What would you do with an extra $1 million?

[corn18]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

+99 (or whatever number is next)

It really isn't any more complicated than this. The key is the AA that suits your risk tolerance. If I had as much of a cushion as you do, I would take more risk and bump up my AA from 60/40 to 70/30. I am a wild and crazy guy, though.

 

[calmloki]

Net? We are stewing over an offer from someone who wants to buy some of our property as part of a 1031 exchange. Very attractive big money offer, but some back of envelope figuring indicates that between depreciation recapture at regular income tax rates, long term capital gains tax, 9.9% state tax, 3.8% healthcare tax, sale commission, reduction in SS medicare contribution etc we may net about 60% of the sale price. We don't want to get more rental property, a Delaware Statutory Trust seems expensive without solid return - we are looking at maybe a monetized installment sale - C453 - to delay tax payment.

We do make loans, but you aren't interested in that. Maybe buy a big(ger) honkin' house and grounds and hope for appreciation and have it pass to heirs tax free?

Edit: loss of rent will be substantial in our case - feeling trapped by the rentals, but our lifestyle is pretty fixed, so it is just a desire not to waste the value we've accrued on the rental property on taxes. Like selling really good and familiar tools after you are done with a job.

 

[kgtest]

Me personally, I would probably help someone close to me in an indirect way, maybe upgrade there car, contribute to 529, gift cash or whatever the best use would be for my friend/family. Then, I would donate a bit to charity as part of my tax loss harvesting and giving, then invest the rest into the market taking the suggested 3 to 4% SWR mentioned above and adjust spending a bit to maybe include some travel that I help pay kids or grandkids or friends way, dinners out when travelling or just getting used to the extra ~ 30k after tax spending I could do.

 

[Scrapr]

Taking the proceeds from rental real estate and reinvesting into the current AA increases the risk profile of the portfolio because it loses diversification. It might make sense to offset this by adding a new asset, such as a REIT or annuity.

This was my thought. Take some % and blow it on strippers...errrr fine single malt & cigars on a nice trip

*our sale of a rental & recapture pushed us into AMT. So be careful there

 

[flintnational]

This was my thought. Take some % and blow it on strippers...errrr fine single malt & cigars on a nice trip

Someone on the forum has/had a signature line that basically states, "I will spend most of my money on women and wine. The rest, I will spend foolishly."

 

[aaronc879]

I would retire immediately, buy myself a new car, then invest the rest just like the rest of my portfolio.

 

[NW-Bound]

Taking the proceeds from rental real estate and reinvesting into the current AA increases the risk profile of the portfolio because it loses diversification. It might make sense to offset this by adding a new asset, such as a REIT or annuity.

A good consideration.

While a $1M addition to my own stash would be a significant percentage, I already have enough invested that if I wanted REIT I would have it already.

But I have very little of REIT at the moment. Wonder if I should increase it some.

 

[audreyh1]

Same as others. Assuming that rental property was providing income, I would invest it with the other retirement assets providing income.

If for some reason you feel the need to have real estate as part of your allocation, then by all means invest part of your retirement portfolio in REITs.

 

[HaveEnough]

Some of the larger institutions will take property as donations into a charitable remainder trust. If you are worried about the taxes and have the time to find and work with your charity of choice. Could be a win win. You get to keep some of the income, receive a (reduced) deduction and the charity gets the asset. Don't know what it means for the recapture tax...

 

[Sunset]

The rentals (two on one property) generate about $36K/year, which we've poured back into first paying off the mortgage, & then into much-needed upgrades & repairs. We've managed the property since we bought it back in 1989 because we've never been able to find a property manager without larceny in his soul. In Hawaii, long-term capital gains are taxed at a maximum rate of 7.25%, & our federal rate is estimated to be 15%.

....

Are you really sure about the federal rate at only 15% ?
Since you had to depreciate, the recapture rate could be as high as 25%, then normal capital gains rates apply, but adding over $1M in income would seem to me to push you higher than the 15% bracket.

