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PDtax
PDtax, CPA, MBA
Category: Finance
Satisfied Customers: 3970
Experience:  Tax professional and business consultant for 35 years.
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we have just brought another home with a $345k mortgage. We

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we have just brought another home with a $345k mortgage. We still own oue 1st home with a GV of $187k which we plan to rent to our daughter for $200 a week.What advice would you have regarding how we should structure our mortgage and weather we should place our 1st home under a company. Would their be benefits we could take advantage of.
Thank you
Chris

PDtax :

Welcome to the site. I'm PDtax, and will be helping you today.

I'm not sure what you are asking about the structure of your mortgage. Answering a couple questions will help me:

How much is your first home worth, and how much debt is against it?

Have you closed on the second home, and did you use mortgage financing?

A can say that there is no need to transfer title of the first home into a business entity. The tax benefits are yours personally, and no benefit is gained by the transfer.
Customer: replied 3 years ago.

our 1st home is worth 187k with 33k debt still left on it.We have settled on the 2nd home and the finance from the bank is all approved through mortgage financing So in total our debt to the bank will be 345k.Our lawyer said there may be advantages using our 1st home for tax benefits.


We would also like advice on how we should structure our mortgage repayments e.g partial floating, fixed, revolving credit .We would like to repay the loan over a 15 year period and could possibly sell our 1st home at a latter date


 

I can think of a reason to transfer the ownership out of your names and into a new entity, if you can do it. Your attorney is correct.

If your first home qualifies for gain exclusion as a principal residence, a sale of the home to an LLC or other entity will allow you to report a gain, and escape the tax on the gain. You would have had to use the home as your principal residence for 2 of the last 5 years. You could lock in the gain, and not have to pay any tax on it.

Converting the home to a rental means you will lose that exclusion, and likely face a substantial tax bill when you do sell it.

Selling it to a new entity likely means either a new mortgage on it or paying off the old one at closing. That is what I referred to earlier when I asked if you could pull it off.

You also get a step up in basis in the new entity for depreciation purposes.

As for the new home, I am a believer in low cost, flexible financing. Since I believe interest rates will increase over your holding the mortgage on this home, I suggest the longest term you can get, 30 years if available. Prepay when you can to cut the overall tax cost, but retain flexibility if your income changes or if making payments is otherwise more difficult. That allows flexibility for prepayment, especially in the early years, and safeguards for the unexpecteds in life.

Thanks for allowing me to assist, and thanks from just Answer. I'm PDtax.
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