Paying off Mello Roos

[ltsddd]

[quote=ocrenter][quote=ltsdd][quote=earlyretirement]
…most people VASTLY over estimate their investment abilities. Most people I know think they are stock gurus and in an upmarket like now they think they are Warren Buffett Jr.! (A few years ago….um not so much).
[/quote]

ER,
Most people on this board should be savvy enough to be able to get a return of 3% annually on their investments, no?[/quote]

Where are you getting the 3%? Yes, if the MR is at 3% i would not prepay. If I’m not subject to AMT yearly I would likely not repay.

Neither is the reality. Thus the prepayment.[/quote]

Using your example. A return of 3%/year (or there about) should double your pay-off amount in the 22-year period that you mentioned.

[ocrenter]

[quote=ltsdd][quote=ocrenter][quote=ltsdd][quote=earlyretirement]
…most people VASTLY over estimate their investment abilities. Most people I know think they are stock gurus and in an upmarket like now they think they are Warren Buffett Jr.! (A few years ago….um not so much).
[/quote]

ER,
Most people on this board should be savvy enough to be able to get a return of 3% annually on their investments, no?[/quote]

Where are you getting the 3%? Yes, if the MR is at 3% i would not prepay. If I’m not subject to AMT yearly I would likely not repay.

Neither is the reality. Thus the prepayment.[/quote]

Using your example. A return of 3%/year (or there about) should double your pay-off amount in the 22-year period that you mentioned.[/quote]

The doubling would still be subject to 40% taxation. So I’m still looking at $80k vs $150k.

The money saved by prepayment is not subject to the 40% tax rate.

Prepayment still wins.

Trust me, deciding to prepay was major decision, all potential scenarios were evaluated.

[ocrenter]

[quote=earlyretirement][quote=ocrenter]ER, a depressing read indeed!

Line 1 recommended taking standard deduction?! Just to avoid the AMT? For real??? Talk about the medicine being worse than the disease itself.

The best part was line 25: Intangible Drilling Costs!!! My CPA didn’t tell me about that loophole!!! I’m on the phone so he can submit that amendment STAT! :-)[/quote]

Yeah, it’s sad isn’t it ocr? Talk about a “parallel” universe! LOL. Yes, very very depressing.

Yes, the medicine is definitely worse than the disease itself but at least with the ATRA (American Taxpayer Relief Act) from 2012 there were some great changes including the index for inflation.

This AMT was intended for wealthy people but it was starting to affect people that clearly were NOT wealthy. So at least some changes were made last year with the indexing and also raising the exemptions. (Hey every little bit helps!).

In 2013 about 4 million people I believe will be estimated to pay about $26 BILLION in AMT. Without the modification of ATRA it would be something like 25 million Americans having to pay AMT! And over 50 million by 2025 or so.

So I guess things could be worse! You know the old saying…. “I could complain about my taxes but who would listen?”. LOL.

More positive read: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3968

PS. ocr – there is usually drilling going on but it’s usually the IRS doing the “drilling” and I guess it’s not so “intangible”. It hurts me every time! LOL.[/quote]

The quarterly drilling does ultimately factor into my willingness to work. It really is the case of deminishing returns. Which actually works out for the family. 🙂

[earlyretirement]

[quote=ltsdd]

ER,
Most people on this board should be savvy enough to be able to get a return of 3% annually on their investments, no?[/quote]

ltsdd,

Most people should be savvy enough not to over leverage, spend above their means, or lose incredible amounts of money on speculative investments. But it still happens every day in San Diego from people that I would deem to be intelligent.

Like I said before, people think they are more savvy than they are. It’s just plain human nature. It’s not just in investments. It’s in real life as well. People think they are thinner than they are, more beautiful, nicer, polite, funnier. The problem is those other traits don’t affect you as much as people that mistakenly thing they are more savvy with finances.

Yes, any reasonable person would be able to make more than 3% a year but no guarantees in life. Again, this isn’t for everyone. You just have to crunch all the numbers and look at your personal situation and tax rate and any applicable exemptions and see what is right for you.

[scaredyclassic]

i am less beautiful than average, but more lean and muscled. I am also funnier than the average person.

I am not confident i could make 3% returns on a pile of money over the next 3 years. i am pretty sure i could lose 30% or gain 30%, but i can’t promise which.

[earlyretirement]

[quote=6packscaredy]i am less beautiful than average, but more lean and muscled. I am also funnier than the average person.

I am not confident i could make 3% returns on a pile of money over the next 3 years. i am pretty sure i could lose 30% or gain 30%, but i can’t promise which.[/quote]

Ha, ha. Funny. Hey, a good sense of humor is priceless I always say. That’s the problem as scaredy mentioned…. it would be fine and dandy if people were just aiming for that mythical 3%. The problem is most people don’t want that 3%. They want that 30%. Instead of just a move to first base, lots of people are going for grand slam home runs each time at the bat.

