Can you help us with our taxes?
April 1, 2021 10:03 PM   Subscribe

We donated a house to a non-profit in 2020. How can we best take advantage of this when filing taxes for the next few years?

We are a married couple with no kids in the US.

- In 2020, we donated our house to a non-profit. All our paperwork is in order if we want to deduct that as a charitable donation.
- Normally, our income is less than the standard deduction and we do not pay taxes. We've never itemized before! We don't qualify for most of the deductions listed here.
- Our 2020 income (~$24k) is less than the standard deduction, so we can skip itemizing and still not pay taxes, BUT...
- We expect our 2021 income to be ~$45k, which is way more than the standard deduction because unemployment gave us most of a year of back-pay. (It was for being unemployed in 2020, but they paid us in 2021 and it is therefore taxed as 2021 income.)
- We don't want to owe federal taxes in 2021.

1) Is there a way to apply the donation of the house to our 2021 taxes? (It looks like if we itemize for 2020, we can roll over the excess donation amount for five years. That messes things up for 2020 because we can't deduct more than 60% of our income in any given year based on a charitable donation. We don't qualify for other deductions, so we would wind up paying taxes for 2020.)
2) What specific things can we do to not owe federal taxes in 2021 if our income is ~$45k, assuming we can't deduct that charitable donation from 2020?
posted by anonymous to Work & Money (6 answers total)
I am far from a tax expert. I think you are on the right path. If you do itemize this year, there may be a loss carry forward or some such concept.

The best answer is to talk to an actual tax professional, not the internet. If it were me, I would talk to an actual accountant, not someone at one of the chain tax preparers. It might cost you $1,000 (or more) to have them advise and file for you, so you need to do some calculation to figure out if it is worth it in the tax savings. Figure they will need to file 2020 and 2021 taxes for you when figuring the costs. This is also dependent on the value of the house.
posted by AugustWest at 10:26 PM on April 1, 2021 [1 favorite]

To chime in on the cost of the accountant. It shouldn't cost 1000 even for 2 years. You can easily find some one to do this for a under 200 per year.
posted by pyro979 at 5:01 AM on April 2, 2021 [1 favorite]

We don't want to owe federal taxes in 2021.
It is not clear if you are saying you don't want to have to pay in when you file for 2021 (in early 2022) or if you don't want to end up paying anything in Federal taxes for the entire year. Not having to pay in when filing in 2022 just requires you to make payments in 2021 - either by withholding or estimated payments.

The option to carry forward the charitable amounts on your taxes might not require you to itemize in 2020. You should check with an accountant. Generally you can carry forward the amount you donated minus the amount you could have claimed for 2020. 60 percent of 24K is 14,400, which would leave you with $9600 in taxable income and a tax bill of $960. For 2021, your charitable amount would be (house value - 14,400). If your income is 45K, your charitable deduction will be capped at 27K. This still leaves you with 18K in income, minus any state or local taxes you pay. If you don't pay other taxes, your tax bill will be about $1,876. That is the amount you should pay in estimated taxes during the year to avoid owing at the end of the year. This is all just my own calculations and you should really talk to an expert.
posted by soelo at 6:39 AM on April 2, 2021

The official IRS publications are always the best place to start.

Instructions for Form 8283 - Noncash Charitable Contributions (Rev. December 2020)

When you speak with an accountant, you will come in as a somewhat knowledgeable client.
posted by yclipse at 7:04 AM on April 2, 2021

According to one CPA, you cannot carry forward a deduction made in a year in which you don't itemize, which makes sense.

But you can itemize even if it results in a higher tax bill this year; just check the box on line 18.

Whether this is a useful strategy depends on the value of the house and your anticipated future income. If you expect your income to return to the $24k range, then you would have a limited benefit beyond 2021. And it's not clear if you would even benefit much in 2021, because if you're limited to deducting 50 or 60 percent of your income, that's not much more than the standard deduction.

You also need to ask the charity whether it is a 50% limit organization.

With your relatively low 2020 income, you may qualify for assistance from a free tax preparation clinic; search in your area or look here. Although this definitely isn't a standard low-income tax question, if you're lucky they can link you to a volunteer accountant. (At the clinic I once volunteered at, most volunteers were just people who took a one-day training course, but we were managed by experienced volunteer accountants. Also, if you have low income but significant assets, maybe skip this, or make a donation to the clinic?) Alternatively, try to find an accountant who will let you pay for an hour of consultation time.
posted by Mr.Know-it-some at 7:14 AM on April 2, 2021

According to one CPA, you cannot carry forward a deduction made in a year in which you don't itemize, which makes sense.
Read the comments and you will see there are people on that exact page who disagree and have done just that in previous years. This is why you need a professional, because it may just be that those people weren't caught.
posted by soelo at 11:00 AM on April 2, 2021

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