Scott Burns discusses this issue here: http://www.dallasnews.com/s/dws/bus/scottburns/columns/archives/1999/990711SU.htmWe are intending to move when we retire, so resetting the mortgage basis is not an issue with us.There are a few things Scott did not analyze as thoroughly as I would have liked. One is liquidity--having a lot of your assets tied up in a not-very-liquid investment is definitely a drawback. OTOH, if you have enough liquid assets to cover any conceivable emergency, a paid-up primary residence may be a very good thing. Another is the tax situation. If your income in retirement is high enough to put you into the AMT range, transferring assets into a fully-paid house has some interesting consequences. You get the occupancy return, but since no money actually changes hands it is a completely non-taxable return. This is a nice example of a tax-free return on investment. What you lose is the leveraged appreciation of the real estate. I expect that it will take more than a few hours with a spreadsheet and a tax advisor to get this exactly right, but if you have the assets, you get more than one chance at it. For instance, move into a new primary residence with about a 50% down payment and a no-prepayment penalty loan. You can transfer as much money as you want into the primary residence at any time.
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