Second home purchase - Where do I take the money from?

[Anonymous]

Here's a tough question which I know won't be easy to answer based on what little information you have on my situation. I realize I may have to talk with a professional regarding this. I'm currently retired at age 55 with a substantial government pension which I easy live off including having an excess of about $3,000. each month. Both my wife and I have guaranteed medical for life through my ex-employer. We are also mortgage free after paying off our house several months ago.

Putting aside the question of whether or not to buy a vacation/second home, I'm not sure where to take the down payment funds from with my various investments/accounts. The amount I'm looking at is something like $90,000. to $100,000. for a $400,000. home purchase. (20% down plus extra's) I realize taking funds from investment accounts is all taxable. Any thoughts or suggestions would be appreciated.

My current holdings which I could take funds from are:

$450,000. from a 457 deferred compensation account (taxable) - Basically a 401 account for government employees

$100,000. from my personal investment account of various stocks and mutual funds

$300,000. in cash from various bank accounts.

[Anonymous]

Why wouldn't you just use your cash accounts?

[Anonymous]

Anonymous wrote:Why wouldn't you just use your cash accounts?

Yes, that sounds indeed like the obvious answer? Your house is paid off, retirement and medical guaranteed, you don't need a 300K emergency fund? What are we missing?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why wouldn't you just use your cash accounts?

Yes, that sounds indeed like the obvious answer? Your house is paid off, retirement and medical guaranteed, you don't need a 300K emergency fund? What are we missing?

The tax hit.

[Anonymous]

if you are buying a vacation home and don't intend to stay in it all the time why not borrow money from the paid off house(get a mortgage or signature loan) for about 15yr so you can manage the payments and maybe pay it off early if you want to. Then you rent out the 2nd home when you aren't there. Then you can get some tax breaks from the house as a rental and make some money at the same time to pay off the 100k mortgage from the 1st house.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why wouldn't you just use your cash accounts?

Yes, that sounds indeed like the obvious answer? Your house is paid off, retirement and medical guaranteed, you don't need a 300K emergency fund? What are we missing?

The tax hit.

There's a tax hit for using money from a savings account as a downpayment?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why wouldn't you just use your cash accounts?

Yes, that sounds indeed like the obvious answer? Your house is paid off, retirement and medical guaranteed, you don't need a 300K emergency fund? What are we missing?

The tax hit.

There is no tax hit when you use cash as opposed to tax-deferred securities...

[Anonymous]

The savings account obviously. I would pay 50% down if I were you.

[Anonymous]

Anonymous wrote:Here's a tough question which I know won't be easy to answer based on what little information you have on my situation.

No, not really tough at all. Use the cash in the savings accounts. Consider putting more than 20% down.

[Anonymous]

why would you want to buy a second home? don't you want to downsize instead??

[Anonymous]

OP - I know using cash is the obvious easy choice but because I now have near nothing as a right-off for taxes, I was thinking more on the line of using money (or some of it) from my $100,000. stock account and simply using the new mortgage interest to help offset the taxes I'lll owe on the stock sale. Purchasing this second home is NOT simply for the tax right off's.

At this point I have no plans for needing funds from either of my two investment accounts. I guess I'm just looking for ways to use it without costing me an arm and a leg in taxes and at the same time keep a nice healthy cash amount in the bank.

[Anonymous]

Anonymous wrote:OP - I know using cash is the obvious easy choice but because I now have near nothing as a right-off for taxes, I was thinking more on the line of using money (or some of it) from my $100,000. stock account and simply using the new mortgage interest to help offset the taxes I'lll owe on the stock sale. Purchasing this second home is NOT simply for the tax right off's.

At this point I have no plans for needing funds from either of my two investment accounts. I guess I'm just looking for ways to use it without costing me an arm and a leg in taxes and at the same time keep a nice healthy cash amount in the bank.

This doesn't really make sense. Could you try to explain what you mean?

There is no tax advantage to using your investment accounts for a downpayment as opposed to your savings account. If anything, the investment account will likely result in more taxes right now, as there will (likely) be greater capital gains on any investment sales. As long as the downpayment is the same amount, the loan will be the same amount, and the mortgage interest will be the same amount.

(Also, not to be nitpicky but just to let you know as an FYI, it's "write off", as in write it off as a deduction. Not "right off.")

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why wouldn't you just use your cash accounts?

Yes, that sounds indeed like the obvious answer? Your house is paid off, retirement and medical guaranteed, you don't need a 300K emergency fund? What are we missing?

The tax hit.

What's the tax hit to taking out cash?

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP - I know using cash is the obvious easy choice but because I now have near nothing as a right-off for taxes, I was thinking more on the line of using money (or some of it) from my $100,000. stock account and simply using the new mortgage interest to help offset the taxes I'lll owe on the stock sale. Purchasing this second home is NOT simply for the tax right off's.

At this point I have no plans for needing funds from either of my two investment accounts. I guess I'm just looking for ways to use it without costing me an arm and a leg in taxes and at the same time keep a nice healthy cash amount in the bank.

This doesn't really make sense. Could you try to explain what you mean?

There is no tax advantage to using your investment accounts for a downpayment as opposed to your savings account. If anything, the investment account will likely result in more taxes right now, as there will (likely) be greater capital gains on any investment sales. As long as the downpayment is the same amount, the loan will be the same amount, and the mortgage interest will be the same amount.

(Also, not to be nitpicky but just to let you know as an FYI, it's "write off", as in write it off as a deduction. Not "right off.")

Agree. The source of the down payment has really nothing to do with the house purchase. If you cash out investments you will (presumably) have capital gains. It will have no impact on your mortgage interest deduction. Frankly I'd wait a while before incurring capital gains because lowering the CG rate is a centerpiece of the Trump tax plan. Might as well take advantage of that.

What do you need money in the bank for? Seems like $200k would be an adequate cash holding, and you'll still have the same amount of total money if you needed to get it out.

[Anonymous]

Your 300k is likely earning very low interest. You should use that. hopefully your investment accounts are earning more than 1%.