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Hi, all. I have just recently been turned on to the amassed talent of fools of this board, and am humbly seeking your advice.

I am looking to find out if buying a 2nd/vacation home is worth it from a tax angle. My wife and I will make a total of $250k this year, and already have a big mortgage($3k/mo.). I have maxxed out my wife's SEP-IRA for the year, and will also max out my Thrift Sav Plan (Fed employee).I am also fully funding my 2 kids college funds($400/mo each). My wife says she is sick of my planning for the future and wants to have fun NOW! We are 40 and 39 yrs old. We are kicking around the idea of spending about $100k or so to buy a chalet/home in ski country. Is this a wise thing to do? And are there tax advantages or disadvantages in doing this? Any info, general or otherwise, would be greatly appreciated.

Thanks in advance.

(There, I asked the question, now get off my G.D. back, will ya?) :-)



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ozde wrote:
I am looking to find out if buying a 2nd/vacation home is worth it from a tax angle. My wife and I will make a total of $250k this year, and already have a big mortgage($3k/mo.). I have maxxed out my wife's SEP-IRA for the year, and will also max out my Thrift Sav Plan (Fed employee).I am also fully funding my 2 kids college funds($400/mo each). My wife says she is sick of my planning for the future and wants to have fun NOW! We are 40 and 39 yrs old. We are kicking around the idea of spending about $100k or so to buy a chalet/home in ski country. Is this a wise thing to do? And are there tax advantages or disadvantages in doing this? Any info, general or otherwise, would be greatly appreciated.

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Sorry, what can I say, it's late. Re: the vacation home. You didn't say whether you were going to pay cash for the vacation home or carry a mortgage. Since you say you "already" have a $3000.00/mo. mortgage, I assume that means you will get a loan for the vacation home. IMHO, ignore the wife- plan for your (hers and yours) futures.
Of course it is your money (debt) and you are free to invest it (acquire it) any way you see fit. I recommend doing reverse engineering to see if you can "afford" the 2nd home. I'm not a links guy, but I have seen retirement planning programs that allow you to calculate what your retirement needs are going to be. You might be suprised what it will take to maintain your $250,000.00/yr. lifestyle, especially if you plan on retiring early. IMHO take nice vacations and pay cash to do it, keep maxing out the retirement accounts, continue to invest in non-retirement accounts, and look into paying down the mortgage (treat it as a "bond" allocation in your portfolio).
Well you did kind of ask. By the way, I have no idea about your tax break question, but IMHO it would better be one heck of a break.
jeffy3
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You really leave yourself wide open on this one for a range of views.

My notion is exactly the opposite of the previous poster. Don't focus on the tax angle. Think about your quality of life issues. You certainly *can* afford it, you've got a wife and kids who will enjoy it, and you ought to spend your time with your family now, skiing or whatever, instead of fretting about the long range financial impact.

Unless you're buying a place at the top of the real estate market, in a poor location, your investment will always be more or less secure. The value might not increase at the same rate as some other investment vehicle, but you're not buying it to boost your overall net after tax rate of return.

Try this idea: How much time do you spend with your family reviewing your 401(k) portfolio options?
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<<I am looking to find out if buying a 2nd/vacation home is worth it from a tax angle. My wife and I will make a total of
$250k this year, and already have a big mortgage($3k/mo.). I have maxxed out my wife's SEP-IRA for the year, and
will also max out my Thrift Sav Plan (Fed employee).I am also fully funding my 2 kids college funds($400/mo each).>>

OK...got it.

<< My wife says she is sick of my planning for the future and wants to have fun NOW! We are 40 and 39 yrs old. We are
kicking around the idea of spending about $100k or so to buy a chalet/home in ski country. Is this a wise thing to do?>>

That's impossible to answer. Wise is in the eye of the beholder. It certainly may be cheaper than a divorce. But you'll have to make that decision.

What I can tell you is that taxes are a percentage game. If you spend $100 in interest expense, and are in the combined 45% tax bracket, you'll save $45 in taxes...but the other $55 is gone forever. The only way you'll ever recover that $55 would be through appreciation of the property. If the property doesn't appreciate to cover your cash outlay, then you are actually economically poorer.

But how do you put a price on happiness? It's impossible. If this is something that you would enjoy, then maybe the pleasure outscores the purely financial issues. But again, that would have to be a question that only YOU (and your wife) can answer.

<< And are there tax advantages or disadvantages in doing this? Any info, general or otherwise, would be greatly
appreciated.>>

If this is your second home, you would be able to deduct the mortgage interest and the property taxes that you pay. Any other expenses (like lift tickets, homeowners dues, utilities) would NOT be deductible.

And if you tried to rent it out and still use it at the same time, you would fall under some complicated rules regarding vacation homes. So it could get a little complicated.

Remember that not everything in life comes down to dollars and cents. There are some things that you do because you want to do them and because you can afford to do them.

TMF Taxes
Roy
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Hi, all. I have just recently been turned on to the amassed talent of fools of this board, and am humbly seeking your advice.

I am looking to find out if buying a 2nd/vacation home is worth it from a tax angle. My wife and I will make a total of $250k this year, and already have a big mortgage($3k/mo.). I have maxxed out my wife's SEP-IRA for the year, and will also max out my Thrift Sav Plan (Fed employee).I am also fully funding my 2 kids college funds($400/mo each). My wife says she is sick of my planning for the future and wants to have fun NOW! We are 40 and 39 yrs old. We are kicking around the idea of spending about $100k or so to buy a chalet/home in ski country. Is this a wise thing to do? And are there tax advantages or disadvantages in doing this? Any info, general or otherwise, would be greatly appreciated.

Hey- did you ever buy a place?
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My wife says she is sick of my planning for the future and wants to have fun NOW! We are 40 and 39 yrs old. We are kicking around the idea of spending about $100k or so to buy a chalet/home in ski country. Is this a wise thing to do? And are there tax advantages or disadvantages in doing this?

Go to the board and write 1,000 times, "Deductions are a BAD thing." that should answer the tax question. You may save something on taxes, but not nearly as much as you'll spend.

Moving on to the marriage counselor side of things, you do have a problem. Your wife sounds a lot like my friends once I found money religion and was saving close to 50% of my gross income. They understood what I was doing when I retired at 48.

But I had no one but myself to think about. So sure, have some fun without losing sight of your goals, which should be joint ones. I just think you can buy a lot of ski trips that include 24 hour room service for what it would cost you to own a home that you'd spend much of your visits maintaining. And if you two get the SCUBA bug one winter you won't feel obligated to go skiing.

In short, I've never understood the allure of the vacation home.

Phil
Rule Your Retirement Home Fool
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Considering that a couple of folks are responding to an 11.5-year old query, lots of things could
have happened.

- He could have slammed into a tree while skiing.
- If the OP had started his Federal job early enough, he too could have taken early retirement.
- He could have become a lobbyist, with ski vacations as a perk.
- He could have gone to Fiji on Y2K fears, and stayed there.

The possibilities are endless :)


Hohum
Not yet retired, with no plans to buy a vacation home
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Considering that a couple of folks are responding to an 11.5-year old query

LOL! One of these days I'm going to learn to look at the "subject" and that people don't always make it obvious they're quoting.

OP hasn't posted anywhere since November 1999. I figure the amassed talent here just overwhelmed him.

Phil
Rule Your Retirement Home Fool
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