View Full Version : paying off my parent's mortgage..help needed
KaneKungFu123
08-21-2005, 10:39 AM
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
jakethebake
08-21-2005, 11:05 AM
Just pay it off as the bills come due. If it's been refinanced anytime in the last 10 years the rate is so low, you'll do better keeping the money and investing it elsewhere.
MrTrik
08-21-2005, 11:07 AM
A friend did this once. He wrote it up as a long term loan to be paid back when they had the means. It was a simple one page write up that his parents and he signed. The intention all along was that he'd never be paid back. But he thought he'd be covering his butt if he did it that way. I dunno on that either way though.
peachy
08-21-2005, 11:09 AM
[ QUOTE ]
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
[/ QUOTE ]
i believe it would but ive been out of that part of the finances loop for about a year. Only 10k would go towards gift if i remember right...the rest is taxed...
there are other ways around it
touchfaith
08-21-2005, 11:13 AM
Why not just write the check to the mortgage company?
Is paying a bill for a parent really considered a gift? (yes, I'm asking)
peachy
08-21-2005, 11:18 AM
[ QUOTE ]
Why not just write the check to the mortgage company?
Is paying a bill for a parent really considered a gift? (yes, I'm asking)
[/ QUOTE ]
if ur audited for some dumb reason the IRS can make anything into anything...if u write it to the morgage co its easier than getting around giving it to your parents, there r some ways of doing this that u get a tax break in the whole sum like say if you "invest" in thier home - joint own it/etc. There is too much to type here
KaneKungFu123
08-21-2005, 11:20 AM
[ QUOTE ]
Just pay it off as the bills come due. If it's been refinanced anytime in the last 10 years the rate is so low, you'll do better keeping the money and investing it elsewhere.
[/ QUOTE ]
the thing is that my mom is simple folk and i want to help her out financially, but she isnt really crazy about anyhting, and really loves her 450/wk daycare job.
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
obviously, she is for the latter, being simple folk.
KaneKungFu123
08-21-2005, 11:23 AM
Isnt the USA, land of the free, the greatest country on Earth...
what a land where you have to pay a tax to give your money that has already been taxed to someone else.
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
peachy
08-21-2005, 11:25 AM
[ QUOTE ]
Isnt the USA, land of the free, the greatest country on Earth...
what a land where you have to pay a tax to give your money that has already been taxed to someone else.
[/ QUOTE ]
dont even get me going on this...i have money thats been taxed THREEEEEEE times....and gift tax...land appreciate type taxes and inheritence r what i hate with a PASSION
RunDownHouse
08-21-2005, 11:27 AM
I think the tax-free gift amount is $11k now, so you should be able to pay it off over the next 5 years. If you want to do it faster, then all you have to do is figure out if its worth as much as the tax.
As a side note, it seems like you've always got a ton of financial questions and a ton of cash. You should seriously think about hiring a financial advisor. Even if its just a one-time thing, they could probably set you up with some good plans and teach you a lot.
peachy
08-21-2005, 11:28 AM
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
THANK GOD!!! i love u!!! someone who knows thier stuff!! I was beginning to think i was alone in my lil finance world...glad u had exact #s for him...i had heard it increased from 10k and was sure it was still right around it but i didnt know plus its 11am and i havent slept yet
PS: to the org poster...ur a sweetheart for helping ur parents like that
Nigel
08-21-2005, 11:29 AM
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
I think that's the best way. Make payments through the rest of the year, then give them the remaining 40 some thousand in the fashion described above. 2 days that are technically in 2 different years, and as 4 separate "gifts", with no tax problems.
KaneKungFu123
08-21-2005, 11:50 AM
this is a good idea, unforchantly i live overseas. when i come back to the states for xmas ill look into this.
cardcounter0
08-21-2005, 11:51 AM
pay it off 10k a year at a time.
RunDownHouse
08-21-2005, 11:53 AM
I knew you were overseas. Obviously its best to meet face-to-face, but any good financial advisor should have no problem working over the phone as well.
