My wife and I (filing jointly) have a home mortgage with about a $140,000 balance. Since my father died in October, we’ve been covering the mortgage payments on his home, which we are trying to sell, though the market is soft now. Dad's home mortgage is about $185,000, and the interest portion of the monthly payment is about $1,000 compared to $800 for our home mortgage. The liquid portion of Dad’s inheritance is enough to pay off one, but not both, of the mortgages. Which should we pay off first?
2007-12-11 18:56:32 · 5 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Well, Persona has an interesting view on the question.
However it is not a complete equation. I didn't see anything that took tax into consideration.
There really isn't enough information to give you the best answer for you. The best anyone can do is tell you in general.
If you are not living in the home (at least as a vacation home...and be very careful about that) and it is not available for rent then you can not deduct the interest paid on his house. But, in either case the interest paid until October goes on his final return. So your planning is basically for tax year 2008.
The difference between paying off your mortgage as compared to his might mean that you can no longer itemize. This should be a factor in your decision.
I would suggest that you consult a local Enrolled Agent...and get a detailed opinion. It is not an easy question...there are many factors. And, they can't (or shouldn't) be answered in this forum.
Footnote: Now is the time to ask before you do something that can not be undone.
2007-12-11 22:51:28 · answer #1 · answered by Russ B 6 · 0⤊ 0⤋
You have some good advice above but also think about:
1. Which house you want to keep (obviously pay off the other).
2. Which has the lower interest rate.
3. Do you have any other goals that require cash or are you going to pay off both residences any way?
3. For what it's worth, you have no personal liability on your father's house but you may have personal liability on your home.
2007-12-12 15:31:39 · answer #2 · answered by Jim Kirby, CPA/PFS, CFP, CFS 3 · 0⤊ 0⤋
Paying off your house, then using the remaining 45k to pay down your mortgage, would be the best option, with a difference of $528/yr.
How I got the number:
If we assume his house does not sell for 1 year, and assuming your figures are accurate (6.8APR on your house, 6.48 on his)
Paying off just his house saves you 12000/yr in interest.
Paying off just your house saves you 9600/yr in interest.
Paying off your house, then lowering his principal, saves you 12528/yr in interest.
Since his house may sell quicker and the difference is so slight, you might just pay off his for less hassle, but paying both would save you the most since he has the lower interest rate. When his house does sell, you should put it towards any debts that carry the most interest.
2007-12-11 21:05:55 · answer #3 · answered by Persona 3 · 0⤊ 0⤋
Presumably, you are the executor of your father's estate. His estate is ultimately responsible to pay his debts. Debt is not "inheritable" unless you are a coborrower.
If the liquid asset part of his estate is available, you should use that to pay his mortgage until the property sells. After the estate settles and you have in hand your final inheritance, then decide what to do with it. Settle the estate first.
2007-12-12 02:22:47 · answer #4 · answered by Anonymous · 2⤊ 0⤋
I'd pay off his. You can deduct your mortgage interest if you itemize, but can't deduct his even if you are paying it.
newjersey's suggestion to just use the liquid portion of the estate money to just pay your father's mortgage, and not pay either off, also works.
Good luck.
2007-12-12 03:57:27 · answer #5 · answered by Judy 7 · 0⤊ 0⤋