Quick question if I may, it looks like we are going to go through with a sale on my Dad's house in Florida. We expect to get roughly $30k on the sale. Is there a way to put some of that income into a shelter possibly for education for my kid's college... that won't show up on my taxes next year as income? I have 2 kids going to college and would not want to lose some scholarships for earning to much income on a one time deal.

Please clarify something - you say it's your Dad's house but actually it's your house, and so you are reporting the capital gain on yuor tax return, right? I'm guessing that perhaps you inherited the property from your Dad, and the sale does not qualify for the homeowner's capital gain exempion because you did not live in it as your principal residence for at least two of the previous five years. Also, when will your children be starting college? If in 2014 you may be eligible to a deduction on your 2014 taxes, reducing your reported income.

Other ways to reduce the income reported on federal tax return include:

1. Donate money to charity.
2. Invest in a tax-deductible traditional IRA - you can put $5500 into your IRA account ($6500 if age 50 or over) and the same into your wife's account, which will reduce your reported income by $11,000 ($13000 if age 50 or over). Retirememnt accounts like IRAs are not included in determing the family's need for scholarship aid. This assumes your income is below the limit for tax deductibility.
3. If you have any investments that are currently at a loss consider selling them - the loss will offset some of the capital gains on the property.

Thank you so much. Yes, my Dad passed away two years ago and we rented the house out for a year and are now fixing to close on it in a couple of weeks. I already have a 403b can I just dump it in there or do I need to open a new traditional IRA? …and can I put it in an IRA after getting the check or does it need to go directly from a third party at signing to the IRA? Hope that makes sense. -Dean

A 403(b) is a type of retirement plan typically offered by non-profit institutions, like a school. I don't believe you can deposit outside money there, but one option would be to increase the amount they withhold from your paycheck to 15% or more - this reduces your take home pay and you use the money from the sale of the house to live on while your paycheck (and taxes) is reduced. As for setiing up an IRA - you simply write a check; no need to have a direct transfer because the money is not coming from another retirement account. If you're under the income limit for a tax deductible IRA account you can do both strateguies - increase your 403(b) contributions and set up a new traditional IRA.

I'm going to suggest that you consult a tax specialist on this. As ebaines indicated, there are several factors here. The fact that you inherited it from your father indicates, the cost basis should be based on market value at the time of his death. You are anticipating a $30K profit from that?

This is further complicated by the fact that you rented the property for a time, that makes it commercial property, at least partially and affects your tax status for it.

You cannot throw the whole profit into an IRA as there are income limits. But you might be able to put it into a College investment account (529). Nor can you put it into a 403b as that is only for your employment.

If you want to shelter some of this income, a tax professional can advise you once they know all the facts.