Before you come back, do a little reading on FAs, what they do, and what to look for in one. Then maybe you can find one you like while you're over here and maintain a relationship from Thailand. As a general rule, stay away from commission-based advisors and find a fee-only firm.
mmbt0ne
08-21-2005, 12:19 PM
</font><blockquote><font class="small">En réponse à:</font><hr />
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
[/ QUOTE ]
Oh my God. Your parents had you almost 20 years before being close to paying off their mortgage? What selfish assholes.
touchfaith
08-21-2005, 01:19 PM
[ QUOTE ]
[ QUOTE ]
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
[/ QUOTE ]
Oh my God. Your parents had you almost 20 years before being close to paying off their mortgage? What selfish assholes.
[/ QUOTE ]
Ok, that was the 'in your face' of the year...
nc
Lawrence Ng
08-21-2005, 02:30 PM
[ QUOTE ]
Isnt the USA, land of the free, the greatest country on Earth...
what a land where you have to pay a tax to give your money that has already been taxed to someone else.
[/ QUOTE ]
It's even worse in Canada if you work abroad and bring money back here.
Anyways, never thought I'd actually commend you for something but I do here. You're an ass, but at least your heart is in the right place.
My only suggestion is that if you want to save on taxes, just help your parents pay it off slowly. If the taxes incurred are greater than the cummulative interest, then it wouldn't be wise to pay it all off at once.
Lawrence
DavidC
08-21-2005, 02:41 PM
Have them make a neteller account, transfer through neteller, don't tell the government [censored]. /images/graemlins/smile.gif
There might be something I'm missing here, though.
sublime
08-21-2005, 03:15 PM
[ QUOTE ]
Just pay it off as the bills come due. If it's been refinanced anytime in the last 10 years the rate is so low, you'll do better keeping the money and investing it elsewhere.
[/ QUOTE ]
sublime
08-21-2005, 03:28 PM
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
the stock market has returned 10% annually (on average) since the 30's. by paying off the entire 50k, you restrcit yourself from investing that 50k (oppurtunity cost) while it doesnt probably matter to you right now, it should. one of the best ways to build wealth is to have your money working for you, and not the other way around.
honestly, a mortgage is one of the best things to have. the old school thinking that mortgages needed to be paid off come from the long dark days ago when a bank could call in the note on your house at will. fortunatly there are laws that protect against this now (making a mortgage a risk free loan).
there are other advanteges, but since that wasnt your original question, ill leave it to you to look into it further.
bwana devil
08-21-2005, 03:41 PM
[ QUOTE ]
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
the stock market has returned 10% annually (on average) since the 30's. by paying off the entire 50k, you restrcit yourself from investing that 50k (oppurtunity cost) while it doesnt probably matter to you right now, it should. one of the best ways to build wealth is to have your money working for you, and not the other way around.
honestly, a mortgage is one of the best things to have. the old school thinking that mortgages needed to be paid off come from the long dark days ago when a bank could call in the note on your house at will. fortunatly there are laws that protect against this now (making a mortgage a risk free loan).
there are other advanteges, but since that wasnt your original question, ill leave it to you to look into it further.
[/ QUOTE ]
if you ever look at at how a mortgage is paid off (you can use the mortgage calculator at bankrate.com (http://www.bankrate.com/brm/mortgage-calculator.asp)) you know that on the back end of the loan you're primarily paying the principal w/ little interest. the bank front loads all the interest in the early years. so that 6.5% interest rate was really paid for in the early years.
Rockatansky
08-21-2005, 04:40 PM
[ QUOTE ]
[ QUOTE ]
Isnt the USA, land of the free, the greatest country on Earth...
what a land where you have to pay a tax to give your money that has already been taxed to someone else.
[/ QUOTE ]
dont even get me going on this...i have money thats been taxed THREEEEEEE times....and gift tax...land appreciate type taxes and inheritence r what i hate with a PASSION
[/ QUOTE ]
OMG the government is so lame. You had the foresight to be born into a rich family and this is how they treat you?? Unbelievable.
snowbank
08-21-2005, 04:44 PM
...Unless they are wealthy beyond belief. You are better off listening to those who are actually doing what they preach.
