Preparing for all cash house purchase - 5 years from now

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hammond
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Joined: Mon Jul 13, 2015 2:34 am

Preparing for all cash house purchase - 5 years from now

Post by hammond »

Current situation. Own a SFH home outright. Bought for 1.3m in 2020, and has appreciated to 1.7-1.8m. We expect it to hit 2m, 2.1m in 2025ish.
Through some good luck and hard work, at work I have been awarded 700k of RSUs vesting fully in 4 years (work in big tech). I have additional 500k vesting on top. Overall in the next 5 years, we expect to have 2m in stocks. It should be something like 1.2m in cost basis and 0.8m in long term capital gains.

The problem, we live in California (VHCOL) and in a top income bracket. On top of this we hate mortgage debt (don't ask), and we see ourselves upgrading to a 4m house then. My question, with 0.8m in long term capital gains, is it better to liquidate this over a course of years? Or everything in 1 year.
I know that capital gains is taxed at 15% at the federal level, and 20% beyond a certain point. And at the state level, it is taxed as income. My concern is that if done in 1 year, we will hit the 20% marginal rate at the federal level and increase our tax bracket too? Is this understanding correct? Any way to avoid or ameliorate or optimize the situation? One simple thing I can think of is to get a mortgage for the short term while we liquidate and pay off the house. This will need some convincing (incl. from a math angle).
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