Tax free income!











As a general rule, all income you receive in the form of money, property, or services is taxable and must be reported on your income tax return -  unless specifically excluded by US tax laws. Even though it feels like everything is taxable (!), below are a few examples of what you can put in your pocket tax-free!



1.    Real estate


Tax free =  up to $250,000 (single) or $500,000 (married filing jointly) of the gain on the sale of your home if you meet certain timing requirements (
Home sale exclusion).
To know more about the home exclusion:
https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips


Tax free =  the first $40,000 (single) or $80,000 (married filing jointly) of the gain on the sale of real estate property that you held as investment one year or more (
real estate long term capital gain).


Tax free = 
rental income collected for a rental period shorter than 14 days in the year.
To know more about other real estate tax benefits:
https://www.kbfinancials.biz/real-estate---immobilier.html



2.    Retirement


Tax free = 
Social Security retirement if social security is your only source of income.


Tax free = 
Roth IRA withdrawals if  you held the Roth IRA for 5 years and the distribution is due to either reaching 59½, death or disability or a first-time home purchase.

To know more about retirement accounts:
https://www.kbfinancials.biz/save-for-retirement.html



3.    Health & Education


Tax free =
Coverdell / ESA distributions if they are used to pay for tuition and books.


Tax free = 
Scholarships if you are a degree candidate at an eligible educational institution and you use the funds to pay for tuition.


Tax free =
HSA  distributions if they are used to pay for medical costs.

To know more about Health tax deductions:
https://www.kbfinancials.biz/tax-benefits-for-your-medical-expenses.html



4.    Investment income


Tax free = the first $40,000 (single) or $80,000 (married filing jointly) of the capital gain on shares /stock - that you hold as investment for one year or more (
long term capital gain).


Tax free = interest on a
municipal bond used to finance government operations if the bond is issued by a state, the District of Columbia, a U.S. possession, or any of their political subdivisions such as port authorities, toll road commissions, utility services authorities, community redevelopment agencies, or qualified volunteer fire departments.



5.    Gift & Inheritance


Tax free =  gifts received from relative or
inheritance.


Tax free =
life insurance proceeds -  due to the death of the insured person.



6.    Damages & support


Tax free =  amounts received as compensation for
physical injury or sickness – including awards received for loss of wages or earnings, loss of earning capacity, and for impairment, medical bills, etc.


Tax free = compensation received for workplace injuries (
worker’s comp).


As always in tax law, there are exception to the above rules, so make sure you contact your tax professional
Karine Bauer, EA for answers specific to your tax situation.  As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.
Bear in mind the date of this article as tax laws evolve over time.

Updated on : May 14th, 2021