"Hear and take advice from those whom you aspire to be like. Ignore everyone else."
As far as the mortgage is concerned, your first step is to have your mom put you on the deed and start making payments for her.
jakethebake
08-21-2005, 05:01 PM
[ QUOTE ]
the thing is that my mom is simple folk and i want to help her out financially, but she isnt really crazy about anyhting, and really loves her 450/wk daycare job.
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
obviously, she is for the latter, being simple folk.
[/ QUOTE ]
Ah. I understand. Peace of mind for the folks is probably worth the incremental opportunity cost.
BeerMoney
08-21-2005, 05:05 PM
can you buy the house off of them or something?
JaBlue
08-21-2005, 05:06 PM
[ QUOTE ]
[ QUOTE ]
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
[/ QUOTE ]
Oh my God. Your parents had you almost 20 years before being close to paying off their mortgage? What selfish assholes.
[/ QUOTE ]
good post
Turkish
08-21-2005, 06:51 PM
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
This is the correct answer. The 44k idea is a good one too.
peachy
08-21-2005, 09:04 PM
[ QUOTE ]
Have them make a neteller account, transfer through neteller, don't tell the government [censored]. /images/graemlins/smile.gif
There might be something I'm missing here, though.
[/ QUOTE ]
they still make u claim it...there r sections for claiming stuff like this (ie. off shore accounts, etc) and if they find out u fibbed ur in big trouble!
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
can you elaborate on what exclusion of 1.5 million means?
KaneKungFu123
08-21-2005, 09:44 PM
[ QUOTE ]
[ QUOTE ]
its currently at 50k left on their mortgage. Can i jsut write them a check for 50k or will this incur 'gift tax'? please help.
[/ QUOTE ]
Oh my God. Your parents had you almost 20 years before being close to paying off their mortgage? What selfish assholes.
[/ QUOTE ]
Hi Giant Dick-Hole,
I never said that unwealthy parents having children are selfish. Others took that line, I did not. I didnt say that you need to be wealthy to provide for them, I said I want to be wealthy so I can both provide for them, and still enjoy my own life without being bogged down in bill mentality.
[censored] you.
morgan180
08-21-2005, 09:46 PM
paying off a mortgage is a bad idea. put yourself on title, make the payments for them, you'll have the write off and still have the cash flow to make better financial decisions as opportunities arise. unless 50k is nothing to you this is probably the best route.
CCass
08-21-2005, 10:12 PM
Paying it off now is far better than paying it off over time. Your mother will sleep better in a house that is paid for.
Also, the truly wealthy people in america don't have debt (or very much debt). Read a book called "The Millionaire Next Door".
mikeyvegas
08-21-2005, 10:16 PM
[ QUOTE ]
[ QUOTE ]
Just pay it off as the bills come due. If it's been refinanced anytime in the last 10 years the rate is so low, you'll do better keeping the money and investing it elsewhere.
[/ QUOTE ]
[/ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
can you elaborate on what exclusion of 1.5 million means?
[/ QUOTE ]
It means you can give (or when you die, devise) up to 1.5 million without having any Federal Estate/Gift tax due on the transaction. Technically, it's a credit that's equal to the amount of tax that would be due on a 1.5 million gift/estate (somewhere around 475k IIRC). Whenever you make a gift exceeding 11k, the excess is deducted from your exclusion. The estate and gift taxes are unified, so if you give 750k in gifts during your life and die with a 1 million dollar estate, 250k will be taxed (the amount over the 1.5mil exclusion)
[ QUOTE ]
Paying it off now is far better than paying it off over time. Your mother will sleep better in a house that is paid for.
Also, the truly wealthy people in america don't have debt (or very much debt). Read a book called "The Millionaire Next Door".
[/ QUOTE ]
I have never read that book, and if this is some sort of philosophical wealth you're referring to than forget this post, but to insist that most wealthy people pay for everything in cash is just not true.
