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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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My wife and I are in the process of buying a condo. We

Customer Question

Hello-My wife and I are in the process of buying a condo. We presently own and have lived in our present condo for several years. We have $140,000 in savings and $36,000 in a Roth IRA that we intend to use for partial payment.
We need approximately $66,000 more to pay for the condo that will cost $262,000.
Our question is what makes the most sense, to get a mortgage for the difference of $66,000 until we sell our present home and pay off the mortgage in full. If we do take a mortgage and try to sell our present home, we will have to rent our present home out until we sell it. The $66,000 will come from an IRISA account so it will push us from a 15% tax bracket to a 25% bracket.( we have yearly income of around $60,000)
Also,if we see our rented condo withing a year, will the money we receive for it be taxed at a higher rate since it will no longer be our primary residence?
Your help would be greatly appreciated. Thank you, Patrick
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

Taking money out of your retirement account in lump sum is no advisable. You get hit with higher taxes and possibly a penalty for early distribution if you are not 59 1/2 or older. You may want to do some analyses how much it would cost you to get the mortgage (interest, closing costs) and how much income tax you would pay on the distribution from retirement plan. For that you can use an online tax calculator and every bank can give you a good faith estimate for the amount you will need to borrow. It would probably make more sense to take out a mortgage if you can negotiate a low rate and low closing cost.

Regarding the capital gains, as long as you sell the house in the next 3 years you will still qualify for 250K (500K if filing jointly) principle residence capital gains exclusion. To qualify, you the house must be your primary residence for 2 out of 5 prior the sale.

I see you offline now. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.