Building A New Home In Retirement

[RetiredAt49]

My spouse and I just purchased (with cash) a lot on some acreage. We are both retired and in our early 50's. On paper, we show very little reportable taxable income (dividends/interest from taxable brokerage account + rental properties). Our other income is not taxed nor reported (it's a business buyout)

While we easily have enough financial assets to cover the cost of building our home, it's not the greatest idea from a tax perspective (because I would need to liquidate stocks from our taxable brokerage account and/or sell some real estate and incur capital gains). Our primary home (which is paid for) will cover about 70% of the cost of the new home so I don't want to sell stocks or rental properties because as soon as our new constructed home is complete we plan to sell our current primary home.

We've looked at getting a construction loan but "on paper" we don't show enough income. We could take out a HELOC on our current primary home but again it would only cover about 70% of the cost of our new build. The only viable option we can think of is to liquidate stocks/real estate and take a major tax hit this year (while also losing our ACA subsidy).

Have any of you been in this situation and is there another alternatively we haven't considered?

 

[street]

There are some smart people that should give some options. I'm no help but I would suggest not to cash in and take a tax hit and worse losing ACA and paying a premium for HI.

Good luck the wizards will chime in to help.

 

[RetiredHappy]

I am bias against rentals but I would sell a rental or two, or combine a HELOC on your primary home and sell a rental. I used to own 4 homes, 2 multi-million dollar homes overseas and rental here, and I have sold all three. Retirement includes simplifying my finances as well. Selling a rental home or two will only affect your ACA subsidy for one year. There are worse problems to have. I pay full freight for private individual off-exchange insurance because we have too much income. Not having ACA subsidy is not the end of the world.

 

[pacergal]

HELOC on primary home and sell one rental for rest of cash?
Run some scenarios through a tax program to see the impact on your finances.

 

[Ronstar]

I'm thinking about a new home also. Either build on a lot or buy a new home that is under construction and almost complete. I don't plan on doing any of the construction on the new house myself. Like OP, I think our current place is worth approx 70% of the new place.

One scenario I've thought about is selling our current house, and renting an RV for a year and travel the US while the new house gets built. So we would have at least 70% of the new house purchase price liquid from our current house sale by the tie the new house is done.

Like OP, I need to figure how to come up with 30%. I'll get nailed on taxes if I take the $ from our taxable account, and I'll get nailed on taxes if I take it out of my IRA.

I haven't looked into this yet, but hopefully DW's pension and our combined SS earnings would substantiate enough income to qualify for a mortgage for the 30%.

If I was OP, I'd sell rental property to generate the needed cash.

 

[ncbill]

My spouse and I just purchased (with cash) a lot on some acreage. We are both retired and in our early 50's. On paper, we show very little reportable taxable income (dividends/interest from taxable brokerage account + rental properties). Our other income is not taxed nor reported (it's a business buyout)

While we easily have enough financial assets to cover the cost of building our home, it's not the greatest idea from a tax perspective (because I would need to liquidate stocks from our taxable brokerage account and/or sell some real estate and incur capital gains). Our primary home (which is paid for) will cover about 70% of the cost of the new home so I don't want to sell stocks or rental properties because as soon as our new constructed home is complete we plan to sell our current primary home.

We've looked at getting a construction loan but "on paper" we don't show enough income. We could take out a HELOC on our current primary home but again it would only cover about 70% of the cost of our new build. The only viable option we can think of is to liquidate stocks/real estate and take a major tax hit this year (while also losing our ACA subsidy).

Have any of you been in this situation and is there another alternatively we haven't considered?

If you have a sufficiently large taxable portfolio borrow against it via a line of credit.

I just set one up at my brokerage...they contract it out to an external bank.

Which is probably why rates are lower than for a margin loan through the brokerage itself.

Only real restriction is that it can't be used to buy additional securities.

 

[momoney]

My spouse and I just purchased (with cash) a lot on some acreage. We are both retired and in our early 50's. On paper, we show very little reportable taxable income (dividends/interest from taxable brokerage account + rental properties). Our other income is not taxed nor reported (it's a business buyout)

While we easily have enough financial assets to cover the cost of building our home, it's not the greatest idea from a tax perspective (because I would need to liquidate stocks from our taxable brokerage account and/or sell some real estate and incur capital gains). Our primary home (which is paid for) will cover about 70% of the cost of the new home so I don't want to sell stocks or rental properties because as soon as our new constructed home is complete we plan to sell our current primary home.

We've looked at getting a construction loan but "on paper" we don't show enough income. We could take out a HELOC on our current primary home but again it would only cover about 70% of the cost of our new build. The only viable option we can think of is to liquidate stocks/real estate and take a major tax hit this year (while also losing our ACA subsidy).

Have any of you been in this situation and is there another alternatively we haven't considered?

I think someone else on here said they found a buyer that would rent their home back to them.

 

[finnski1]

I think you can get a loan based on your "pledged" assets. Others more knowledgeable will let you know. You would then not have to liquidate any stocks nor sell your present home first.

 

[RetiredAt49]

If you have a sufficiently large taxable portfolio borrow against it via a line of credit.

I just set one up at my brokerage...they contract it out to an external bank.

Which is probably why rates are lower than for a margin loan through the brokerage itself.

Only real restriction is that it can't be used to buy additional securities.

Which brokerage did you use (to take out a line of credit)? I'm familiar with taking out a margin loan (using the equities) but I've never heard of using a line of credit.

 

[ncbill]

Which brokerage did you use (to take out a line of credit)? I'm familiar with taking out a margin loan (using the equities) but I've never heard of using a line of credit.

Fidelity - Securities Backed Line of Credit

 

[Sunset]

Take out loans against primary residence and the rentals. Of course the problem with this is the normal high interest rates of mortgages.

 

[Looking4Ward]

I paid cash last year for one new home and put 50% down on another. I sold half of what I needed from my after tax brokerage account in December 2022 and the other half in January 2023 (picking which lots of shares to sell to keep cap gains under control) thereby splitting it between two tax years. I managed to do this without incurring any additional taxes and stayed under the 400% FPL cap.

 

[marinauser]

Fidelity has a mortgage referral program that may help here. Otherwise, I would talk to Schwab and consider a move to them if they can make a mortgage available through Schwab Bank. Schwab knows I am not working but i still get occasional inquiries should I need a mortgage through their Schwab Bank. If that might work, you would need to transfer some or all of your financial assets there I expect..

 

[copyright1997reloaded]

If Schwab: Pledged Asset Line