MrMon
08-22-2005, 12:51 AM
[ QUOTE ]
[ QUOTE ]
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
the stock market has returned 10% annually (on average) since the 30's. by paying off the entire 50k, you restrcit yourself from investing that 50k (oppurtunity cost) while it doesnt probably matter to you right now, it should. one of the best ways to build wealth is to have your money working for you, and not the other way around.
honestly, a mortgage is one of the best things to have. the old school thinking that mortgages needed to be paid off come from the long dark days ago when a bank could call in the note on your house at will. fortunatly there are laws that protect against this now (making a mortgage a risk free loan).
there are other advanteges, but since that wasnt your original question, ill leave it to you to look into it further.
[/ QUOTE ]
if you ever look at at how a mortgage is paid off (you can use the mortgage calculator at bankrate.com (http://www.bankrate.com/brm/mortgage-calculator.asp)) you know that on the back end of the loan you're primarily paying the principal w/ little interest. the bank front loads all the interest in the early years. so that 6.5% interest rate was really paid for in the early years.
[/ QUOTE ]
I'm not sure what you mean by this, but it's an incorrect sentiment. This home loan continues to accumulate interest on the remaining principal at an annual rate of 6.5% throughout it's entire life. You seem to be referring to the old car loans (which may still exist) that front loaded the interest payments, so that if they ever repossessed your car, you had little equity. Those made no sense to pay off early.
sublime
08-22-2005, 01:44 AM
Paying it off now is far better than paying it off over time. Your mother will sleep better in a house that is paid for.
nonsense. i doubt his mother sits up at night worrying about the state of her mortgage. as a matter of fact, i am sure she worries about her son's future more. taking 50k and paying off a 'good' loan will cost him the chance to invest that money and reap the benefits of compound interest.
despite the reasons already mentioned, here are a few more points in favor of owning a mortgae on a home:
most are fixed rate, yet inflation usually gives us a raise. so whilst your per year earnings increase year after year, the loan payments dont.
the fact that while the bank holds a note on the house, the owner is the one reaping the benefits of the land/property growing in value.
tax benefits
etc...........
personally, i hope to never fully pay off my home (when i buy one). the economics of america today suggest a mortgage is a powerful thing to have.
Also, the truly wealthy people in america don't have debt (or very much debt). Read a book called "The Millionaire Next Door".
I have read that book. It was a few years ago, but if I recall correctly it was mostly based on how some families in America were very frugal and as a result became modestly wealthy. most of what they constantly preached were spending within your means and saving/investing lots of money. the advice given in the book, was loose but basically common sense. dont carry 'bad debt' (credit cards, vehicles etc). a mortgage is an entirely different beast.
peachy
08-22-2005, 01:44 AM
[ QUOTE ]
[ QUOTE ]
Under the current estate and gift tax regime, you have and exclusion of 1.5 million. (It will increase to 2 million in '06,'07 and '08 and 3.5 million in '09) You will not have to pay any taxes on the 50k, but you still have to file. 28k will be deducted from your 1.5 million exclusion amount(You get an annual 11k per donee exemption).
You could get 44k to them w/o having any tax consequences at all by giving 11k each to both your mother and father on both Dec. 31 of this year and Jan. 1 of next year.
[/ QUOTE ]
can you elaborate on what exclusion of 1.5 million means?
[/ QUOTE ]
in inheritance it means that the estate can be of that value and it is given to said benificiaries without taxing, but when it reaches over that limit or set limit of that year u have to pay massive taxes...welcome to my world. After 2010 policies change again (Bush upped the limits for us for now, they used to be only 1 million) hahha my mom jokingly says she is going to walk out in front of a bus before 2010 if shes not dead already!
