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I own a home in Carmel and have a balance of about $500K. I

Customer Question
have a Heloc for $500K...
I own a home in Carmel and have a balance of about $500K. I have a Heloc for $500K. I want to buy another home and take the money out of the HELOC so the second home is free and clear, then refinance the Home Loan and Heloc which will total about $1M. I would also like to obtain a HELOC on the new refinance for $500K. My current salary is about $750K per year. My net worth is about $13M as I own free and clear a commercial building which again is free and clear. The reason I am doing this is because of tax purposes. I am doing this because I need desperately tax right offs since my current home only is $500K and the interest is nothing. I also have a lease for commercial building for 15 years which will generate about $10M...can this be used in the application process as an asset since it is a contract and use it as an account payable? How much can I use as a deduction off of income tax on the above refinance? The home I want to refinance is worth close to $2M. Can you help me with the above questions and also give me your opinion on how I should handle this refinance? I have minor credit card debt and no outstand debts except for taxes which total about $50K per quarter since it is unearned income? What must I present and what must I look out for and as with a lender or just stay with the current lender and consolidate the existing home loan and again, request a helco of $500K? What would be the Loan to ratio on the above scenario? I appreciate all and any information you can give me. I am 56, retired and plan on paying the $1M Home loan back in about 10 years. Should I go with an interest only loan which I have now which is about $1800 per month but I make a principal payment monthly of $10K. The home I want to buy is in foreclosure and I would like the $500K for the new home that I would like to own outright. My quarterly taxes state and local total about $55K every quarter with very little deductions. All and any advice is greatly appreciated. Many thanks..Linda B.
Submitted: 2 years ago.Category: Finance
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10/23/2015
Financial Professional: emc011075, Tax adviser replied 2 years ago
emc011075
emc011075, Tax adviser
Category: Finance
Satisfied Customers: 3,341
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi, Linda.

Here's the tax advise. Taking out additional debt like mortgage just to get a tax deduction is the worst tax and financial planing. You will never get the full benefits of the money you spend on interest. Lets assume you are in the highest 39.6% tax bracket, for every $1000 interest you pay to bank you will reduce your actual taxes by $396 and this is only if you will not be hit with Alternative minimum tax, which with your income is very likely. The more deductions you use the higher AMT will be and your taxes will not change. And the same will apply to your property taxes.

If your mortgage is over 1M, your you will not be able to deduct the entire interest, HELOC has to be less than $100,000 for the interest to be deductible.

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Financial Professional: emc011075, Tax adviser replied 2 years ago

If you want to lower your tax bill you will need to restructure your income, not to look for more deduction. Capital gains are usually taxed at lower rate. I would strongly advice you to talk to a experienced financial adviser with experience in estate planing. Salary deferment is another option. Considere 401K, HSA, maybe your company has some other retirement plants that will reduce your current W2 income and shift tax liability to the future years.

To be completely honest with you, with income over 500K your deductions are often limited or eliminated and some point becomes worthless.

For years politicians have been talking about eliminating mortgage interest deductions for good and with the tax overhaul it may become reality in near future.

Sorry, if this is not the answer you were hopping for.

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