Preparing to Sell Investments to Fund Downpayment

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Preparing to Sell Investments to Fund Downpayment

Postby mars » Wed Apr 03, 2013 3:46 am

My wife and I preparing to buy our first home.

We have saved consistently and benefited from the run up in the market over the last 4 years. So we have plenty to tap for the down payment.

My only concern is the capital gains that will be triggered by the sale of assets to fund the down payment.

I've searched the forum and the web but can't seem to find any strategies for mitigating this downside. Would taking advantage of a 401k loan which I could quickly pay back be a smart option? I could pull half of the down payment amount (half of my overall 401k balance) from this source.

Any boglehead tips for the best way to handle such a transaction so as to minimize capital gains tax and keep our money working for us?

I'm fairly new to the forum but I know that the first post will alert me to some key information I have failed to provide. Let me have it.
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Re: Preparing to Sell Investments to Fund Downpayment

Postby NYBoglehead » Wed Apr 03, 2013 7:50 am

If the funds were intended for the down payment, you should sell them for the down payment. I wouldn't do the 401k loan.

Taxes are part of life. I'd guesstimate what your tax liability for the year will be after the cap gains and set aside roughly that amount so you won't have to scramble next year for the funds.

You are still coming out ahead after paying the taxes, I wouldn't fret too much.
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Re: Preparing to Sell Investments to Fund Downpayment

Postby grabiner » Wed Apr 03, 2013 10:49 pm

I don't see the point of the 401(k) loan. If you will have a tax liability, you can always sell more stock in 2014 in order to cover that tax liability, or simply avoid making new taxable stock investments.
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Re: Preparing to Sell Investments to Fund Downpayment

Postby mass_biker » Fri Apr 05, 2013 10:11 am

Did the same last year. Keep it simple.

- sell the taxable funds
- carefully document your sales, and the sweep of proceeds into a mmkt account or your bank; in mortgage underwriting the banks may want a paper trail of how you got the funds for downpayment

Realize that you will pay taxes on your gains; that's alright. These funds did what they had to do.
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Re: Preparing to Sell Investments to Fund Downpayment

Postby MnD » Fri Apr 05, 2013 11:13 am

If the funds are up 100% you'll only owe 7.5% federal tax on the amount withdrawn assuming you are in the 15% cap gains bracket.
That's very favorable tax treatment compared to to other sources of income withdrawn from other sorts of accounts.

You could have avoided paying 7.5% tax by keeping the money safe in a bank earning nothing for the past 4 years and have 50% less.
In retrospect not a winning strategy. :mrgreen:

Obviously if you want to minimize tax paid now, sell the funds and shares that have the lowest gains.
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Re: Preparing to Sell Investments to Fund Downpayment

Postby WHL » Fri Apr 05, 2013 11:31 am

MnD wrote:If the funds are up 100% you'll only owe 7.5% federal tax on the amount withdrawn assuming you are in the 15% cap gains bracket.
That's very favorable tax treatment compared to to other sources of income withdrawn from other sorts of accounts.

You could have avoided paying 7.5% tax by keeping the money safe in a bank earning nothing for the past 4 years and have 50% less.
In retrospect not a winning strategy. :mrgreen:

Obviously if you want to minimize tax paid now, sell the funds and shares that have the lowest gains.


Beautifully put. I've never understood some peoples method of forgoing profits / gains in an attempt to minimize the taxes. As long as the profits realized are higher than the alternative, seems pretty basic to me.
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