This is why some poeple "gift" out estate...say in a farm...to children and grandchildren at 10k well now 11k a year in order to avoid the taxation of this money again through inheritence tax, otherwise it is a nightmare, but of course with larger estates this 11k limit a year doesnt make much of a dent. In my opinion it kills the bottom upper class (those with say 3 million or so in assets) its just pure wrong...those below u wont owe the "death" tax...those above u have the change to spare...and its alot easier to be worth 3 to 5 million now days than most people think...the limits should be raised even further
but this is a generalized simple way of explaining it...im sure some of the finance people can get more technical.
mmbt0ne
08-22-2005, 01:51 AM
Many of its opponents refer to the estate tax as the "death tax" and have called for its abolition. Since 2003, the top rate has dropped from 50% by one percent per year; it is scheduled to drop to 45% in 2009, thence to 0% in 2010, but as of 2005, if no further changes in the law are enacted, the tax will be reimposed at a top rate of 50% in 2011. It is, however, expected that Congress will enact legislation to change this in the intervening period.
brick
08-22-2005, 01:58 AM
[ QUOTE ]
her intestest rate is 6.5%, do you still think its better to pay monthly and invest, or to pay it off as a whole.
[/ QUOTE ]
Just pay it off. That long term loan idea is brilliant.
bone77
08-22-2005, 02:30 AM
actually there are a few different loan options, 30 year fixed, short term arms, interest only etc. so depending on which you choose, the interest may be fixed, fixed for 2-5 years and then become adjustable or you can pay all interest on your mortgage payment and not touch the principle amount. this probably just confused it more or didn't make sense but it's late, at least i tried.
tony
In 2010, the Estate Tax disappears (along with the stepped-up basis that goes along with it). Even if an estate has substantial low-basis assets, it will still be better off getting hit with the capital gains taxes provided it's substantially above the 3.5mil '09 exclusion amount. The bill that abolishes the estate tax expires in 2011, so it will be coming back then (with a 2001-level exclusion amount) unless Congress acts in the mean time.
CCass
08-22-2005, 10:57 AM
Read the book. I think you will find it interesting. It is about monetary wealth. The book defines a millionaire as a household (husband and wife) with a NET WORTH of over 1 million dollars. Surprisingly, quite a few of the millionaires in this country don't make a high salary, many earn less than 100K a year. A doctor that earns 600K a year, but spends 550K isn't wealthy in my opinion.
CCass
08-22-2005, 11:04 AM
[ QUOTE ]
Paying it off now is far better than paying it off over time. Your mother will sleep better in a house that is paid for.
nonsense. i doubt his mother sits up at night worrying about the state of her mortgage. as a matter of fact, i am sure she worries about her son's future more. taking 50k and paying off a 'good' loan will cost him the chance to invest that money and reap the benefits of compound interest.
despite the reasons already mentioned, here are a few more points in favor of owning a mortgae on a home:
most are fixed rate, yet inflation usually gives us a raise. so whilst your per year earnings increase year after year, the loan payments dont.
the fact that while the bank holds a note on the house, the owner is the one reaping the benefits of the land/property growing in value.
tax benefits
etc...........
personally, i hope to never fully pay off my home (when i buy one). the economics of america today suggest a mortgage is a powerful thing to have.
Also, the truly wealthy people in america don't have debt (or very much debt). Read a book called "The Millionaire Next Door".
I have read that book. It was a few years ago, but if I recall correctly it was mostly based on how some families in America were very frugal and as a result became modestly wealthy. most of what they constantly preached were spending within your means and saving/investing lots of money. the advice given in the book, was loose but basically common sense. dont carry 'bad debt' (credit cards, vehicles etc). a mortgage is an entirely different beast.
[/ QUOTE ]
You and I may just have to agree to disagree. Ask yourself a question. If you lived in a house that was paid for, would you go borrow monay against it to invest? I would not.
Sifmole
08-22-2005, 01:50 PM
[ QUOTE ]
You and I may just have to agree to disagree. Ask yourself a question. If you lived in a house that was paid for, would you go borrow monay against it to invest? I would not.
[/ QUOTE ]
And so you have a couple hundred to several hundreds of thousands of dollars doing absolutely nothing for you. Brilliant! Hoarding does not make money. Working hour after hour does not make you wealthy. Finding ways to allow your money to make money makes you wealthy.
ibstudly1
08-22-2005, 02:09 PM
Invest that money in annuity as a gift for your mom. set it up as a monthly payout for a specified amount. this will let you draw interest and still pay off the morgage.
