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Old 10-23-2013, 10:01 PM   #21
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Originally Posted by Animorph View Post
Not $20, that was a typo for $20k. The $80k and $100k were correct, and the difference was the $20k.

The HELOC was simultaneous with the mortgage, up to $160k initially I think. I had to keep dropping the amount to get the last two refis. Now I have no HELOC until I can get something at a decent rate, though some of it was taken care of with a cash-out refi.

It can be difficult to get any loan after retirement, so it might be wise to hang on to the mortgage if that works for you. We've had a few threads on that. Home purchase interest is also easier to deduct (and is the only home equity interest deductible for AMT) than HELOC interest. I have to divide up my current mortgage into purchase/$100k equity/investment in order to deduct it on regular taxes, and purchase/investment for AMT.
How is that division achieved, if you don't mind?

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Old 10-24-2013, 06:59 AM   #22
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On the surface his advice may make some sense for those with the savvy to really understand what he is advocating. However I think his spiel is aimed more at those young people just starting out with little money for a down payment and probably lack the discipline to follow through and invest or save the money. His 8% market return is a bit Pollyannaish as well for those who know nothing about the market and investing.

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Old 10-24-2013, 07:51 AM   #23
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I agree that his advice could be very dangerous for those who are using their mortgage as a way to finance excessive spending. In our case, we have the cash to pay off our mortgage but are making a conscious decision that it is better to use that cash in other ways.

I found his most compelling argument for carrying a mortgage to be liquidity and flexibility. I think many people focus on paying off their mortgage at the expense of an emergency fund. I have seen too many people who had a lot of equity in their home but didn't open HELOCs and then were scrambling for cash when a crisis hit and they couldn't get one or their line was cancelled.
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Old 10-24-2013, 08:25 AM   #24
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This group is probably unusual in that many who have mortgages also have assets they could shift into real estate (paying off the mortgage). I wonder, outside this group, how many refinances go to pay for cars, tuition, travel, etc., but there is no liquid nest egg that could have been used either to pay for those had there been no refinance or heloc, or to pay back the loans.
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Old 10-24-2013, 10:09 AM   #25
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Originally Posted by bld999 View Post
How is that division achieved, if you don't mind?
The IRS has rules for this, of course. Roughly, having been months ago since doing taxes, you have to pool all your home mortgage/equity loans. You calculate the monthly principal due to your home purchase loan. This is generally your original home purchase mortgage amount. You calculate the monthly principal due to up to $100k of home equity loan. The proportion of interest expenses of the pooled loans due to those principal amounts are deductible on your normal federal taxes. The $100k home equity loan interest is not deductible for AMT. You calculate the principal used for investing, and its interest. This, with some restrictions (must have enough income, not invested in tax-free securities, documentation) is separately deductible as an investment expense. The AMT calculation is independent of the standard tax calc, so the $100k home equity portion can be investment interest for the AMT. The interest on any loan principal not included in those three categories is "personal" and not deductible.

As with other pooled allocations like this, the IRS specifies which categories are assumed to be paid off first: personal is first, then investment, then $100k equity, then home purchase.

I have a mortgage spreadsheet that I drag out once a year to do all the calculations. Turbo Tax helps some, but could be better with the AMT.

Look up the IRS instructions on this for the details, I didn't verify my memory of any of this, and I'm not a tax pro.
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Old 10-24-2013, 10:27 AM   #26
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Thanks, Animorph.

Looks like I need to do some additional reading. i was not aware of this method.

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