27 Jul 2023 10:44 am
Either I am not explaining well, or you are too focused on one side.Skans » 27 Jul 2023, 10:03 am » wrote: ↑ I think you're wrong about the taxes. First, my understanding is that you can't take a deduction for mortgage interest anymore. Second, there is no tax consequence to buying a house over time; only selling it and taking a note and mortgage back. As the purchase-money seller/lender you can spread the receipt of funds over a period of time.
You're just the buyer - no tax advantage there. So, if you can pay cash for the house rather than commit to a mortgage, that's like investing in a 7% AAA bond. You can't find that anywhere, so I'd opt to pay cash, if you can.
First, you can still deduct interest and property taxes...it's just that the standard deduction is so high very few pay enough. If you actually read what I posted, I said we could make the purchase mortgage free but would take a bath on taxes. We have enough saving for 20% down and closing...and still have almost one year of our current income in the account.
A loan against the 401(k) is not an option because we focused on long-term investing in other ways and only contributed up to the percentage of the match. Therefore, the account balances do not allow a large enough loan as it would exceed the percentage of the balance eligible for loan (we knew of this restriction since the very beginning...it wasn't an issue). Additionally, both plans would require the loan be repaid in full if we decide to retire...which is a possibility. Of course, given our age we could simply take money out, but that is taxable income. Given we already have income greater than the tax table, the taxes on that income would be really high (by my definition).
If we decide to sell equity investments, we will incur significant capital gains. The gains will never be completely avoidable, but we don't want them all at once.
My wife is one of two beneficiaries on one trust and one of six beneficiaries on a second trust. Using today's numbers, she will inherit just over $1 million (and both trusts must liquidate when her mother passes away per the language of the trusts). Her mother turns 99 soon and is in slightly worse health than the "typical" person that age. Most of that total will be stocks, but my wife benefits from the step up in basis of those stocks and can immediately sell them for no (or very little) capital gains.
Not to be cold and callous, but the odds of her living more than 2-3 more years are slim so a mortgage is a relatively short term instrument.Both interest and taxes are an expense...we will probably choose to use cash to pay the expense over time (interest) rather than all at once (taxes).