And so you have a couple hundred to several hundreds of thousands of dollars doing absolutely nothing for you. Brilliant!
Real estate appreciates. The money you have tied up in it is not doing nothing. If you buy a house for 500k tomorrow, do you think 500k is all it will sell for 15 years from now? Brilliant!
TheWorstPlayer
08-22-2005, 04:38 PM
[ QUOTE ]
And so you have a couple hundred to several hundreds of thousands of dollars doing absolutely nothing for you. Brilliant!
Real estate appreciates. The money you have tied up in it is not doing nothing. If you buy a house for 500k tomorrow, do you think 500k is all it will sell for 15 years from now? Brilliant!
[/ QUOTE ]
The rate of appreciation is not effected by the size of any potential mortgage. The returns generated from other financial investments are directly proportional to the amount of capital invested. So your house will go up in value AND you will get the returns on any stock/bond/real estate/etc purchases you make with the money from the mortgage AND you will deduct your mortgage payments from your taxable income. The US gov't gives FREE MONEY to house owners in this country. By not taking out a mortgage you are saying 'no thank you'.
drewjustdrew
08-22-2005, 04:45 PM
Risk v. Return ...blah blah blah.
If:
(your mortgage rate) - (your mortgage rate X your income tax rate)
is greater than:
(your annual return where you would otherwise invest the money) - (your annual return X applicable capital gains/income tax rates),
having a mortgage makes no sense. Obviously with all the low-rate mortgages that have been available recently, you probably don't need to make much of a pretax return on your alternative investment to make a mortgage worthwhile (provided all your alternative investments will be taxed as long-term capital gains).
To imply that money tied up in real estate is "doing nothing" is ridiculous. There are 2 sides to the equation.
There is also the psychological factor of living in a house that is paid for, and this may well override the extra 2.5% or whatever on the 50k that keeping the mortgage will allow.
CCass
08-22-2005, 10:11 PM
[ QUOTE ]
[ QUOTE ]
And so you have a couple hundred to several hundreds of thousands of dollars doing absolutely nothing for you. Brilliant!
Real estate appreciates. The money you have tied up in it is not doing nothing. If you buy a house for 500k tomorrow, do you think 500k is all it will sell for 15 years from now? Brilliant!
[/ QUOTE ]
The rate of appreciation is not effected by the size of any potential mortgage. The returns generated from other financial investments are directly proportional to the amount of capital invested. So your house will go up in value AND you will get the returns on any stock/bond/real estate/etc purchases you make with the money from the mortgage AND you will deduct your mortgage payments from your taxable income. The US gov't gives FREE MONEY to house owners in this country. By not taking out a mortgage you are saying 'no thank you'.
[/ QUOTE ]
Do you understand basic math? You get a deduction from your taxable income for your mortgage payment. So if your mortgage payment is 10K a year, and you are in a 30% tax bracket, you are paying the bank 10K to get a 3K deduction. That doesn't add up.
KaneKungFu123
08-22-2005, 10:30 PM
one thing: you have topay taxes on capital gains. so if i beat market for 10%, im really only beating it for 6.67% or is this incorrect thinking?
sublime
08-22-2005, 11:36 PM
[ QUOTE ]
one thing: you have topay taxes on capital gains. so if i beat market for 10%, im really only beating it for 6.67% or is this incorrect thinking?
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there are ways to minimize this stuff. if you have 50k to give to your parents you REALLY need a top notch financial planner.
So if your mortgage payment is 10K a year, and you are in a 30% tax bracket, you are paying the bank 10K to get a 3K deduction. That doesn't add up.
You can only deduct the interest portion of your mortgage payment from your taxable income.
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one thing: you have topay taxes on capital gains. so if i beat market for 10%, im really only beating it for 6.67% or is this incorrect thinking?
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Long term capital gains are taxed at a much lower rate than regular income, so no. You just have to make sure what you invest in qualifies as capital asset and you hold it for more than 1 year (unless you have short-term capital losses to offset).
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