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ocrenter
Participant[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. 🙂
Participant[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.
Participant[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.
Participant[quote=earlyretirement]Also, I believe I posted this earlier in this epic thread but I’ll repost it as clueless included it in part of a message to me and I hope he/she posts more details about their CFD #99-1 experience.
This is what I think is in most CFD’s and probably how they will justify stopping to end CFD pre-pay offs in the future.
“Notwithstanding the foregoing, no prepayment will be allowed for Assessor’s Parcels eligible for prepayment pursuant to the first paragraph of this Section G (the above paragraph) or pursuant to the paragraph immediately above unless the amount of Annual Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board.”
The key phrase I believe they will use is, “and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board”.[/quote]
Faced with the very likely event of extension to 2043, I would still try to see if the Board is willing to allow prepayment. As CAR pointed out, last one out is the rotten egg. The board will likely approve on first of the few requests. Then realize they can’t afford to grant prepayments any more and deny away in the future. Very well worth a try at least.
ParticipantER, 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! 🙂
Participant[quote=ltsdd][quote=ocrenter]When I paid the MR off, we still had 22 years to go on the MR. Total cost over the 22 years would have been $150k. With the payoff at $58k, and one of the MR at 7.5% the calculation came out in favor of payoff as we essentially “earn” $92k by paying the $58k upfront.[/quote]
Excellent thread.
OCR,
Did you take into account the tax deductibility of the MR (let’s put aside the debate on whether or not it’s allowed or legal for now) – I assume you didn’t? Would your conclusion be any different as to whether or not it’s advantageous to pay off MR? Using your example above and let’s assume you’re in the 30% tax bracket, by paying off your MR you earned roughly $45K instead of $92K. I am pretty sure that even with the most conservative investment vehicle, you should not have any problem doubling your money in that 22 years period. Personally, I would have hung on to that cash.[/quote]This would all be exactly right and accurate if the government didn’t devise a way to allow for double taxation known as the AMT.
Participant[quote=joec]
If you are very wealthy, it’s worth considering, but some downsides I see is that you would lose the tax break that everyone is taking when paying these yearly. The tax break is pretty big for high income folks (45%?) Another thing is the time value of money. $5000 30 years from now even if increased 2% a year is not the same as $5000 today which is worth a lot more.
[/quote]
People hitting that AMT yearly would not be able to deduct their property tax, including the MR. Judging by the income survey, that includes a lot of piggs.
Participant[quote=Clueless]We try to pay off our MR with an address at CV but the answer we got today was that we can’t prepaid. It was a 30 yr bond with a mature year in 2033 and potential extension into 2043. We want to pay off now since we plan to stay here forever. Very unhappy with how the bond was structured.
Early retirement- you seems to know a lot about MR payoff. Could we contact you to get some advice?[/quote]
agree with ER.
“potential extension into 2043” = we got you until 2043.
no question about it.
the blocking of prepayment may be because they are already counting on the 2033-2043 payments, if you prepay, they don’t get “their” money.
ParticipantThe reviews on amazon seem mixed, but a lot of the bad reviews are related to the wait time for the result. That’s not a big deal to me. Afterall, this is DNA analysis, not a lipid panel!!!
The reviews that got my attention is the data seems to be much more eurocentric. Both in heritage analysis as well as their disease/health evaluation.
Participant[quote=earlyretirement]
Yep. I didn’t know if it was “automatic” per se. I know the last 2 or 3 years wasn’t normal due to extremely low interest rate environment and refinancing. But we won’t be seeing another refinance of those that have been refinanced already.
It would be nice if CFD #4 gets it’s act together and refinances for it’s taxpayers. But I’m not going to hold my breath. But yes, like you in my models I included the assumption they will raise it 2% a year and won’t leave any money on the table.
ocrenter, where do you live? Do you live around our hood? Thanks for posting such great information. Actually it was some of your posts that were really really educational for me on this whole CFD pay off. That’s why these message boards are so valuable. Thanks.[/quote]
I think they may have contract obligations to the bond holder to keep it at a certain interest rate??? just speculation on my part.
haha, we are in lizard country, aka Stonebridge. According to some people’s Thomas Guide, the place is so far flung they didn’t even assign a page #!
ParticipantER, I think the 2% yearly MR increase is automatic. They essentially computed the bond payoff with the 2% yearly increase in mind. Just checked my street and it looks like the 2% MR increase is right on schedule.
This is another reason why the MR payoff made sense to me. When I paid it off last year, the yearly obligation was $5300. But after 10 years, that yearly obligation would be $6400, and after 15 years, that yearly obligation would then be $7000.
Meanwhile, with the AMT, the MR essentially feels like double taxation. I’m using post tax dollar to pay more tax, just doesn’t feel right.
Participant[quote=EconProf]Since early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.[/quote]Interesting point EconProf. My first thought was maybe this is due to timing of the payoff being difference.
When I paid the MR off, we still had 22 years to go on the MR. Total cost over the 22 years would have been $150k. With the payoff at $58k, and one of the MR at 7.5% the calculation came out in favor of payoff as we essentially “earn” $92k by paying the $58k upfront.
Now I have to assume the bulk of the principle is back-end loaded, much like mortgages. Therefore, homeowners are paying primarily interest the first few years.
Assuming I have 17 years left on the MR, with payoff reduced slightly to $50k, residual 17 years of payments would still be $121k. So it would still be worth paying off, but the benefit is not quite as impressive.
Looks like the big difference here between econprof and my scenario is the interest rate involved.
Econprof’s CDF #2’s payoff is $30k with 17 years left, but because the interest rate is only 4%, yearly obligation is only $2100. My CDF11-3’s payoff was $26k with 22 years left, but interest rate was 7.5%, yearly obligation was $3000.
So essentially with the low interest rate of CDF2 and less number of years left on the MR, the payoff strategy doesn’t make sense.
I do wonder why PUSD can get CDF2 rate down to 4% but CDF11-3 is still at 7.5%.
Participant[quote=bearishgurl][quote=ocrenter]I do recall a family friend who bragged about how they purchased a home that had the MR paid off. And they justified the home’s higher price tag based on the potential savings. They were quite excited about how their house was “special” compared to everyone else in the neighborhood.
We do not live in the days of MLS books and Thomas guide anymore. It is very easy to do a quick search and find homes without MR.[/quote]
ocrenter, you and I know how to pull up a random tax bill and read it correctly but the average buyer does not.
And prospective buyers aren’t going to comb tax bills of listings within CFDs to determine (on the off-chance) if any of them have paid off MR. And even if they happen to find a property with paid-off MR, it may not meet their needs. I’m sure you’re aware that that is not how buyers shop for property. In any case, the tax bill screen could lag an owner’s possible prepaid MR by 1-12 months.
Buyers WHO WILL NOT ACCEPT MR do NOT shop in those areas which have it, unless they (or their agent) is certain that the MR is soon to be retired.[/quote]
you do not need to CAP things, I read that the first time you wrote this.
buyers will tell their agents, their agents can set the parameters to search the MLS, and they’ll see there’s no MR.
ParticipantI do recall a family friend who bragged about how they purchased a home that had the MR paid off. And they justified the home’s higher price tag based on the potential savings. They were quite excited about how their house was “special” compared to everyone else in the neighborhood.
We do not live in the days of MLS books and Thomas guide anymore. It is very easy to do a quick search and find homes without MR.
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