Month: August 2026

Retirement can bring significant changes to your finances, and your tax situation. While you may no longer receive a regular paycheck from an employer, you could still have several sources of taxable income, including retirement account withdrawals, pensions, investment income, and even part-time work. Understanding how your income will be taxed can help you plan ahead, avoid surprises, and make the most of your retirement savings.

A Bedford resident was planning her upcoming retirement. Wanting to make sure she was fully prepared first, she contacted the team at Merrimack Tax Associates with questions about how this would affect her taxes.

Retirement Account Withdrawals Can Create Taxable Income

If you have money in a traditional 401(k), 403(b), or IRA, withdrawals are generally subject to ordinary income tax. This means that taking a large distribution in a single year could potentially push you into a higher tax bracket. 

Roth IRAs work differently. Qualified withdrawals from a Roth IRA are generally tax-free, provided you meet the applicable requirements. Because of this, having a mix of traditional and Roth retirement accounts may give you more flexibility when deciding where to take income from each year. Before making a large withdrawal, consider discussing your options with a tax professional to understand the potential tax consequences.

Required Minimum Distributions Can Affect Your Taxes

Once you reach the applicable age for required minimum distributions (RMDs), you generally must begin taking annual withdrawals from certain tax-deferred retirement accounts. These distributions are typically taxable and can increase your taxable income.

RMDs can also have other tax consequences. For example, higher income may affect how much of your Social Security benefits are taxable and could potentially increase your Medicare premiums through income-related adjustments. The rules surrounding RMDs can be complex, so it’s important to understand your obligations and plan for them in advance.

Pensions and Investment Income Matter

If you receive a pension, the taxable portion will depend on the type of pension and how contributions were made. Some pension income may be taxable, while other portions may not be. You may also have income from dividends, interest, capital gains, rental properties, or other investments. The tax treatment of each type of income can vary, making it important to look at your entire financial picture rather than considering each income source separately.

Retirement Is a Good Time for Tax Planning

One of the biggest advantages of retirement is that you may have more control over when and how you receive income. That flexibility can create opportunities for tax planning. Some retirees may benefit from spreading retirement account withdrawals across multiple years rather than taking large distributions all at once. Others may consider Roth conversions during years when their taxable income is lower. The right strategy will depend on your income, assets, filing status, and long-term goals.

Retirement planning shouldn’t stop when you leave the workforce. Your tax strategy may need to evolve throughout retirement as your income, investments, and financial needs change.

With the help of Merrimack Tax Associates, the Bedford resident was able to develop a strategy designed to help you keep more of her hard-earned retirement income. Planning ahead now will help her enter retirement with greater confidence, and avoid unnecessary tax surprises along the way.

Buying or selling a home is a major financial decision, and the tax implications can be easy to overlook. While purchasing a home doesn’t automatically result in a large tax deduction, homeowners may qualify for certain tax benefits. Selling a property can also have tax consequences, particularly if the home has increased significantly in value. Understanding the potential tax impact before you buy or sell can help you plan ahead and avoid unexpected surprises.

A Hudson resident was looking to buy his first home. Prior to putting in an offer, he wanted to better understand the tax implications of buying a home.

Tax Considerations When Buying a Home

One of the most common misconceptions about buying a home is that the entire cost of the mortgage is tax deductible. In reality, the tax benefits of homeownership are more limited. If you itemize deductions on your federal tax return, you may be able to deduct qualified mortgage interest, subject to applicable tax rules and limits. 

Mortgage points paid in connection with the purchase of a primary residence may also be deductible in certain situations. The rules depend on how the points were paid and whether the transaction meets IRS requirements. It’s important to keep detailed records of your home purchase, including your closing statement and documentation of eligible expenses. These records may become particularly important when you eventually sell the property.

Home Improvements Can Affect Your Taxes Later

While most home improvements aren’t immediately deductible on your federal income tax return, they may increase your home’s tax basis. Your basis is generally the amount used to determine your taxable gain or loss when you sell the property. Significant improvements such as a new roof, kitchen renovation, or addition may increase your basis. Keeping receipts and records of qualifying improvements can potentially reduce the amount of taxable gain when you sell.

Routine repairs and maintenance generally don’t increase your basis in the same way. That’s why it’s a good idea to maintain organized records and consult with a tax professional if you’re unsure whether an expense qualifies.

Selling Your Primary Residence

One of the most valuable tax benefits available to many homeowners applies when selling a primary residence. If you meet certain ownership and use requirements, you may be able to exclude up to $250,000 of capital gain from your taxable income if you’re single, or up to $500,000 if you’re married filing jointly. You must have owned and used the home as your primary residence for at least two of the five years before the sale. There are exceptions and special rules that may apply, so not every homeowner will qualify for the full exclusion.

It’s also important to understand that the taxable gain isn’t simply the difference between what you originally paid and what you sell the home for. Your calculation may take into account your adjusted basis, certain selling expenses, and qualifying improvements.

Selling an Investment or Rental Property

The tax rules can be very different if you’re selling a rental property, vacation home, or investment property. The sale may result in capital gains, and depreciation claimed during the time you owned a rental property can affect the tax treatment. In some circumstances, a transaction involving investment real estate may qualify for a tax-deferred exchange under Section 1031. However, these transactions have specific requirements and strict rules, so professional guidance is essential.

Plan Ahead Before Buying or Selling

Whether you’re purchasing your first home, moving to a new property, downsizing for retirement, or selling an investment property, understanding the tax implications can help you make more informed financial decisions.

The team at Merrimack Tax Associates was able to give the Hudson resident a better understanding of how his taxes would be affected by the purchase, and later sale, of a home.