit to flow properly to the California state return. ... View more

Alimony is still taxable for divorces that were finalized before December 31, 2018. And still deductible to the payer. Alimony is not deductible or taxable for divorces finalized on or after January 1, 2019.  If your divorce is modified after January 1, 2019, you have the option of retaining the taxability and deductibility of alimony or changing to non-taxable/non-deductible alimony as part of the modification. ... View more