How to pay for second home

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Topic Author
Ladeedaw
Posts: 144
Joined: Thu Aug 09, 2018 1:16 pm

How to pay for second home

Post by Ladeedaw »

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.
123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: How to pay for second home

Post by 123 »

If you get a margin loan you may not have to liquidate shares and have tax consequences. Margin loan rates vary by broker.
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Topic Author
Ladeedaw
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Re: How to pay for second home

Post by Ladeedaw »

123 wrote: Sun Feb 05, 2023 10:55 pm If you get a margin loan you may not have to liquidate shares and have tax consequences. Margin loan rates vary by broker.
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?
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Metsfan91
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Re: How to pay for second home

Post by Metsfan91 »

Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
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
Topic Author
Ladeedaw
Posts: 144
Joined: Thu Aug 09, 2018 1:16 pm

Re: How to pay for second home

Post by Ladeedaw »

Metsfan91 wrote: Sun Feb 05, 2023 11:25 pm
Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
Thanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
muffins14
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Re: How to pay for second home

Post by muffins14 »

Ladeedaw wrote: Mon Feb 06, 2023 10:02 am
Metsfan91 wrote: Sun Feb 05, 2023 11:25 pm
Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
Thanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
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 taxes
Crom laughs at your Four Winds
exodusNH
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Re: How to pay for second home

Post by exodusNH »

Ladeedaw wrote: Mon Feb 06, 2023 10:02 am
Metsfan91 wrote: Sun Feb 05, 2023 11:25 pm
Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
Thanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
Since you need $X, it makes the most sense to sell the shares that will give you losses.

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.
Topic Author
Ladeedaw
Posts: 144
Joined: Thu Aug 09, 2018 1:16 pm

Re: How to pay for second home

Post by Ladeedaw »

exodusNH wrote: Mon Feb 06, 2023 10:21 am
Ladeedaw wrote: Mon Feb 06, 2023 10:02 am
Metsfan91 wrote: Sun Feb 05, 2023 11:25 pm
Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
Thanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
Since you need $X, it makes the most sense to sell the shares that will give you losses.

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.
That's kind of what I thought, but hadn't put it into those terms. I appreciate the clarity of your explanation. Thank you!
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Metsfan91
Posts: 1019
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Location: Rust Belt

Re: How to pay for second home

Post by Metsfan91 »

Ladeedaw wrote: Mon Feb 06, 2023 10:02 am
Metsfan91 wrote: Sun Feb 05, 2023 11:25 pm
Ladeedaw wrote: Sun Feb 05, 2023 10:08 pm

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.
Sell shares with long term losses. I think this would be better than HELOC with high interest rate.
Thanks! So, based on my tax bracket, you think better to stack more losses for future "use" than offset last year's losses with gains?
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.
"Know what you own, and know why you own it." — Peter Lynch
renter
Posts: 562
Joined: Sat Aug 23, 2008 2:14 pm

Re: How to pay for second home

Post by renter »

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.
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.
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