I inherited $400k. Is it better to pay off my $400k mortgage, or invest the money? I like the idea of living mortgage free, but should I pay off the lower interest rate (4.25%) and lose my tax break, or invest the money with a 6% return?
Roll yourself forward 40 years and imagine you have the same option, at age 70. Use your cash to pay off a mortgage or keep the cash? You keep the cash. If you didn’t you wouldn’t have any money to spend, and your heirs would get to enjoy the full $750k value of your home when they sell it after your demise. That was money you could have spent traveling the world. Pay off a mortgage and your home value doesn’t change - you’ve just locked up that value in a way that prevents you from using it for other things.At 30 your considerations are different but the same principle applies. Pay it off, the cash is locked up, and you won’t be able to borrow it out on the same terms (plus the tax rules are different for re-borrowed money). Having $400k in cash lets you do things most people can’t. You can max out your tax-favored retirement savings plans - 401k at work, Roth IRA if you qualify - without any change in spending. Just make up the cash from the savings. If you want to start a business, change jobs, take a sabbatical, go back to school, these are all options. If you have kids or plan to, you have cash that could be socked into a tax-free 529 college savings plan. The tax benefits go far beyond that mortgage interest deduction, but more than that, even if the tax benefits are minimal…you have flexibility with life that most people don’t have.Caveats. That mortgage had better be a 30-yr fixed, so the rate won’t pop up. If you have a bunch of other money alongside this and just don’t like debt, you might choose to pay it off. While historically it has been trivial to earn more than high-3% on your money (if that’s your after-tax cost of the mortgage) most investors do quite poorly. A buy-and-hold balanced index fund has clobbered 3% , but nobody actually does that, they Mess With Things. So the first step in not paying off your mortgage would be sticking the cash in a savings account or two and learning how to invest it so you won’t blow it. And doing a reality check: will you just be tempted to spend it all? The risk of losing it isn’t present with the mortgage-payoff alternative.
What taxes do I pay on an inherited house?
There will be no tax owed by you on the inheritance of the property. Your basis in the property is the value on the date of death or alternate date chosen by the estate 6 months after death. Keep a record of this. When you sell the property, you will pay long-term capital gains on the difference between the selling price (net of commissions) and the basis. You get long-term capital gain treatment no matter how long you hold the inherited property. Currently long-term capital gains are taxed at 15%. If you used the condo as your principal residence for a minimum of two years, you can exclude up to $250,000 of gain when you sell it. The above applies to federal income tax only. Your state and local taxes may be different.
My father is close to dieing if I get life insurance on him?
So sorry you have to part with your dad. I am life insurance agent and I have to agree with what others say here - it is too late to buy life insurance on him because he is looked at as unacceptable risk and this would be a certain loss for the insurance company. In the eyes of an insurance company that insures autos, this would be like someone driving off the cliff and calling in their inurance agent to get a policy issued on the car whil in free fall. Comfort your dad as much as you can and wish him to go in peace.
What determines whether a home is my primary residence or not?
The one you live in most, is your primary residence. It's probably the one on your driver's license, and voter registration card, and insurance, etc. Living means, you don't live somewhere else. All your clothes are there, all your furniture is there, you have the utilities turned on, you see neighbors every day, you park your car there every night. If you are a long haul truck driver, you're out of town AT WORK, in a car. If you're away from that house, at the mobile home, then you're not AT WORK. If you sleep over there 2 - 3 nights, it's not your primary residence. There's no "magic number" where you can sell an insurance company that a place is your house. If you want coverage, you either have to LIVE there, or buy the proper policy for the house (secondary residence, or vacant property). If there's a claim, and there's any DOUBT as to whether or not you LIVE there, as a primary residence, you can pretty much bet you're going to be left UNINSURED.
Do you have to have homeowners insurance to file chapter 13?
You cannot "inherit" mom's house, until all her debts are paid off. The house belongs to her creditors. You cannot transfer the deed legally, until her estate is probated. You can't 'steal' her asset - the house - away from the creditors. You can't insure assets that don't belong to you - the house and the car. And I think you're not going to get awarded that chapter 13 bankruptcy on the ESTATE of your mother, since she still has assets to sell (the house and car). Do it yourself bankruptcy isn't working for you. Go talk to a lawyer.