1. DRs Lewis and Clara Smith have come to you for tax advice. They refinanced their personal residence on July 17, 2017. The Fair Market Value of the home at that time was $500,000 and the mortgage balance was $450,000. They used the $450,000 of proceeds to buy a race horse. The Fair Market Value of the residence was $1,200,000 on December 31, 2019. The balance of the refinancing loan was $200,000 on December 31, 2018 and $150,000 on December 31, 2019. In 2019, the Smith's took out a home equity loan of $50,000 to remodel their kitchen. The Smith's paid real estate taxes of $20,000 in 2019. All loans were secured by their residence. How much interest can the Smith's deduct on their 2019 return? 2. The Smiths (using the facts in question 1 above) sold their home on January 10, 2020 for $2,500,000. What are the tax consequences to the Smiths from selling their home? 3. The Smiths (using the facts in question 1 above) are both physicians. They operate their joint practice out of their home. Their house is 5,000 square feet and the portion used for the practice is 25%. Their driveway / parking lot is 1,000 square feet. What tax advice would you give to the Smiths on the use of their home for business? 4. The Smiths (using the facts in question 1 above) purchased a solar electric system using solar panels for their residence in 2019 for $50,000 including installation. What tax advice would you give to the Smiths on the purchase of the solar electric system? 5. Discuss in detail the Pennsylvania Intestate laws. If person dies without a will in PA, the assets will go to his/her closest relatives under state "intestate succession" laws. Only assets that would have passed through the will are affected by intestate succession laws. Many valuable assets don't go through the will and aren't affected by intestate succession laws. For example: property that is transferred to a living trust; funds (IRA, 401k, or other retirement account); securities held in a transfer-on-death account; life insurance proceeds; property owned jointly; payable-on-death bank accounts. These assets will pass to the surviving co-owner or to the beneficiary you named, regardless if you have a will or not. Who Gets What in Pennsylvania? Under intestate succession, who gets what depends on whether or not you have living children parents, or other close relatives when you die. Here's a quick overview: If you die with: here's what happens: children but no spouse children inherit everything spouse but no descendants or parents spouse inherits everything spouse inherits the first $30 000 of your spouse and descendants from you and intestate property, plus 1/2 of the balance that spouse your descendants inherit everything else spouse and descendants from you and spouse inherits 12 of your intestate property someone other than that spouse . descendants inherit everything else spouse inherits the first $30,000 of your spouse and parents intestate property, plus 1/2 of the balance parents inherit remaining intestate property parents but no spouse or descendants . parents inherit everything siblings but no spouse descendants, Siblings inherit everything or parents In Pennsylvania, if you are married and you die without a will, what your spouse gets depends on whether or not you have living parents or descendants -- children, grandchildren, or great- grandchildren. If you don't, then your spouse inherits all of your intestate property. If you do, they and your spouse will share your intestate property as follows: If you die with parents but no descendants. Your surviving spouse inherits the first $30,000 of your intestate property, plus 1/2 of the balance. If you die with children or other descendants from you and the surviving spouse. Your surviving spouse inherits the first $30,000 of your intestate property, plus 1/2 of the balance. If you die with descendants who are not the descendants of your surviving spouse. Your spouse inherits 1/2 of your intestate property. These rules do not apply if your spouse has "willfully neglected or refused to perform the duty" of supporting you for at least one year. They also do not apply if you die in the state of Pennsylvania during divorce proceedings from your spouse. (20 Pa. Cons. Stat. $ 2106.) If you die without a will in Pennsylvania, your children will receive an "intestate share" of your property. The size of each child's share depends on how many children you have, whether or not you are married, and whether your spouse is also your children's parent. (See the table above.) For children to inherit from you under the laws of intestacy, the state of Pennsylvania must consider them your children, legally. For many families, this is not a confusing issue. But it's not always clear. Here are some things to keep in mind. Adopted children. Children you legally adopted will receive an intestate share, just as your biological children do. (20 Pa. Cons. Stat. $ 2108.) Foster children and stepchildren. Foster children and stepchildren you never legally adopted will not automatically receive a share. Children placed for adoption. Children you placed for adoption and who were legally adopted by another family will not receive a share. However, if your biological children were adopted by your spouse, that won't affect their intestate inheritance. (20 Pa. Cons. Stat. 2108.) Other relatives placed for adoption. A relative other than your child -- for example, your grandchild -- who was legally adopted