Or people do make home runs but then they lose it ALL. Lots of people like that as well. Watch this movie on Netflix. Fascinating.

http://movies.netflix.com/Movie/Revenge-of-the-Electric-Car/70184161

Guys like Elon are risk takers. See how close he came to his entire world crumbling…he lost almost his entire hundreds of millions of dollars of his Paypal fortune to start another. Watch the movie and see how close he came to losing it ALL. He was down to his last $2 million.

[quote=ocrenter]

The quarterly drilling does ultimately factor into my willingness to work. It really is the case of deminishing returns. Which actually works out for the family. :-)[/quote]

You nailed it OC. That’s why since moving to California I don’t have any big desire or motivation to take on any of these positions. I’d rather do consulting when I pick and choose vs. taking a big salary and getting the bulk of it paid in taxes. As you say, it sure works out for the family! More free time for them.

[ltsddd]

[quote=earlyretirement]
Yes, any reasonable person would be able to make more than 3% a year but no guarantees in life. Again, this isn’t for everyone. You just have to crunch all the numbers and look at your personal situation and tax rate and any applicable exemptions and see what is right for you.[/quote]

This, I agree with you 100%. It is not a clear-cut no-brainer as some have claimed. The more variables you introduce into the equation the less apparent of a no-brainer it is. That is essentially the point I was trying make.

[CA renter]

[quote=earlyretirement][quote=CA renter]

Last one out’s a rotten egg!

In other words, if you have the money to pay them off, and plan to live in your house “indefinitely,” it’s probably wise to pay them now rather than later. Again, in some cases (like yours, ER), paying these bonds off is a complete no-brainer.[/quote]

Ha, ha. Bingo. Exactly CA renter. You guys don’t have MR up there…no? Nice not to have to think about? We’ll have to get together for a coffee or lunch again soon. Enjoyed our last visit.[/quote]

Correct, no Mello-Roos (or HOAs) for us. It was a very deliberate decision on our part to buy into a neighborhood with no MR or HOA fees.

Would love to catch up whenever you get a chance. Let me know when you get some free time.

Will you be driving the Tesla? 🙂

[earlyretirement]

Duplicate.

[earlyretirement]

[quote=CA renter]

Correct, no Mello-Roos (or HOAs) for us. It was a very deliberate decision on our part to buy into a neighborhood with no MR or HOA fees.

Would love to catch up whenever you get a chance. Let me know when you get some free time.

Will you be driving the Tesla? :)[/quote]

Ah. Got it. Yes, I recall now that you mentioned that. I do think that can be wise for some people. For others, I don’t think it’s all bad. I guess it just depends on each community. I was NEVER a big fan of HOA’s until I bought in Santaluz and I find them well worth it here and the fees reasonable for everything you get.

DEFINITELY I’d love to catch up again. It’s been way too long since I last saw you. I so enjoyed meeting you. Yep. I’ll be driving the Tesla. You can even drive it if you want! I so enjoy seeing people’s faces that drive it for the first time.

I can’t wait to get the Model X as well but it will be a while. So funny, I bought a vanity plate for it. There was a thread on the Tesla forum asking about best vanity plate names. I posted about mine. MOD X and a guy offered me $5,000 for it! I didn’t know you could sell license plates but I guess it involves a transfer. Anyway, I refused as I think it would be too cool to have MOD X on it. I tried for MODEL X but Elon Musk owns that himself.

I’ll look for your email and reach out to you. Look forward to seeing you again!

[plm]

From the comments in this thread, it seems like the payoff of mello roos can be used as a property tax deduction but it doesn’t matter since AMT kicks in. But if AMT can be avoided by having too much income then does it make sense to pay off the mello roos for tax reasons?

Usually I do have to pay AMT like most people but this year cashing in my expiring stock options will push me in the highest 39.6 percent tax bracket so I may not be paying AMT. So if I pay off the mello roos this same year, can I really get the big deduction?

Seems to good to be true. So if anyone sees any holes to this tax strategy, please let me know.

[Del Sur 14]

Correct me if I am wrong but I think the general thought is.

Paying off the scheduled amount each year is tax deductible unless you are in the AMT.

But if you are talking about paying the whole thing off early I don’t think you could count any of the future obligation as a tax benefit, probably just what was due that year.

[FlyerInHi]

I think technically Mello Roos is not tax deductible. But people do it anyway.

[plm]

Interesting point. If you are right, then the payoff is not deductible but since it is paid off, the mello roos tax would not be there on the tax bill, so I don’t think I could even write off the mello roos that were supposed to be due that year.

I was looking at the mello roos payoff as paying taxes early. More like paying the both 1st and 2nd tax installment in December so that both payments can be deducted that tax year. In which case the mello roos payoff would be deductible.

I really don’t know who is right.

[plm]

[quote=FlyerInHi]I think technically Mello Roos is not tax deductible. But people do it anyway.[/quote]

I think there was come clarification by the IRS that the mello roos are tax deductible in response to something CA tried to do.

[Author]

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