Retirement income and cash vs. finance of new home

Forum|Forum|1 year ago
October 30, 2024
2 replies
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Hello,

I retired in August 2024, so I have 8 months of income. I am currently purchasing a vacant lot which will close in November 2024. I want to understand my tax implications for building a home on this lot in 2025. How do I determine if financing vs. cash payment is the better option?

Bsch4477

Employee

Your question deals more with financial planning than taxation so you might benefit from advice from a financial planner who would know your entire financial situation.

Terri11_2Author

Thank for the reply. It is difficult to explain the situation in this forum. I am trying to understand the tax implications and what type of tax bracket I would fall into if paying cash for a new home build in 2025 vs. financing over a 30 year period. I will also be buying health care from the marketplace as I am 62 and not yet eligible for medicare. So taking out a large sum in 1 year vs. paying a mortgage will also impact my healthcare expenses. This is why my financial advisor suggested getting input on the tax implications.

VolvoGirl

Employee

Not much difference paying cash or taking a loan. If you finance you might be able to deduct the interest if you itemize deductions along with property tax paid.

For 2024 the standard deduction amounts are:

Single 14,600+1,950 for 65 and over or blind

HOH 21,900 + 1,950 for 65 and over or blind

Joint 29,200 + 1,550 for each 65 and over or blind (both 32,300)

Married filing Separate 14,600 + 1,550 for 65 and over or blind

Oh, where would you get the cash? If you take a 401K or IRA withdrawal it will probably be taxable and put you into a higher tax bracket and will affect your ACA health insurance.

Carl11_2

Employee

This is why my financial advisor suggested getting input on the tax implications.

Just wondering why a financial advisor would suggest getting input from other sources on tax implications. I would expect a financial advisor to be up-to-snuff on that themselves. Maybe you should be talking with an estate planner or someone well versed with estate taxes/retirement accounts.
If it were me, I'd do a 15 or 30 year mortgage and then consider paying off that mortgage from the retirement account at age 65 to 72. Remember, at age 71 1/2 you are required to start drawing from an IRA or 401K. Of course, that would depend on the performance of the account. Overall, I bet an estate/retirement planner could come up with something more advantageous than what I would consider. Especially if your state taxes personal income.