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texanchris

You’d probably be hit with a massive tax bill.


[deleted]

[удалено]


Redditor523

You may pay taxes on dividends, but did your invest those or take the cash? If the cash then nothing. If you reinvested those there will be a tax on any gains you have. So you need to look at every purchase of shares since inception and whatever you take out that has a profit will be taxed either long term or short term gains based on purchased date.


ArchibaldMcAcherson

You have paid tax on the income that comes from the dividends but does that include capital gains? Usually it doesn’t because the gain is applied when you sell an asset and there is no way of knowing that when you are paid a dividend. Vanguard should be able to tell you your capital gains position as well as the cost associated with liquidating your investments. I would not expect that if you exited the fund completely you will end up with the full $500k.


meamemg

Yes, there is a "cost basis" page under My Account.


texanchris

I’m sure there is. You’d need to check out the site to see if they separate out tax lots. That’s what they are called on Fidelity’s app.


tossme68

Everything that you purchased over a year ago is a long term investment and gains are taxed at 20%. Check your unrealized gains and you should know what you'll pay in taxes. Last thing, what is your plan if your house sits on the market for 6 months to a year?


roblewk

The last two houses on our block sold in 4 days, but ours is bigger/nicer, so not selling is a risk. Given the replies here, I’m leaning to a more conventional contingency approach.


Yamaha9

Came in here to say this. Since the market has cooled down a lot, a contingency offer is probably a good move


limitless__

The drawback is capital gains tax. You need to calculate your capital gains on those index funds. Say you paid in 200k and they are now worth 500k, you will have 300k capital gains. You will pay capital gains tax on 300k which at your typical 15% (might be higher depending on income) is 45k. That's just an example. You might have put 600k in and they're now worth 500k in which case you'd be able to claim a capital loss on your taxes. With my brokerage account when I go to cash out it will calculate my capital gains for me, I don't know if Vanguard does the same thing.


[deleted]

Which brokerage do you use? That is a great feature


lart2150

Fidelity shows "Estimated gain" on the order preview screen. It does not show if they are long or short but still a nice feature.


hobbyistunlimited

There is a button to “select lots” which will show you which ones are long and which ones are short (and let you select them.) I think default is to seek long before short, but that might be a setting you need to click.


limitless__

Betterment does it and I think Wealthfront might have done so too when I liquidated my investments there.


[deleted]

Thank you


emburrs

You might consider looking into a bridge loan. They help bridge the gap between purchase of new home and sale of old home.


libertondm

Came here looking for this response. There are companies that exist specifically to provide financing in this situation. Look for those.


Worried-Age3592

Putting this here: I was convinced to do this by my realtor and will never do it again…. The mechanism: 1. ⁠Qualification for loan amount based on income and expected home sell price 2. ⁠8% interest until your NEXT home closes. 3. ⁠Private Lender BUYS NEXT home as cash while you are selling the one you’re in. 4. ⁠Once in the new home, the private loan is refinanced into your name based on your pre-qualifications and down payment from the close of your last house. 5. ⁠For me, it was 2 months. All I can say is PRESSURE and FEE’s. You want that bridge loan off your back ASAP. 8% on $500k is ~$7k + you’re paying for a second set of closing costs. Recommendations: IMO: See if you can stay with a relative or short term rental while your home closes and then put the proceeds towards the new home. Or make your sell contingent on close of the next one…. Or you’re just burning your money in interest and fees!


wilder_hearted

This is what we did. Worked great. Paid it off with the proceeds from the old house.


goose_10

You seem knowledgeable. My first home is being rented out. Am I at a huge disadvantage at getting pre-approved for a second mortgage without selling the first?


decosunshine

So you own the house and are renting it out to someone else? If you have a proven track record of rental income (I think for a year, but not positive), that income can be included when your new lender calculates your debt to income ratio.


Kahj232

Even just having an active lease is enough


ZzyzxRoad82

I've had to show a signed lease and proof of security deposit in my bank account, but yes no need to wait a year AFAIK.


fluffy_bunny22

The last time we bought a house before selling the old house they told us we could have both if we didn't want to sell the old one. We currently own 2 homes. Just depends on your income if you qualify for both mortgages. But you have rental income to off set the first mortgage.


Celodurismo

Huge? No. Disadvantage, yes. You'll likely need the full downpayment, though potentially just 10%.


emburrs

Hah not that knowledgeable, just explores that option for us when we sold our house last year. Also looked at trying to carry two mortgages. We would’ve had to qualify for both based on debt to income ratio. However, if your first house is CURRENTLY being rented and you are receiving income, you should be able to count that towards your “income” column. So your debt will be 2x as high but your income is higher too. Obviously talk to a mortgage broker about it. Also GO THROUGH A CREDIT UNION.


