Why doesn't Planner utilize 0 in Tax rate on gain in the Asset Sale Information tab?

SeanHG

Planning on selling our house next year and downsizing to a smaller one - I expect about $400K profit. No matter whether I use the "Tax rate on gain" dropdown to either "No tax (0%)" or "Custom rate of:" and put 0% in, the Planner still shows the house sale as Taxable. The planner even has a section showing the correct Capital Gains exemption panel, and that's been filled out correctly ("Use exemption" checkbox checked, and "Filing jointly" checkbox checked). I've even upped the "Exemption amount" to $5M! Still shows $400K as taxable income on the Planner bar graph! What am I doing wrong?

Chris_QPW

Does it actually deduct any tax for the house sale?

I think you might be confused with the fact that it put the in the Taxable part of the Portfolio Value section, which is correct. If you sell your house, and it is your principal residence, and it is below the $250,000/$500,000 exemption you pay no tax on that sell. But that money has to go somewhere. And since it isn't going to be able to go into a tax deferred account, it is going to go into a taxable account (at least for a short period of time). If you turn around and use some of that money for a new house, that part is now "not taxable" because it will be moved out of the taxable account into the house account, but the remaining money in the taxable account will be subject to taxes on any gains, like interest. That is really the definition of a "Taxable account". You don't pay taxes on moving money into such an account, or holding it in that account, you pay taxes on any income that account creates.

I did a test and saw that if I used "No tax (0%)" and looked at the table for that year, that no tax was taken out for the house. Like this:

And when I set it to have a percentage and over $500,000 in value the tax line for the house showed up.

Chris_QPW

Does it actually deduct any tax for the house sale?

I think you might be confused with the fact that it put the in the Taxable part of the Portfolio Value section, which is correct. If you sell your house, and it is your principal residence, and it is below the $250,000/$500,000 exemption you pay no tax on that sell. But that money has to go somewhere. And since it isn't going to be able to go into a tax deferred account, it is going to go into a taxable account (at least for a short period of time). If you turn around and use some of that money for a new house, that part is now "not taxable" because it will be moved out of the taxable account into the house account, but the remaining money in the taxable account will be subject to taxes on any gains, like interest. That is really the definition of a "Taxable account". You don't pay taxes on moving money into such an account, or holding it in that account, you pay taxes on any income that account creates.

I did a test and saw that if I used "No tax (0%)" and looked at the table for that year, that no tax was taken out for the house. Like this:

And when I set it to have a percentage and over $500,000 in value the tax line for the house showed up.

SeanHG

Thanks, Chris - so, no, it doesn't show "Tax on sale of assets/homes", so it looks like your first screen-grab. Since I choose the "I will invest the proceeds." radio button on the last page of the Sale Info on my house, it does show the proceeds going into expenses, but not into the taxes portion of those expenses.

Your explanation now makes sense. The "Taxable" portion of my portfolio bar graph really isn't taxable (since I'll claim the exemption), but Quicken has to show it that way - for a layperson, that seems weird, but digging into the details clears the confusion up.

Thanks again!

Chris_QPW

Yeah, the terms "Taxable", "Tax Deferred" sometimes seems a bit backwards.

If you withdraw money from a Taxable account, you don't pay taxes on it.

If you withdraw money from a Tax Deferred one you do.

And the whole concept of "Income" as far as the IRS is concerned, is different than most people think of when they think of their paycheck. If you want to reduce your taxes one approach is to take money out of your Taxable account to pay for expenses instead of a Tax Deferred account.