Ronald McDonald house 2014

[spdrun]

Or you buy $1.5 MM of condos that rent at 6% cap and have $90k/yr income. Increasing with inflation, with healthy tax deductions 🙂

Removes the temptation to touch the principal.

[an]

[quote=spdrun]Or you buy $1.5 MM of condos that rent at 6% cap and have $90k/yr income. Increasing with inflation, with healthy tax deductions 🙂

Removes the temptation to touch the principal.[/quote]Or buy $1.5M of SFR in areas like Fresno, CA or TX that make 8-12% cap rate and hire a good property manager to maintain that portfolio. There are a lot of options out there. I only brought up 3-4% as an extra conservative option and still get you ahead of taking the monthly cash payment.

[spdrun]

Stuff that caps out at 6% is usually middle to high-end, meaning that it’s easy to keep rented with minimal heartache. It’s also in areas that you’d actually want to live, unlike Fresno or Texas.

And a lot of mx that you’d need a property manager for is taken care of by the condo management company.

[an]

[quote=spdrun]Stuff that caps out at 6% is usually middle to high-end, meaning that it’s easy to keep rented with minimal heartache. It’s also in areas that you’d actually want to live, unlike Fresno or Texas.

And a lot of mx that you’d need a property manager for is taken care of by the condo management company.[/quote]As the saying goes, higher risk, higher return. Also, just because it’s low end doesn’t mean it’s always a big heartache. I know people who have rentals in Fresno and one of their property, their renter has been in there for over 10 years and the other ones have renters in there for 3+ years so far. Those are life long renters who are on welfare.

[spdrun]

If I were given $1.5MM, I’d be interested in having it pay me a reasonable dividend, not maximizing return at the expense of higher risk. 6 or 7% is high enough if it can pay reliably.

[rasaid111]

Thanks alot for your response, the last question for you, If I understand everything that you wrote, the best decisión is to keep the house instead the other options.
right?
What Will happen If I decide to live in the house For 2 years before I sell it, I heard that you pay less taxes.

What do you recommend.

Thanks again you have been very helpful for me.

[SK in CV]

[quote=AN]Take $3.5M, then subtract ~53% for taxes. You can then round down to the nearest hundred thousand to for fees/penalties/etc. I’m guessing $1.5-1.6M? If you invest $1.5M lump sum in a long term CD making say 3% over 20 years, you’ll have ~$2.7M after 20 years. That sounds better than $2.1M if you take the monthly cash payment. Increase that rate to just 4% gets you $3.2M after 20 years. Still very conservative estimate for a 20 years average, IMHO. Considering ~7-8 years ago, you can find CDs in the 6-7% range.[/quote]

Hate to quibble over a few percentage points, but on 3.5 million, 1% is a lot of money. It wont be 53%. Probably no more than high 40’s.

And more likely than not, no significant income taxes would be due until April 15th next year. There are safe harbors that would eliminate the need to pay huge quarterly estimates this year.

[an]

[quote=SK in CV]Hate to quibble over a few percentage points, but on 3.5 million, 1% is a lot of money. It wont be 53%. Probably no more than high 40’s.

And more likely than not, no significant income taxes would be due until April 15th next year. There are safe harbors that would eliminate the need to pay huge quarterly estimates this year.[/quote]Based on http://www.moneychimp.com/features/tax_brackets.htm and $4M (not $3.5M since, that’s the value the house is supposed to be at), federal tax would be 38.54%. State income tax is 11.644%, based on https://webapp.ftb.ca.gov/taxcalc/calculator.aspx?Submit=2013+Tax+Calculator&Lang=english&redirectURL=OTC. So, combined, it’s ~50%. less than the ~53% I gave a rough estimated but higher than high 40’s you stated. Of course, it depends on what else you’re deducting. 3% less = $120k for $4M. Not chump change for most, but it still wouldn’t change my general point. Also, obviously, if you really were the winner, you’d get yourself a good tax advisor and not trust some vague estimate from some anonymous person on Pigg.

[spdrun]

Quibble: Assuming you were a full year tardy, you’d pay the 3% on the 50% tax (assuming the state rate is similar) NOT the full value of the house. So the penalty hit would be $60,000, not $120,000.

[spdrun]

What Will happen If I decide to live in the house For 2 years before I sell it, I heard that you pay less taxes.

You’d only pay less taxes on any gain above $4 million. Tax on the $4 million would still be due April 15 of the following year at latest.

If you can figure out a way to swing the income tax as well as the property taxes/expenses, why not? Just remember, property values are volatile. It could be worth $5 million in two years, or it could be worth $3 million.

I’d personally sell ASAP and put the money into more … manageable … homes, but that’s just me.

[SK in CV]

[quote=AN][quote=SK in CV]Hate to quibble over a few percentage points, but on 3.5 million, 1% is a lot of money. It wont be 53%. Probably no more than high 40’s.

And more likely than not, no significant income taxes would be due until April 15th next year. There are safe harbors that would eliminate the need to pay huge quarterly estimates this year.[/quote]Based on http://www.moneychimp.com/features/tax_brackets.htm and $4M (not $3.5M since, that’s the value the house is supposed to be at), federal tax would be 38.54%. State income tax is 11.644%, based on https://webapp.ftb.ca.gov/taxcalc/calculator.aspx?Submit=2013+Tax+Calculator&Lang=english&redirectURL=OTC. So, combined, it’s ~50%. less than the ~53% I gave a rough estimated but higher than high 40’s you stated. Of course, it depends on what else you’re deducting. 3% less = $120k for $4M. Not chump change for most, but it still wouldn’t change my general point. Also, obviously, if you really were the winner, you’d get yourself a good tax advisor and not trust some vague estimate from some anonymous person on Pigg.[/quote]

That was pretty much the same as my calculation except that the state taxes are deductible. Pay 350K, about $240K of that will be deductible, saving another $100K or 2.5 to 3%. (to preempt a likely criticism, whoever wins is unlikely to be subject to alt-min tax.)

[SK in CV]

[quote=spdrun]Quibble: Assuming you were a full year tardy, you’d pay the 3% on the 50% tax (assuming the state rate is similar) NOT the full value of the house. So the penalty hit would be $60,000, not $120,000.[/quote]

I’m not sure what you mean by tardy. If I win the house today, I don’t owe anything substantially different than I otherwise would have owed, until 4/15 of next year. And there will be no penalties.

[joec]

I agree that if you win, you should hire someone to at least run some numbers or double check your work, even if you are an expert on tax…

Everyone also has a different situation so if you have an awesome pension or double retirement (retired military), working another job now with another pension, then maybe income is already very high in retirement, etc…

These are all good problems to have if you win! Only(!) $150 per ticket….

I’m sticking to my money down the toilet lotto.

[joec]

[quote=SK in CV][quote=spdrun]Quibble: Assuming you were a full year tardy, you’d pay the 3% on the 50% tax (assuming the state rate is similar) NOT the full value of the house. So the penalty hit would be $60,000, not $120,000.[/quote]

I’m not sure what you mean by tardy. If I win the house today, I don’t owe anything substantially different than I otherwise would have owed, until 4/15 of next year. And there will be no penalties.[/quote]

I think you’re supposed to pay estimated tax…That’s where the penalty is from.

[spdrun]

It seems as if you pay at least 110% of last year’s tax due, you’re OK. I thought there would be some sort of upper income cap on this provision, but apparently there is not.

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