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General Discussion => Essentially Flyertalk => Topic started by: slackcat on July 11, 2021, 08:07:02 AM
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Any of you tax/estate savvy emawz know of this and what are the deets. Scheming to maximize my wealth and still live the high life.:kstategrad:
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Any of you tax/estate savvy emawz know of this and what are the deets. Scheming to maximize my wealth and still live the high life.:kstategrad:
Well, you found yourself on a freedom blog, where the users are actually glad we defeated our British overlords. So, you'll get no sympathy for the continuation of landed nobility on this blog, sir! We pay our estate taxes gladly around here, Nigel!
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lol
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I had never heard of this until now, but I guess if you’re at the point of selling securities for your income (i.e. retired) it makes perfect sense.
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So I guess my understanding of it is rather than sell stock and paying capital gains tax on it, you borrow money using the stock as collateral. It’s premised on the assumption that you can secure an interest rate on the loan that is lower than the rate at which the stock appreciates, so it’s a net gain.
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And now that I’m saying this, I’m realizing that it might make sense for anyone with a reasonably sized stock portfolio to do this, although the benefit is much more dramatic if the alternative is selling your stock for income.
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From what I understand, it's basically like a cash out refinance I talk about in real estate investing thread. You get a loan using an asset as collateral. Loans aren't income so there is no income tax. You still keep your asset, so future gains are realized, less the cost of money you borrowed. I'm a fan, but it comes with risk relative to the amount you own and the amount you borrowed.
It's not rocket surgery, but it's a powerful tool.
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this is the golden age for doing this stuff. we've had a seemingly never ending bull run combined with incredibly low interest rates.
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From what I understand, it's basically like a cash out refinance I talk about in real estate investing thread. You get a loan using an asset as collateral. Loans aren't income so there is no income tax. You still keep your asset, so future gains are realized, less the cost of money you borrowed. I'm a fan, but it comes with risk relative to the amount you own and the amount you borrowed.
It's not rocket surgery, but it's a powerful tool.
I really need to look into this I think. One of my frustrations with the real estate market right now is the inability to take advantage of low interest rates in the process of buying a more expensive home. Not sure it had occurred to me I’d get the exact same benefit by a cash out refinance in the current home.
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From what I understand, it's basically like a cash out refinance I talk about in real estate investing thread. You get a loan using an asset as collateral. Loans aren't income so there is no income tax. You still keep your asset, so future gains are realized, less the cost of money you borrowed. I'm a fan, but it comes with risk relative to the amount you own and the amount you borrowed.
It's not rocket surgery, but it's a powerful tool.
I really need to look into this I think. One of my frustrations with the real estate market right now is the inability to take advantage of low interest rates in the process of buying a more expensive home. Not sure it had occurred to me I’d get the exact same benefit by a cash out refinance in the current home.
A heloc would work too, but you don't get that sweet 30 year payback.
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From what I understand, it's basically like a cash out refinance I talk about in real estate investing thread. You get a loan using an asset as collateral. Loans aren't income so there is no income tax. You still keep your asset, so future gains are realized, less the cost of money you borrowed. I'm a fan, but it comes with risk relative to the amount you own and the amount you borrowed.
It's not rocket surgery, but it's a powerful tool.
I really need to look into this I think. One of my frustrations with the real estate market right now is the inability to take advantage of low interest rates in the process of buying a more expensive home. Not sure it had occurred to me I’d get the exact same benefit by a cash out refinance in the current home.
A heloc would work too, but you don't get that sweet 30 year payback.
Can I get some pros and cons of HELOC vs. refi?
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From what I understand, it's basically like a cash out refinance I talk about in real estate investing thread. You get a loan using an asset as collateral. Loans aren't income so there is no income tax. You still keep your asset, so future gains are realized, less the cost of money you borrowed. I'm a fan, but it comes with risk relative to the amount you own and the amount you borrowed.
It's not rocket surgery, but it's a powerful tool.
I really need to look into this I think. One of my frustrations with the real estate market right now is the inability to take advantage of low interest rates in the process of buying a more expensive home. Not sure it had occurred to me I’d get the exact same benefit by a cash out refinance in the current home.
A heloc would work too, but you don't get that sweet 30 year payback.
Can I get some pros and cons of HELOC vs. refi?
Mainly the 30 year fixed vs whatever heloc terms the bank offers (I think typically 10 year payback, maybe slightly higher interest). Heloc will be a little less painful, but not by a lot IME. Probably doesn't apply now, but you would probably prefer a heloc in 10 years since ideally you're currently in a low interest mortgage. So you probably wouldn't want to refinance to a higher rate.
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I’m really just thinking I’d refinance to a lower 30-year rate now, and cash out whatever equity is currently in my home. Why would a HELOC work better than that? Just because you’re thinking after paying it back in 10 years I’d want to do another round?
So maybe the only real difference is that the refi would expose me to less risk in case the market suddenly tanks?
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I’m really just thinking I’d refinance to a lower 30-year rate now, and cash out whatever equity is currently in my home. Why would a HELOC work better than that? Just because you’re thinking after paying it back in 10 years I’d want to do another round?
So maybe the only real difference is that the refi would expose me to less risk in case the market suddenly tanks?
The risk is the same, if you don't pay, they take your house.
If you refi at a lower rate, get cash out, and afford the payment, it's a no brainer imo. And if you'll take some unsolicited advice, put that cash out towards an investment that returns more money that the cost it took to borrow.
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There are potential tax advantages to the mortgage (may or may not apply to you though)
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Good point. Forgot about that.
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this is the golden age for doing this stuff. we've had a seemingly never ending bull run combined with incredibly low interest rates.
10 years ago was the golden age for doing this, with the benefit of hindsight. doing this without the benefit of hindsight is much tougher.
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This sounds like a great idea if I can adequately time my death. But, how does one go about doing that? Hmmm....
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This sounds like a great idea if I can adequately time my death. But, how does one go about doing that? Hmmm....
the tax dodge part of this seems like a genuine loophole, if you fall into the right part of the wealth spectrum where evading cap gains taxes on large chunks of estate tax exempt equity and have heirs that you want to benefit from that loophole.
still subject to market risk, and honestly it seems like a big pain in the ass, but also congress should get around to fixing that loophole asap.
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This sounds like a great idea if I can adequately time my death. But, how does one go about doing that? Hmmm....
the tax dodge part of this seems like a genuine loophole, if you fall into the right part of the wealth spectrum where evading cap gains taxes on large chunks of estate tax exempt equity and have heirs that you want to benefit from that loophole.
still subject to market risk, and honestly it seems like a big pain in the ass, but also congress should get around to fixing that loophole asap.
I'm going to call Ted Cruz and John Cornyn tonight. I'm sure they'll get right on it.
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And now that I’m saying this, I’m realizing that it might make sense for anyone with a reasonably sized stock portfolio to do this, although the benefit is much more dramatic if the alternative is selling your stock for income.
True. I'm far to young to consider this yet but I'm usually planning ahead. Now a HELOC sounds like it could be of some use.