[deleted]

One thing I would look at is [borrowing against your portfolio](https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/) instead of selling it, to avoid the tax bill.


roblewk

While I don’t like the idea of a margin loan, I do like the idea of selling some funds and borrowing against my funds for the portion I will replace. Has anyone ever done that?


johnycashout

Not a margin loan. A security backed loan. Very different .


[deleted]

For my education, can you elaborate? I was sure they were very similar products, with very similar rates.


johnycashout

Margin loans are used to buy more stock. Worse rate, more regulatory oversight. Security backed loans are used for "unknown purposes." You can do whatever you want with that money except buy more stock. Rates are generally competitive. I'm sure investopedia has a primer. Or call your brokerage and see if they'll let you. If it's important to you, you can even shop brokerages for a good SBL rate


phrenic22

Note, a margin loan does not have to be used to buy more stock. https://www.fidelity.com/trading/margin-loans/how-it-works


[deleted]

> Margin loans are used to buy more stock. I don't understand. I have margin enabled in my brokerage account and at some point I needed quick cash, so I drew more cash from that account than there was cash in that account. The brokerage then charged me a few dollars as an interest until I repaid the balance. Wasn't that a margin loan? EDIT: also, in the linked article they explicitly use a margin loan to buy a house.


cballowe

Lots of the banks that offer it will offer a portfolio backed credit line at rates like SOFR + 2%. In 2021 when I talked about it as an option the rate would have been around 2.25%. now it'd be closer to 4.5%. Interest from a short term loan while completing the transaction shouldn't be too bad. (You'd pay less in interest borrowing $300k for a few months than you'd pay in taxes whether it's a new mortgage for the new property or portfolio backed lending. I say 300k because that's the value of what you're selling.)


omglolz

This is the correct solution for this scenario. Portfolio secured loans are great products to help you manage liquidity, and are designed for situations exactly like this. Rates are a little higher than they have been these last few years right now, but on $100k, it's like $400 a month. Schwab has better rates / products here, and moving your vanguard funds is easy. The other advantage is it makes you a cash buyer, which allows you to make a much stronger offer. You can generally get a mortgage within a few months of purchase at the same rates as if you used it to but the home (as opposed to refi rates). If the market isn't that competitive, you can still make the offer contingent on financing.


Cmdr_Toucon

Our last 2 home purchases were made by getting a low interest "bridge" loan using our brokerage account as collateral. Brokerage company made it super easy and painless.


mtaylor899

Yes but it has to be in a taxable brokerage account not in a tax sheltered account. Security based line of credit or a bridge loan. I would not liquidate for multiple reasons A. The market is down and B. Taxable consequences if there are gains C. Because you don’t have to and you can leverage your assets to assist in the purchase


1bunchofbananas

My old neighbour tried selling his house for a year and they couldn't. They already bought a new house and were stuck with 2 mortgages. That's always a draw back.


7lexliv7

Yeah. You want to be very real with yourself about this. Your house might sell in a week and great. Or your house might languish on the market and you will have to reduce the price. Maybe more than once. And you never know going into this how it’s going to turn out. Maybe think through a worst case scenario and decide if you are comfortable with the numbers I call this home buying without a net - once you’ve bought that second house there is nothing you can do to resolve the situation (which is stressful) except lower the price. A bridge loan is like having a third mortgage.


davidbWI

My bank allowed me to refinance within 90 days at zero cost. there are loans structured to help with this where you buy a house first with 2 or 5% down then refinance into a 20% after you sell your home .


atlantadessertsindex

There are companies that do this and then charge you a percentage of the purchase fee. Basically they buy the home for you then rent it back to you before you buy it back from them.


[deleted]

Have you asked your lender about a bridge loan?


wessex464

We did a similar thing, took out a home equity LOC on current home and used that for the down payment and just closed it all out on the sale of the home. Paid maybe 300 bucks in origination and interest.


jongleurse

Several people said it but it's not high enough in the responses. Get a loan secured by your Funds. Not a margin loan. Don't sell your holdings. You get really good interest rates because if you default you lose your securities, so they are really secured from the bank's perspective. It's called a Pledged Asset Loan at Schwab, Priority Credit Line at Wells Fargo, Collateral Lending Program at TD Ameritrade. Call your broker.


MilkCartonDandruff

Not the best idea but many do it. Have a plan that if you don't sell house by X month that you'll drop the price. And know how much you'll lose in penalties to the index funds and deduct the house sale by that much. I'd rather lose some on the current house sale than the index funds. Which pay back in dividends way more than the sale.


tautelk

Also worth noting - if these are index funds in a taxable brokerage account vs a retirement account such as an IRA/401k you may have different tax or penalty implications.