 

[220volt]

I would buy the best asset money can buy; an extra piece of mind. Invest in treasuries at 3% a year and then every year go on a nice vacation, buy a car or whatever, without ever touching the principle.

 

[GalaxyBoy]

Don’t listen to the noise on CNBC. Stay the course and invest per your asset allocation as per your investment policy statement.

 

[YVRRocketSurgery]

Taking the proceeds from rental real estate and reinvesting into the current AA increases the risk profile of the portfolio because it loses diversification. It might make sense to offset this by adding a new asset, such as a REIT or annuity.

+1
Obviously situation dependent, but if I was in a very comfortable cash flow situation and had to deploy $1M in capital, my goal would be to try to reduce downside risk though different investments and reducing my equity exposure to a certain point.
Doesn't hurt to enjoy a bit of it too.

 

[Rickt]

I suggest you talk to your CPA, figure out your tax liability and invest the "Tax payable" amount in short term Tax exempt bonds.

The balance of the proceeds : Invest as per AA , add REIT factor to your AA , donate, splurge as you deem fit.


Good Luck!
Rick

 

[RobbieB]

I'd invest it and then blow even more dough!

 

[catii]

I really appreciate the input! There are some excellent ideas that had never occurred to me.

This was my thought. Take some % and blow it on strippers...errrr fine single malt & cigars on a nice trip

We're actually talking about investing in a barrel (!!) of fine Scotch that we enjoy, but haven't figured out any way to get it delivered to us, as Hawaii requires a liquor license.

The key is the AA that suits your risk tolerance.

We're pretty satisfied with our AA, but I don't want to limit our thinking to what we've already decided on doing. BTW, the reason I'm saying $1 million net is because the property is valued valued at just above $1.3 million, & property values are skyrocketing out here. It's also on nearly 2 acres, & the zoning makes it possible to build another 5 or 6 rentals.

May I (strongly) suggest you liquidate the other properties as well? It will be a lot easier on your heirs to distribute liquid funds then to deal with real estate transactions, delays, collecting rents, paying bills and arranging maintenance (that you do yourself) while it is on the market, etc. Especially as your heirs are not interested in living in Hawaii, this would be done long distance at some considerable inconvenience.

Our son & his family live in Japan, in a house that they inherited. Daughter has been disinherited, but we're taking care of our grandson, who is in college on full scholarship. Other son disappeared a decade ago. So it will be our bank & lawyer who will handle the estate, no matter what we choose to do.

If for some reason you feel the need to have real estate as part of your allocation, then by all means invest part of your retirement portfolio in REITs.

We haven't checked out REITs, so that's a great idea. Wife tossed out the idea of buying a condo or two, but I told her we should keep our rentals if she wanted to go that route.

I would donate a bit to charity as part of my tax loss harvesting and giving

Our wills already include large chunks of money to global efforts like Rotary International, as well as U.S. & local charities. We just started discussing endowing a chair at our alma mater, too, although we're not sure about tax consequences for doing that.

Other factors: All 4 of my grandparents lived to well over 100, & my parents into their 90s, so since I'm still teaching martial arts at 72, I expect to be around for quite awhile. Wife's parents didn't last as long as her age now, so no longevity info there, although she also trains in martial arts at 65. We plan to stay in Hawaii in this house, despite the "price of Paradise" & the heavy tax rates. Big house, well laid out, on 1/3 acre, with a right-of-way to the ocean across the street.

 

[RunningBum]

I would donate a bit to charity as part of my tax loss harvesting and giving

As part of tax loss harvesting? I don't get the association. You want to donate appreciated assets, not assets that have dropped in value. That way you don't pay the tax on the gain.

If you have any losses to harvest, those can be used to offset the gains from sales, depending on how the land sale is taxed.

 

[Sunset]

Just read this article, if OP wanted they could drastically cut the taxes on the sale and possibly make lots more money.

https://www.marketwatch.com/story/h...ains-because-of-this-new-tax-break-2019-01-24

 

[Rianne]

OP, do you mean won(gambling or other means), inherited or it plopped into your account? Does your spouse know about this windfall? Other than the tax issues, I'd have to re evaluate my situation. We're doing just fine right now, but hypothetically I'd have to decide if I wanted to be charitable or selfish.

