Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 17, 2014 8:22:51 GMT -5
Sorry I haven't been around. I am having a few vision challenges lstely. Hopefully the Doc can fix them lnext month. I need the sage advice of this group. Crabby and I are old and broken. We need to find a one story house. How should we pay for it. Neither of us is fond of the idea of a mortgage, so our options are: 1. Take a home equity loan, add a few bucks and pay cash. 2. Finance with some non community property funds which I have. The concern I have here is capital gains. I kept it as "mine" so it could pass tax free to Crabby if I die before her. 3. Use funds from our joint brokerage account. Again, we are sitting on a lot of capital gains. 4. Use funds from my Roth IRA - no capital gains involved. Not sure if I should "borrow" from the IRA and pay it back or how that would work. 5. Or any combination of the above.
We usually use dividends from 2 and 3 for extra spending money.
We usually pay no or very little income tax, due to a good accountant, and my recent medical bills. Would the interest on a mortgage offset the capital gains? Whatever we do, some of the investments will be replaced when we sell our present house.
Any advise on what would be the best course of action?
|
|
Deleted
Joined: Apr 19, 2024 3:15:07 GMT -5
Posts: 0
|
Post by Deleted on Jun 17, 2014 8:36:55 GMT -5
What is wrong with a mortgage? It will keep your assets more liquid for you and if you can afford to pay outright, you will always be able to afford the mortgage payment.
|
|
Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 17, 2014 8:41:49 GMT -5
Later, mostly because we don't like debt and at present, we don't need the income tax deduction. We are just very unsure which way to go.
|
|
Bonny
Junior Associate
Joined: Nov 17, 2013 10:54:37 GMT -5
Posts: 7,437
Location: No Place Like Home!
|
Post by Bonny on Jun 17, 2014 9:25:02 GMT -5
You might want to post this question over on the tax thread too since most of your questions are tax related.
Sounds like you want to buy 1st, move and then sell.
How "hot" is your real estate market? In mine about half of the sales are STILL all cash so in order to compete in a multiple offer situation it's best to use cash.
Is your current home paid for? If you did a HELOC could you pay cash for the new?
You know on YM we beat the "Pay off the home mortgage debate" to death. While it's probably true that you can make more money by having a cheap mortgage and keeping your money invested unless you have a really strong pension stream of income I think there's real value in being able to sleep at night. We split the baby in that our home is paid off but two of our rentals have mortgages. OTOH I advised nearly 80 year old MIL to refinance her mortgage two years ago because she has a Federal Pension of $104+ dividends and RMDs. It was a smart move for her as not only has her investments increased by 25% she could also use the tax deduction for an income of about $140k including her investments.
A couple of random thoughts;
If you're not paying any tax now your capital gains tax is probably going to be really low too. I'd model how much that capital gain is going to actually be.
Remember it doesn't have to be all or nothing. Perhaps you keep the HELOC for 5 years and sell stock/take RMDs over the 5 year period and pay off the mortgage.
Is there any way to manipulate your current income to off-set capital gains e.g. can you forego some income for a while?
I believe you can "gift" securities to your spouse effectively tax-free. You might want to ask your accountant or over on the tax board. mwcpa and some other posters are really helpful.
Finally your situation is going to be unique. Ultimately only you and your accountant know all of your details, income source, stocks et cetera. You can get some great ideas here but ultimately you're going to need to go back to your professional and craft a plan.
|
|
justme
Senior Associate
Joined: Feb 10, 2012 13:12:47 GMT -5
Posts: 14,618
|
Post by justme on Jun 17, 2014 9:28:15 GMT -5
If that's the case (I was wondering why selling your current house to buy the new one wasn't an option), just take out a mortgage and then once you sell the house you're in now put all that money towards the mortgage. If it's not enough to pay it off than you can decide whether to keep paying it (with a drastically shorter time frame due to the payoff) or take money out of somewhere else to pay it off.
|
|
The Virginian
Senior Member
"Formal education makes you a living, self education makes you a fortune."
Joined: Dec 20, 2010 18:05:58 GMT -5
Posts: 3,629
Today's Mood: Cautiously Optimistic
Location: Somewhere between Virginia & Florida !
Favorite Drink: Something Wet & Cold
|
Post by The Virginian on Jun 17, 2014 9:29:38 GMT -5
Blue, I just want to point out that taking a Home equity loan would put both homes at risk. I would not do that.
I would take as much money from a fund as you are comfortable with to pay as large of a down payment as possible and end up with as small of a mortgage as possible for no more than 15 years if possible.