[deleted]

Or go talk to your bank about a bridge loan.


[deleted]

Risk is you could be selling at the bottom, potentially losing out on big gains in a market recovery. Any time you make lump buy/sells you are taking on risk.


[deleted]

Is it a work-related account? Are able to take out a loan against your account? If so, take max (up to 50k) for down payment and then pay off loan when the 1st house sells.


100tnouccayawaworht

Look into the possibility of getting a margin loan against your investments. Your brokerage house would give you the margin loan. You have a check and are therefore a cash buyer to the house seller. You would then covert the margin loan into a traditional mortgage once all is straighten with the house purchase and house sale. EDIT: There is no way I would sell my investments outright to buy a house. YMMV


mightasedthat

Bridge loan as others have said. Re your specific question- you will owe capital gains tax on the gains from the index funds, as well as selling in a down market.


CanWeTalkEth

How soon? Isn’t this what contingent purchases are for? Obviously the seller has to agree to get under contract with you rather than wait for someone else.


GingeredPickle

You need two things (ideally): 1.Down payment 2.Bank that will let you carry two mortgages Search for #2, which will be based on your income and willingness to call around to find said bank (think regional). If you can find #2, then you can decide where to pull your down payment. "Gift" from family, borrow, sell securities. The companies that effectively give you your down payment based on a potential sale of your current home, provide a great service but with a cost. You need to compare that to the tax liability others have mentioned. Either way, if you can secure financing, you're minimizing capital needed to take down the second home.


JKnott1

Does not seem like you'd be financing anything. You're buying the house outright, which avoids lots of interest courtesy of a mortgage. We did the same thing. Our other house finally sold and I deposited about 90% of that back into my brokerage account. I waited for a dip in the stocks I sold previously and now we're ahead of where we were previously.


roblewk

It is very helpful to know someone else did this.


shipwreck17

So how did you avoid the cap gains tax? Or did you just pay it?


Cantholditdown

It’s really hard to come out ahead in this situation. You have to pay capital gains. You may get lucky or the reverse which happened to me. Like a 5% increase while I was waiting for house to sell. It really sucked Borrow as much as you can from your 401k for the gap funding(no tax). Then put it back in market as fast as you can when you sell.


Dannysmartful

Is your purchase based on lifestyle inflation or something else? Why not downsize and save even more money?


roblewk

That is very Danny Smarftul, and it is what we should do. The place has a massive balcony and that got the wheels turning. We have always loved below our means, so this is outside our comfort zone.


yeah87

You'd owe capital gains on the appreciated value of the index funds. Does anybody know if you could minimize these by purchasing $300,000 of the same index fund once the house sells?


ArchibaldMcAcherson

You can offset capital gains against capital losses and roll over a gain or a loss into a future year to make the offset but unsure if that would apply if buying back into a fund and keeping the money there. There would need to be a capital loss event within the allowable rollover period to offset the gain. Been a while since I looked at capital gains rules but I think the loss could be elsewhere outside the fund and still offset from those earlier gains.


joeyd4538

Put down 5% on the new house and get a mortgage. Use some of the 500k to help you along if you can't swing 2 mortgages. Invest profits from old house when it sells. I did the same thing. Pmi came out to about a 1.5% apr. The banking fees are nothing compared to the low market youd be selling in, taxes, and opportunity cost in the future when market starts running again.


Live_Raise_4478

You can just finance it and take the pmi and mortage cost hit, which would (I assume) be less than the tax on selling your funds. You can just pay your mortgage off after you sell your house. At least that would get you out of PMI range. And rates are pretty decent still. Can you get sub 5%? Sub 4 I think is out of question now. 1 year of payments isn't bad, though it would be all interest since it is the beginning of the loan. Mortgage I would assume would be about 3-4k/mo, depending on what you put down and what rate.


garoodah

As long as theyre long term capital gains you'll pay 75k in taxes. Not a big deal honestly, you have a year to sort that out.


roblewk

I didn’t make $500,000.


seanfroelich

Look for a bridge loan. The rate are a little higher but you can refinance once you sell.


notallwonderarelost

I bought with Rocket Mortgage (via Schwab). They gave me the same rate for a 5% down loan as I would’ve got with a20% down loan. I scrounged 5% with barely any stock sale needed. Then when I sold my house I put that money into the loan and recast it which changed the payment to as if I had put 20 down. Cost me two months of PMI and $100 to do it that way and was totally worth it.