How to pay for second home
How to pay for second home
My second home (cabin) is under construction, although a bit later than I had originally hoped. Costs have risen some and I had some unexpected personal costs, so my cash stash to pay for it is probably going to be short $50k-$100k. I say “probably” because my income is somewhat variable and this year is fairly uncertain in outlook. I may earn enough in the next 4-5 months to pay for it outright. I have just over $2M in my taxable account that I will draw from if my cash account isn't enough. My question is what shares to sell, should I need to. I did tax loss harvesting last year, with a loss of about $23k.
Should I:
1) Sell shares with gains that basically match my loss from last year?
2) Sell shares that have long term losses?
3) Something else?
I’m in the 37% tax bracket for 2022, and almost certainly at least the 35% for 2023.
Should I:
1) Sell shares with gains that basically match my loss from last year?
2) Sell shares that have long term losses?
3) Something else?
I’m in the 37% tax bracket for 2022, and almost certainly at least the 35% for 2023.
Re: How to pay for second home
If you get a margin loan you may not have to liquidate shares and have tax consequences. Margin loan rates vary by broker.
The closest helping hand is at the end of your own arm.
Re: How to pay for second home
Thanks. I don't know much about margin loans. I also have a HELOC I could potentially use, with a current 7.5% APR rate. Do you think that's preferable to selling shares of equities?
Re: How to pay for second home
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
"Know what you own, and know why you own it." — Peter Lynch
Re: How to pay for second home
Re: How to pay for second home
I think if you have the option to force gains or harvest more losses, always harvest more losses. You end up preserving your asset allocation and not eating up taxesLadeedaw wrote: ↑Mon Feb 06, 2023 10:02 amThanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
Crom laughs at your Four Winds
Re: How to pay for second home
Since you need $X, it makes the most sense to sell the shares that will give you losses.Ladeedaw wrote: ↑Mon Feb 06, 2023 10:02 amThanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
In reality, while you have N lots with varying share prices, your total holdings are with a single value at any point of time, $Y with Z shares. You have an effective per share price of $Y/Z.
Don't anchor on what you paid for a certain lot. That's meaningless, because you've really got a single, large lot with a share price of $Y/Z. By selling the lots with a loss, you're making the most tax-efficient transaction to get $X that you need.
Re: How to pay for second home
That's kind of what I thought, but hadn't put it into those terms. I appreciate the clarity of your explanation. Thank you!exodusNH wrote: ↑Mon Feb 06, 2023 10:21 amSince you need $X, it makes the most sense to sell the shares that will give you losses.Ladeedaw wrote: ↑Mon Feb 06, 2023 10:02 amThanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
In reality, while you have N lots with varying share prices, your total holdings are with a single value at any point of time, $Y with Z shares. You have an effective per share price of $Y/Z.
Don't anchor on what you paid for a certain lot. That's meaningless, because you've really got a single, large lot with a share price of $Y/Z. By selling the lots with a loss, you're making the most tax-efficient transaction to get $X that you need.
Re: How to pay for second home
Stack more losses. Carry over losses year after year, if comes to that. Losses reduce taxable income at the highest bracket you are in. As a result, you get to keep more of your money from the taxman.Ladeedaw wrote: ↑Mon Feb 06, 2023 10:02 amThanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
"Know what you own, and know why you own it." — Peter Lynch
Re: How to pay for second home
This might be a case where borrowing from a 401k could make sense (up to the $50k limit), then pay it back when the money comes in.Ladeedaw wrote: ↑Sun Feb 05, 2023 10:08 pm My second home (cabin) is under construction, although a bit later than I had originally hoped. Costs have risen some and I had some unexpected personal costs, so my cash stash to pay for it is probably going to be short $50k-$100k. I say “probably” because my income is somewhat variable and this year is fairly uncertain in outlook. I may earn enough in the next 4-5 months to pay for it outright. I have just over $2M in my taxable account that I will draw from if my cash account isn't enough. My question is what shares to sell, should I need to. I did tax loss harvesting last year, with a loss of about $23k.
Should I:
1) Sell shares with gains that basically match my loss from last year?
2) Sell shares that have long term losses?
3) Something else?
I’m in the 37% tax bracket for 2022, and almost certainly at least the 35% for 2023.