[quote=flu][quote=plm]Didn’t realize a rental was an investment instead of a business. In this case I should be able to cash out some of my stock gains and pay off my mortgage. Then I can also get a mortgage on my rental and buy stocks. Although lately my stocks have been going down while the market is up but that’s another problem.[/quote]
I’m not sure I follow about cashing out stocks and paying off mortgage, only to turn around and borrow against the home to buy stocks again….If you do that…
1. You pay capital gains taxes on your stock sales.
2. You pay off a mortgage, and then take another mortgage out, you incur a new loan with most likely higher interest.
3. You run the risk that if you pick the wrong stocks or just invest at the wrong time in the stock market, you are now stuck with paying a mortgage to fund your stock losses.
4. If you now have rental issues (like lapse in tenants, or the general health of the rental markets goes down)….now that’s coming out of your pockets.
5. Depending on how much the rest of your income, you might not be able to offset real estate losses against your W2/salaried income.
Basically, you’re significantly increasing your financial risk, but I’m not seeing the potential of much greater financial reward beyond what you already have. Why take on increased risk, if the amount of reward does not significantly increase?[/quote]
The difference is with the new loan it would be against my rental so I can deduct the interest. I would have to compare whether the difference in interest rate costs is less than the ability to deduct the interest.
Stocks I need to get out anyhow. Been letting my RSUs/ESPP grow for too long incurring large tax liabilites and the new tax plan should let me start selling off large chunks at the 15% capital gains rate each year. And because of the tax plan, I think other sectors will grow at the same or better than tech so it’s about time for me to diversify.
I think financial risk will be reduced by being diversified. But financial risk will increase if my new loan is larger than my existing one.
[quote=ltsdd]SK – I have yet to be able to demonstrate that I spend >=750 hours/year managing the props. So it’s been counted as passive income instead of a business. Am I missing something?
Flu – I hope you’re right. The new tax “law”, from what I have read, only mentioned the $10K cap. I interpreted that as a hard cap on how much you can deduct regardless of income or other expenses incurred wrt the rentals. For example, if the rental generates $15k in rents and the interest for the rental is also $15k, your taxable income will be $5k instead of $0 as it has been in the past.[/quote]
Rental income is passive, regardless of how many hours you spend on it. It’s still business income.
The state and local income tax limit only applies to itemized deductions. Has nothing to do with business deductions.
You can always make a direct property tax payment online with the county.
At some point I may get one of those credit cards that gives you tons of points if you spend $10,000 in the first three months. I don’t spend that much normally, however using the card to pay $2500-5000 in property tax, while involving a credit card fee of about 2%, could still easily be worth it.
I tend to get Southwest and Delta credit cards because those miles are worth the most to me. The last few southwest cards I signed up for I got 50,000-80,000 in SW points as sign-up bonuses. At southwest’s 2.1 cent per mile conversion rate, that means the 80,000 mile signup bonus is worth about $1600. Paying a credit card fee of about $100 to prepay $5,000 in property taxes, I would still come out way ahead.
As someone mentioned, when the escrow company gets the tax bill and sees it mostly/entirely paid already, they only pay what is due and at the end of the year will send you a check from the escrow account that will give you back what you prepaid.
At some point I am going to take a business class trip to probably Singapore for an Asian vacation using these credit card bonus miles, something that normally costs $3000-6000.
