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Subject:  Tax planning for 1st-time homeowner Date:  6/3/2007  12:38 PM
Author:  NuvoRiche Number:  94747 of 121477

My wife and I just bought our first home, and I'm trying to do some tax planning.  We financed the $180K purchase price
as an 80/10/10 with $18K cash downpayment, $144K first mortgage (6.00%) and $18K second mortgage (7.64%).  I will be 
receiving two bonuses in the coming months, and the question is whether it is more advantageous to use the bonuses to pay
down the second mortgage, or use them for max-contribution ($15,500) to my 401(k) since the interest is tax-deductible anyway, 
provided the real-estate expenses are greater than the standard deduction ($10,700 for married/joint in tax year 2007).  
We will file married/joint and most likely be in the 25% bracket.  The first mortgage payments are due 1 July.

Here are my calculations:

				Cumulative Interest July-Dec 2007 
1st mortgage	144K	6.00%	
				5024.82 (assumes min. payments only)
2nd mortgage	18K	7.64%	
				800.44

Taxes				~$4500

			Total	10325.26

So, it looks like since the deductible mortgage expenses are less than the Standard Deduction, it looks to me like I'd be better
off taking the std. deduction.  And therefore, since the interest on the 2nd mortgage is not going to be deducted this year, it would be 
to my advantage to pay down the 2nd mortgage first, and fund 
the 401(k) later.  Is this correct?  I will add that regardless, the 401(k) will be fully funded by 31Dec07, it's just a question of 
whether to do it sooner rather than later.

Thanks for checking my math and logic.

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