How Much to Put Down When You've Got Extra Cash
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Question:
My husband and I are doing a Starker exchange. We are purchasing a beach house to use as a rental property and are rolling the gains from the sale of his condo into the new house. Those funds, of course, MUST be invested in the new property to avoid capital gains taxes, and they will cover about 35% of the purchase price. We have additional cash, some sitting in mutual funds, tax-exempt bonds, and money markets, and I'm wondering how much
additional cash, if any, it makes sense to put down, considering the tax benefits of financing and the opportunity cost of taking the money out of where it's sitting now. We're thinking of taking out a five-year ARM, at ca. 4.875%, but I don't think it's just a matter of asking whether the monies are earning that elsewhere. I don't know how to figure in the tax benefits or any other considerations (e.g., I've heard it said by a non-tax
professional that the IRS frowns upon financing a real estate purchase in order to get the deduction while tying up significant cash in tax-exempt vehicles). How do we sort this all out?? Answer: Hi K., |
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