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Ask Megan C Your Own Question
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16576
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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My offer was just accepted on a home in Southern California.

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My offer was just accepted on a home in Southern California. My broker can get me a good rate with 25% down. The next break in the rate is .25% if put 40% down. I'm wondering if this is a good idea from an investment standpoint. If I put more down, my mortgage payments will be lower (incl. paying less interest). At the same time I won't be taxed on interest on money that's currently in the bank. I will have a positive cash flow immediately (the home is for rental income).

MyVirtualCPA :

Thank you for your question, and thanks for using JustAnswer.com

MyVirtualCPA :

If this is for a rental property, then I think it's smart to put more down on the house to get a lower interest rate

MyVirtualCPA :

Over time, you will pay less in finance charges

MyVirtualCPA :

Your cash flow will be higher

MyVirtualCPA :

Overall, it's a good move.

MyVirtualCPA :

Is there anything else that you need assistance with?

MyVirtualCPA :

If not, please rate my response "excellent" so that I may receive credit for assisting you today

Customer:

I ran out of space with the question, but the flip side would be that I'll be taxed on all the positive cash flow. Is the tax break better? Would it be a better idea to consider investing the money in something else?

Customer:

If I have positive cash flow immediately, then is it better to invest that money in something at that point?

MyVirtualCPA :

You can't deduct the entire mortgage payment

MyVirtualCPA :

You only deduct interest

MyVirtualCPA :

so the interest deduction will be lower but the positive cash flow and savings from paying less in interest will more than offset the additional tax on the difference in interest payments

Customer:

Stated another way, if I were to put less down and keep more money in the bank, the rent charged would not cover my mortgage and I would have to pay money every month to make up the difference. If I put more down and have lower mortgage payments, I probably won't have to pay anything because the rent would cover my costs. The second situation would be better from a tax perspective for me.

MyVirtualCPA :

Yes, it would be

Customer:

Thank you for your advice!

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