paying off my parent's mortgage..help needed

[cdxx]

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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.

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can you elaborate on what exclusion of 1.5 million means?

[KaneKungFu123]

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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.

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Oh my God. Your parents had you almost 20 years before being close to paying off their mortgage? What selfish assholes.

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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]

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]

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]

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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.

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[mmcd]

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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.

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can you elaborate on what exclusion of 1.5 million means?

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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)

[Evan]

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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".

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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]

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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.

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if you ever look at at how a mortgage is paid off (you can use the mortgage calculator at bankrate.com) 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.

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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]

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]

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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.

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can you elaborate on what exclusion of 1.5 million means?

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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.