Also what will you do with the home you have now? Rental or sell it?
|
|
Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 17, 2014 9:55:48 GMT -5
Bonny, some real considerations. Once we paid off the original mortgage, we had extra money to invest, and really got ahead on the savings. YM is awful full of theory, which is why I posted here. Justme, I never liked going through lived in homes. I want to be out of here before the for sale sign goes up. Virginian, Definitely we are selling the present house. How would a HELOC put both homes at risk? It would be only on the old house and if pressed, we do have the funds to pay it off.
|
|
Bonny
Junior Associate
Joined: Nov 17, 2013 10:54:37 GMT -5
Posts: 7,437
Location: No Place Like Home!
|
Post by Bonny on Jun 17, 2014 9:59:11 GMT -5
If that's the case (I was wondering why selling your current house to buy the new one wasn't an option), just take out a mortgage and then once you sell the house you're in now put all that money towards the mortgage. If it's not enough to pay it off than you can decide whether to keep paying it (with a drastically shorter time frame due to the payoff) or take money out of somewhere else to pay it off. If the plan is to pay off the house in a relatively short period of time both the interest rate and the cost of acquiring a HELOC is much, much cheaper than a traditional mortgage.
Sure there's a risk that between the time the property is acquired and the time the loan is paid off rates could sky rocket and equities could crash but seriously folks, how likely is that to happen? He's got the assets to pay cash if he wants, it's just a question of optimizing his tax bite.
|
|
Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 17, 2014 14:06:23 GMT -5
Bonny, we just don't like debt. I don't want to have folks poking around my house while I still live here, so I am buying and moving first. The thought of a mortgage at our age is repulsive. Original was paid off when we were about 40 yo. Yep, just a question of which pocket to take the funds out of. We would even consider a 2% loan (collateral) if banks still make them. The proceeds from this house are unlikely to pay off the new place. The guy directly across the street has been trying to sell his house for quite a while 2 - 3 years, so I do not have hopes for a quick sale.
|
|
Bonny
Junior Associate
Joined: Nov 17, 2013 10:54:37 GMT -5
Posts: 7,437
Location: No Place Like Home!
|
Post by Bonny on Jun 17, 2014 15:03:14 GMT -5
Yep, just a question of which pocket to take the funds out of. We would even consider a 2% loan (collateral) if banks still make them. The proceeds from this house are unlikely to pay off the new place. The guy directly across the street has been trying to sell his house for quite a while 2 - 3 years, so I do not have hopes for a quick sale. Then I'd lean towards doing the HELOC and pay it off using a combination of house proceeds and cashing in chunks of your stocks or RMDs. But work with your accountant to maximize the timing.
As to how long it will take to sell your house; unless you are in a really depressed area where there are no jobs and still a lot of foreclosures, it really shouldn't take more than a couple of months if the house is priced right. Back when I sold real estate (in the depths of the 1980 recession and 17% interest rates) I only had one listing that took more than 2 mos to sell. Generally speaking if you don't get an offer within 30 days of putting it on the market during your area's "selling season" you're priced too high and it's time to lower it.
|
|
truthbound
Familiar Member
Joined: Mar 1, 2014 6:01:51 GMT -5
Posts: 814
|
Post by truthbound on Jun 18, 2014 2:53:58 GMT -5
Sell the old one. Use those funds to buy the new one.
|
|
Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 18, 2014 9:35:24 GMT -5
Bonny, great advice. Thanks. Houses are taking their time to sell around here. Neightor has been trying on and off for 5 years, lately with steep price reductions. I'd rather buy now and sell this one when possible.
If anyone else has advise about which pocket to take the funds from, jump in!
|
|
The Virginian
Senior Member
"Formal education makes you a living, self education makes you a fortune."
Joined: Dec 20, 2010 18:05:58 GMT -5
Posts: 3,629
Today's Mood: Cautiously Optimistic
Location: Somewhere between Virginia & Florida !
Favorite Drink: Something Wet & Cold
|
Post by The Virginian on Jun 18, 2014 16:14:20 GMT -5
(I was confused by you taking a home equity loan to purchase the new house - led me to believe you wanted to retain both properties)
Well if you are selling the home and think you could do it in a timely manner I would borrow the money from the IRA - I think you have 60 days to pay it back with no penalty.
You would have to list your current house on the market ahead because 60 days would be close. Or you could get a short term lease on an apartment or rental while you sold the old one and then just take the proceeds and buy the new house. I'm not so sure that would save money over borrowing without knowing exact prices.
Or you could list the current house with a contigency that you rent it back from the new owners until your purchase of the second home is final.
|
|
Bluerobin
Senior Associate
Joined: Dec 20, 2010 14:24:30 GMT -5
Posts: 17,345
Location: NEPA
|
Post by Bluerobin on Jun 23, 2014 7:28:06 GMT -5
Thanks, Virginian. If only 60 days, I won't be taking from my IRA.
|
|