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I borrowed 31000 from my 401k to fix my house to put it on…

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I borrowed 31000 from my...
I borrowed 31000 from my 401k to fix my house to put it on the market. It sold for 195,000. Now I am wondering what the smartest thing to do is to buy a new house. We are moving from NH to MN. Either not pay back the 401k loan and buy a new house cash. Or pay back the loan and pay off all of our debt which is 33,000 for two car loans at 9%. A few credit cards w a total of 8000 at 29% and get a mortgage. We have a 615 credit score.
Submitted: 3 years ago.Category: Tax
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Answered in 6 minutes by:
7/1/2015
Tax Professional: Lev, Tax Advisor replied 3 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,270
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Hi and welcome to our site!The issue with 401k loans is that if you fail to pay the loan - that amount woudl be treated as deemed distribution - and will be reported as your taxable income.If you need the money for the down payment to purchase a new house - the best option might be - to pay off that existing 401k loan, and- take another 401k loan - specifically to purchase the house - that might be on better terms.
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Tax Professional: Lev, Tax Advisor replied 3 years ago
Regarding other loans -
- as you will have some cash on hands - you might want to pay faster off loans with higher interest rate - such as credit card loans - and only if you are not able to refinance.
- for car loans - I would discuss with your banker - it is very possible to have these loans refinanced at lower rates - most likely - 3-5% - if that is possible - be sure to verify refinancing costs.
Regarding your house that you plan to purchase -
- the best interest rates you may get when you provide at least 20% down payment.
- you may use 401k loan as the down payment - and that will NOT be taxable distribution as long as you are current with your loan - and generally is accepted by lenders.
- you will be able to deduct mortgage interest on your tax return - while interest paid to credit cards and on car loans is not deductive - so - it might be preferable to have a home mortgage compare to other loans.
Let me know if you need any clarification this matter or
if you need help with other tax related issues.
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Customer reply replied 3 years ago
Will I have to pay taxes on the sale of the house? We bought it for 105 and sold for 195
Tax Professional: Lev, Tax Advisor replied 3 years ago
If that was your primary residence - you might be eligible to exclude the capital gain from taxable income - up to $250k for single and up to $500k for married couples filing jointly.
To be eligible - the property should be owned and use d as a primary residence at least two out of last five years before the sale.
Following IRS publication provides additional details
http://www.irs.gov/pub/irs-pdf/p523.pdf
Moreover - in most situations - you woudl not need to report the sale of your primary residence on your tax return.
Let me know if that answered your question.
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