by another family may receive a share of your estate if the relative would otherwise be entitled to inherit from you and you have "maintained a family relationship." (20 Pa. Cons. Stat. $ 2108.) Posthumous children. Children conceived by you but not born before your death will receive a share. (20 Pa. Cons. Stat. $ 2104.) Children born outside of marriage. If you were not married to your children's mother when she gave birth to them, they will receive a share of your estate if (1) you and their mother get married later, (2) you publicly claim the child as your own and financially support the child, or (3) your paternity is otherwise proved under Pennsylvania law. (20 Pa. Cons. Stat. 2107.) Children born during your marriage. Any child born to your wife during your marriage is assumed to be your child and will receive a share of your estate. Grandchildren. A grandchild will receive a share only if that grandchild's parent (your son or daughter) is not alive to receive his or her share. (20 Pa. Cons. Stat. 2104.) If you die without a will and don't have any family, your property will escheat" into the state's coffers. However, this very rarely happens because the laws are designed to get your property to anyone who was even remotely related to you. For example, your property won't go to the state if you leave a spouse, children, grandchildren, parents, grandparents, siblings, nieces, nephews, aunts, uncles, or cousins. Here are a few other things to know about Pennsylvania intestacy laws. Survivorship period. To inherit under Pennsylvania's intestate succession statutes, a person must outlive you by five days. So, if you and your brother are in a car accident and he dies a few hours after you do, his estate would not receive any of your property. (20 Pa. Cons. Stat. $ 2104.) Half-relatives. "Half" relatives inherit as if they were "whole." That is, your sister with whom you share a father, but not a mother, has the same right to your property as she would if you had both parents in common. (20 Pa. Cons. Stat. $ 2104.) Posthumous relatives. Relatives conceived before -- but born after -- you die inherit as if they had been born while you were alive. (20 Pa. Cons. Stat. 2104.) Immigration status. Relatives entitled to an intestate share of your property will inherit whether or not they are citizens or legally in the United States. (20 Pa. Cons. Stat. $ 2104.) Slayer rule. Someone who willfully and unlawfully" kills you will not receive a share of your estate. (20 Pa. Cons. Stat. 2106.) Advancements. If you give property to a relative during your lifetime, the value of this gift is subtracted from your relative's share if you or your relative stated this in writing. (20 Pa. Cons. Stat. 9 2109.1.) 1. DRs Lewis and Clara Smith have come to you for tax advice. They refinanced their personal residence on July 17, 2017. The Fair Market Value of the home at that time was $500,000 and the mortgage balance was $450,000. They used the $450,000 of proceeds to buy a race horse. The Fair Market Value of the residence was $1,200,000 on December 31, 2019. The balance of the refinancing loan was $200,000 on December 31, 2018 and $150,000 on December 31, 2019. In 2019, the Smith's took out a home equity loan of $50,000 to remodel their kitchen. The Smith's paid real estate taxes of $20,000 in 2019. All loans were secured by their residence. How much interest can the Smith's deduct on their 2019 return? 2. The Smiths (using the facts in question 1 above) sold their home on January 10, 2020 for $2,500,000. What are the tax consequences to the Smiths from selling their home? 3. The Smiths (using the facts in question 1 above) are both physicians. They operate their joint practice out of their home. Their house is 5,000 square feet and the portion used for the practice is 25%. Their driveway / parking lot is 1,000 square feet. What tax advice would you give to the Smiths on the use of their home for business? 4. The Smiths (using the facts in question 1 above) purchased a solar electric system using solar panels for their residence in 2019 for $50,000 including installation. What tax advice would you give to the Smiths on the purchase of the solar electric system? 5. Discuss in detail the Pennsylvania Intestate laws. If person dies without a will in PA, the assets will go to his/her closest relatives under state "intestate succession" laws. Only assets that would have passed through the will are affected by intestate succession laws. Many valuable assets don't go through the will and aren't affected by intestate succession laws. For example: property that is transferred to a living trust; funds (IRA, 401k, or other retirement account); securities held in a transfer-on-death account; life insurance proceeds; property owned jointly; payable-on-death bank accounts. These assets will pass to the surviving co-owner or to the beneficiary you named, regardless if you have a will or not. Who Gets What in Pennsylvania? Under intestate succession, who gets what depends on whether or not you have living children parents, or other close relatives when you die. Here's a quick overview: If you die with: here's what happens: children but no spouse children inherit everything spouse but no descendants or parents spouse inherits everything spouse inherits the first $30 000 of your spouse and descendants from you and intestate property, plus 1/2 of the balance that spouse your descendants inherit everything else spouse and