Question

John is interested in tax planning and saving for his children’s education. He needs some further information on the topics below:

He has several long- and short-term investments that he would like to sell to put his children through college, and he does not know the tax consequences associated with them if he sells.

He is considering taking a second mortgage or home equity loan on the house in order to increase funds available for his children's tuition. He would like to understand the deductibility of the interest and any limitations that exist.

He is considering contributing to his IRA or converting to a Roth, but maybe he can wait a couple years before doing this as he believes there are severe tax consequences to this. He would also like to know about the income limitations to convert from an IRA to a Roth.

He asks about any credits that he could get for paying for his children's tuition, room, and housing.

John is married and has a combined adjusted gross income of $135,000; he currently has a mortgage of $500,000.

discuss this topic Interest deduction and explain the tax consequences associated with his or her topic and how it relates to John’s situation.

Answer 1

John is having Long term and short term investments. If He sells Lon term Inestments then Long Term Capital Gain shall arises and he has to pay for it. If he sells short term investments the Short term Capital Gain arises and He has to pay for it.

For Mortgage Property John can claim deduction interest paid on Housing Mortgage Loan because

The IRS allows a deduction for interest paid on a loan secured by a first or second home. That includes several commonly-used loans:

Purchase loans (your primary mortgage when you borrow money to buy a house)
Home equity loans (also known as a second mortgage), which provide a lump-sum of cash
Home equity lines of credit, which allow you to spend from a credit line.

If John Converts IRA into ROTH IRA, He will have to pay Income tax on the amounts that are converted from.

Once He will decide a Roth IRA is his best retirement choice, the decision to convert comes down to his current year's tax bill. That's because when he moves money from a pre-tax retirement account such as a Traditional IRA or 401(k) to a Roth, he has to pay taxes on that income.

By contrast, although he generally get a tax deduction on his contributions to a Traditional IRA and the money grows tax free—he has to pay taxes when he withdraws the money in retirement. To avoid this, many investors do a Roth IRA conversion, moving their money from a Traditional IRA to a Roth.

He can claim deduction for his payment for tution fees for his children.

If John Files income tax return Form 1040 by combining he and his spouces' income then He will get standard deduction of $24,000.

Again for interest deduction, For tax years before 2018, John can also generally deduct interest on home equity debt of up to $100,000 regardless of how he uses the loan proceeds.