Jewish World Review Jan. 19, 2000 /12 Shevat, 5760
Selling a second home
DEAR BRUCE: I am a 53-year-old educator who was given campus housing as part of my work. I bought a home in town years ago for $40,000, which I rent out for the amount of my refinanced house payment. I do enjoy the nice year-end deductions and interest on repairs. The home is currently worth $250,000. If I were to sell, the taxes could be high, and I doubt it could be turned into a primary residence. Do you think I should sell? -- R.D. Ojai, Calif.
DEAR R.D.: I'd sell it in a heartbeat. Yes, you will pay capital-gains tax. Assuming that you have depreciated it down to nothing, that still would be only $50,000, which would leave you $200,000 after taxes to invest as you choose. On a modest 12-percent overall growth and interest return annually, you would be grossing $24,000 a year before taxes. This is probably more then you are getting in deductions and other expenses unless this rental goes for at least $2,000 to $2,500 a month. I am betting you get a whole lot less.
DEAR BRUCE: My husband and I have $12,000 in credit-card debt; $24,000 in auto loans; $34,000 for a home loan; $40,000 in student loans; and nothing in our savings account. We have tried to sell both cars, but we have found that they are "too new." We are buying our home on a contract with a high interest rate. My husband and I both have full-time jobs (I also have a part-time job) that generate enough to pay our bills. Should we be putting some of this money into savings or concentrating on reducing our bills? Should we consider trading down on our vehicles? -- T.D. Moline, Ill.
DEAR T.D.: In addressing your vehicles first, you are "upside down" on each of your vehicles, which means that you owe more than they are worth. When you are in that kind of a situation there is not much that you can do but continue to try to make the payments.
On the other issues I would work on the highest-interest debt first, which is likely the credit-card debt. The next would be the student-loan debt, and the final would be the home loan. On all of the above, you would have to make minimum payments except on the credit-card debt, making as large a payment as you can on the principal.
At this point, I wouldn't worry about savings -- I would be more concerned about getting your financial house in order.
DEAR BRUCE: I am the head of a household -- divorced, with a son in college -- and I am fully vested into a pension plan. Does this exclude me from making an additional tax-deductible IRA contribution? -- T.W. Rockford, Ill.
DEAR T.W.: If you are covered by the one plan in any given year, you are excluded from making a tax-deductible contribution to an IRA. There is nothing, however, preventing you from making an after-tax contribution to a traditional IRA or a Roth IRA. All things being equal, I would consider a Roth
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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09/13/99: Always use an attorney!
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09/08/99: How do I roll over my 401(k)?
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08/16/99: Thinking about PMI
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07/28/99: Get a lawyer -- it's worth it!
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