descendants from you and spouse inherits 12 of your intestate property someone other than that spouse . descendants inherit everything else spouse inherits the first $30,000 of your spouse and parents intestate property, plus 1/2 of the balance parents inherit remaining intestate property parents but no spouse or descendants . parents inherit everything siblings but no spouse descendants, Siblings inherit everything or parents In Pennsylvania, if you are married and you die without a will, what your spouse gets depends on whether or not you have living parents or descendants -- children, grandchildren, or great- grandchildren. If you don't, then your spouse inherits all of your intestate property. If you do, they and your spouse will share your intestate property as follows: If you die with parents but no descendants. Your surviving spouse inherits the first $30,000 of your intestate property, plus 1/2 of the balance. If you die with children or other descendants from you and the surviving spouse. Your surviving spouse inherits the first $30,000 of your intestate property, plus 1/2 of the balance. If you die with descendants who are not the descendants of your surviving spouse. Your spouse inherits 1/2 of your intestate property. These rules do not apply if your spouse has "willfully neglected or refused to perform the duty" of supporting you for at least one year. They also do not apply if you die in the state of Pennsylvania during divorce proceedings from your spouse. (20 Pa. Cons. Stat. $ 2106.) If you die without a will in Pennsylvania, your children will receive an "intestate share" of your property. The size of each child's share depends on how many children you have, whether or not you are married, and whether your spouse is also your children's parent. (See the table above.) For children to inherit from you under the laws of intestacy, the state of Pennsylvania must consider them your children, legally. For many families, this is not a confusing issue. But it's not always clear. Here are some things to keep in mind. Adopted children. Children you legally adopted will receive an intestate share, just as your biological children do. (20 Pa. Cons. Stat. $ 2108.) Foster children and stepchildren. Foster children and stepchildren you never legally adopted will not automatically receive a share. Children placed for adoption. Children you placed for adoption and who were legally adopted by another family will not receive a share. However, if your biological children were adopted by your spouse, that won't affect their intestate inheritance. (20 Pa. Cons. Stat. 2108.) Other relatives placed for adoption. A relative other than your child -- for example, your grandchild -- who was legally adopted by another family may receive a share of your estate if the relative would otherwise be entitled to inherit from you and you have "maintained a family relationship." (20 Pa. Cons. Stat. $ 2108.) Posthumous children. Children conceived by you but not born before your death will receive a share. (20 Pa. Cons. Stat. $ 2104.) Children born outside of marriage. If you were not married to your children's mother when she gave birth to them, they will receive a share of your estate if (1) you and their mother get married later, (2) you publicly claim the child as your own and financially support the child, or (3) your paternity is otherwise proved under Pennsylvania law. (20 Pa. Cons. Stat. 2107.) Children born during your marriage. Any child born to your wife during your marriage is assumed to be your child and will receive a share of your estate. Grandchildren. A grandchild will receive a share only if that grandchild's parent (your son or daughter) is not alive to receive his or her share. (20 Pa. Cons. Stat. 2104.) If you die without a will and don't have any family, your property will escheat" into the state's coffers. However, this very rarely happens because the laws are designed to get your property to anyone who was even remotely related to you. For example, your property won't go to the state if you leave a spouse, children, grandchildren, parents, grandparents, siblings, nieces, nephews, aunts, uncles, or cousins. Here are a few other things to know about Pennsylvania intestacy laws. Survivorship period. To inherit under Pennsylvania's intestate succession statutes, a person must outlive you by five days. So, if you and your brother are in a car accident and he dies a few hours after you do, his estate would not receive any of your property. (20 Pa. Cons. Stat. $ 2104.) Half-relatives. "Half" relatives inherit as if they were "whole." That is, your sister with whom you share a father, but not a mother, has the same right to your property as she would if you had both parents in common. (20 Pa. Cons. Stat. $ 2104.) Posthumous relatives. Relatives conceived before -- but born after -- you die inherit as if they had been born while you were alive. (20 Pa. Cons. Stat. 2104.) Immigration status. Relatives entitled to an intestate share of your property will inherit whether or not they are citizens or legally in the United States. (20 Pa. Cons. Stat. $ 2104.) Slayer rule. Someone who willfully and unlawfully" kills you will not receive a share of your estate. (20 Pa. Cons. Stat. 2106.) Advancements. If you give property to a relative during your lifetime, the value of this gift is subtracted from your relative's share if you or your relative stated this in writing. (20 Pa. Cons. Stat. 9 2109.1.)