BUYING A HOUSE FOR ALL CASH WHEN BORROWING WILL BE NEEDED LATER

Trap:  Buying a house for all cash when borrowing will be needed later.  On any later borrowing that you may do, you will find that the mortgage interest paid is deductible within limits and only up to the first $100,000 of debt.  This is treated as equity borrowing.  If you’re going to need the money, then borrow at the time you purchase the house since you would be able to deduct the interest on the first $1,000,000 of debt.  This is treated as acquisition borrowing.


PERSONAL MONEY MANAGEMENT

Hidden dangers in home equity loans

 Home equity loans may not be as attractive as they seem.  In the long run, they can sometimes be more costly than conventional types of loans.  Contributors to high home equity loan costs: excessive closing costs, variable interest rates without protective caps, high “point” charges, long payback periods, and large lump sum balloon payments at the end of the payback period.  Suggestion:  compare total costs between home equity loans and conventional loans before you borrow.


PERSONAL MONEY MANAGEMENT

Hidden dangers in home equity loans

 Home equity loans may not be as attractive as they seem.  In the long run, they can sometimes be more costly than conventional types of loans.  Contributors to high home equity loan costs: excessive closing costs, variable interest rates without protective caps, high “point” charges, long payback periods, and large lump sum balloon payments at the end of the payback period.  Suggestion:  compare total costs between home equity loans and conventional loans before you borrow.

 


SECTION 1244 STOCK A SMARTER WAY FOR NEW COMPANIES

If you are starting a new corporation be sure you issue Section 1244 stock. Why? Many small businesses fail and the loss on corporate stock is a capital loss that is offset against capital gains, and only $3,000 can be written off against ordinary income annually.

However , a loss incurred on the sale, exchange , or worthlessness of Section 1244 stock may be treated as an ordinary loss, even if the stock is a capital asset. Up to $100,000 for married individuals filing jointly($50,000 for singles) may be deductible as an ordinary loss in any tax year. The main rules…

• The issued stock must be exchanged for money or property.
• Stock must be issued to individuals or partnerships
• The total of the money or property received by the corporation for issuance of the stock cannot exceed $1,000,000.
• The shareholder must be the original purchaser of the stock.
• More than 50% of corporation gross receipts must have been derived from sources other than royalties, rents, dividends, interest, annuities, and gains from the sale of securities.