In this episode of Tax Tuesday, Anderson Advisors' Barley Bowler, CPA, and Eliot Thomas, Esq., answer listener questions covering a broad range of real estate, retirement, and investment tax topics. They break down cost segregation studies and depreciation recapture, explaining how bonus depreciation accelerates deductions and how 1031 exchanges and stepped-up basis can help investors defer or eliminate gain entirely. They address whether vacated rental rooms can qualify as deductible office space, and walk through how multi-state 1099 income is taxed when a worker performs services in Kansas for California patients through a Utah company.

Barley and Eliot also clarify how MAGI determines the taxable portion of Social Security benefits in retirement, and confirm that qualified retirement plan distributions are protected from California taxation once a taxpayer has established residency in Nevada. Additional topics include 529 college savings plans for children attending accredited foreign universities, combining Roth IRAs with a payroll strategy for minor children, when Schedule E versus Schedule C applies to short-term rental income, and the significant hurdles of qualifying for Trader Tax Status — along with an alternative C-corporation trading structure that may offer far greater and more reliable tax advantages. Tune in for expert advice on these topics and more!

Submit your tax question to taxtuesday@andersonadvisors.com

Highlights/Topics:

[00:00] Intro to Tax Tuesday with Eliot and Barley

[7:10] "I would like to know more about cost segregation and depreciation recapture on property sales." Cost segregation accelerates deductions upfront. Recapture taxes those gains at ordinary rates upon sale.

[18:00] "At the beginning of this year, I moved into a new home. At my previous residence, I had been renting two rooms, and I am currently working to sublet them. I am still on the lease and committed to covering the cost of those two rooms until I find replacements. My question is: since I am continuing to pay for these rooms, would it be possible to classify them as office space and potentially use them as a tax deduction?" Have your business assume the lease directly. That creates a clean, legitimate deduction.

[22:53] "My wife is doing remote 1099 work, and I had a question on where state taxes are due. We live in Kansas and she performs the work from a home office or rented office space in Kansas. She is performing this work through a contracting/locums company based out of Utah, but the current work she is providing is for patients in California. Do we pay KS or CA state income tax for this 1099 work?" Both Kansas and California claim the income. Kansas credits taxes already paid to California.

[29:35] "Taxes in retirement: we know you can be taxed on Social Security. We don't know the details. How much can you make to avoid being taxed? Does the IRS include all incomes, passive and active? We just don't have details." Between 50–85% of benefits may be taxable. MAGI includes all income, even tax-exempt interest.

[36:54] "I have been a Nevada resident for 2 years. I started my retirement from a California corporation this year. Can California tax my retirement benefits now that I am a NV resident?" No. Federal law fully protects qualified retirement benefits paid to Nevada residents.

[40:55] "I am a business owner in Texas. My twin kids are growing up in a foreign country with their cousins. They may want to pursue higher education there. I haven't started a 529 college savings plan yet. If they decide not to go to college at an American university, what would be the best type of tax-sheltered account to invest in, for the kids?" 529 plans cover accredited foreign universities. Combine with a Roth IRA for maximum impact.

[48:17] "Is it okay to use Schedule E to report short-term rental income?" Yes, if you provide only minimal services. Substantial services push income to Schedule C.

[53:55] "For 2025 tax year, I made more than 800 trades - frequently - 3 days/week throughout the year. I made profits both from long-term investing and short-term trades. Am I eligible for Trader Tax Status and able to deduct my expenses in 2025 filing (I applied for extension)." Trader Tax Status is highly subjective and audit-prone. A C-corp trading structure is safer.

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