 

[RunningBum]

OP, do you mean won(gambling or other means), inherited or it plopped into your account? Does your spouse know about this windfall? Other than the tax issues, I'd have to re evaluate my situation. We're doing just fine right now, but hypothetically I'd have to decide if I wanted to be charitable or selfish.

It's explained in the first post. Did you only read the thread title?

 

[catii]

I spent one college summer dealing blackjack in Vegas, & have never played a game of chance since then because I KNOW the odds. The stock market is as close to that as I plan to get.

Our wills already leave over $1 million to charity, but only after we're gone, although we're checking out charitable remainder trusts, as mentioned.

I can't think of any losses we've ever had that would offset gains, but I think that's a good thing.

I've thrown up my hands in disgust on QOZs in Hawaii!! Every one of them is a "low income community" that supports homeless housing, & since the state has been unable to develop any rules & regulations that fully qualify a QOZ, there's no way to buy in. Anything having to do with homelessness is an utter mess out here, with politicians changing their minds (assuming they have any) every week. No way are we going to drop our money into that morass, Sunset! But thanks for the idea.

The annuity idea was one that I favored, but my wife made the unilateral decision to pull out all the money from her one pension, rather than going that route.

 

[Rianne]

It's explained in the first post. Did you only read the thread title?

Yes, the title. Then a couple of responses regarding what would be done with the $M. I stand corrected.

 

[Huston55]

OP-

I have a friend here in SF who’s in a similar situation & has been analyzing several alternatives. I know the old saying is, “Don’t let the tax tail wag the investment dog” but, in your situation (with a $1.3M property completely depreciated) it seems that the potential taxes (CG + Depreciation Recapture) is the dog.

Here are some of the options my friend has considered:

1. CRT (big tax break, lots of payout options, both amount & timing)
2. Structured Sale (taxes deferred)
3. 1031 Exchange (doesn’t have to be a physical property so, you may consider this)
4. QOZ (doesn’t have to be where you live...Hawaii)

I have a rental property which we will do something with in the next decade but, it’s worth substantially less than yours & my tax liabilities are much smaller (less appreciation). So, my taxes are not quite the driving factor that yours are. But, in your shoes, I’d hire a good CPA & explore the options above plus others. Avoiding a 6-figure tax hit is worth some analysis and effort in my book. Even if you don’t need the extra $$$ from the tax savings, you heirs and/or charities would benefit.

 

[calmloki]

OP-

I have a friend here in SF who’s in a similar situation & has been analyzing several alternatives. I know the old saying is, “Don’t let the tax tail wag the investment dog” but, in your situation (with a $1.3M property completely depreciated) it seems that the potential taxes (CG + Depreciation Recapture) is the dog.

Here are some of the options my friend has considered:

1. CRT (big tax break, lots of payout options, both amount & timing)
2. Structured Sale (taxes deferred)
3. 1031 Exchange (doesn’t have to be a physical property so, you may consider this)
4. QOZ (doesn’t have to be where you live...Hawaii)

...

1 CRT - Charitable Remainder Trust? need to read how they work.
2 Structured sale - carrying a contract? we may do this on one place
3 1031 - doesn't have to be a physical property. Que?
4 QOZ agree, but not finding hard numbers on cost and return. Big benefit from my perspective is one can invest all or a portion of the sale price, thus possibly delaying the capital gains portion of a sale while being able to spend or use the remainder. But will taxes be lower in 5,7, or 10 years?

 

[pb4uski]

First and foremost, get a good solid read on what your after-tax proceeds will be after depreciation recapture and state income taxes... it may be a lot more than you think... a poster a few days ago was looking at about 40% IIRC... so that 1.0 million may only be 0.8 million.

Second, as other advise, I would put it into a balanced portfolio.

Third, if sounds like you have way more than you'll ever spend so you may want to start thinking of what you want your legacy to be either with family or the community and start shaping your estate plan accordingly.