Jewish World Review Feb. 14, 2000 / 8 Adar I, 5760
Shaky partnership buying house
DEAR BRUCE: My girlfriend and I are planning to buy a house. I earn $60,000 and she earns $75,000. My credit rating stinks due to a bankruptcy a few years ago, but hers is excellent. She will have at least $50,000 from the sale of her current house.
Would it be better to buy the house before we marry, and will my credit ratings affect hers after marriage? -- V.N., Ventura, Calif.
DEAR V.N.: I am not enthusiastic about unmarried couples buying real estate together -- it can lead to some huge complications in the event that one or the other decides to go his or her own way.
Having said that, the likelihood is that she would be better off proceeding on her own. Whether you are married or single, they would only look at her income. With a $75,000 income and a $50,000 down payment, she should be able to handle a house around $225,000. This is just a guideline and it doesn't mean that you have to go out and buy something at that price.
DEAR BRUCE: My husband and I thought that we should cash in an annuity worth about $8,000 and invest it in our Roth IRAs. The annuity is currently getting 5.7 percent interest as opposed to our IRAs, which are earning 13.8 percent. Not bad. I realize that we will have to pay taxes, but we have had the annuity for 12 years, so there will be no penalty from the insurance company. -- K.J., Denver, Colo.
DEAR K.J.: An annuity that is currently earning less than 6 percent is a loser from my perspective. Whether or not the investment inside your Roth IRA is the place to stay is quite another matter -- there are lots of things out there that are doing better than the 14 percent that you report.
I would surely bag the annuity as quickly as I could. You will take the hit with the taxes sooner or later, so you might as well take it now.
DEAR BRUCE: In 1986 I took a job in California. Feeling that I might want to come back eventually, I turned my home into a rental property. I have decided not to return, and now I would like to sell it.
I bought it for $68,000, and it is now appraised at $130,000. Being in the 15-percent tax bracket, what will the tax bite be with the depreciation claim and the capital-gains tax? -- N.A., Carmichael, Calif.
DEAR N.A.: There are some variables that you have failed to address. For example, your attorney fees and the cost of selling the house, such as the brokerage fees, are deductible against your gain. Also deductible against the gain are any capital improvements that you made during the 15 years you owned the house. It is very likely that you have depreciated it down to very little value.
You should get all of this information together and drop it in the hands of an accountant who can prepare the appropriate forms that will tell you exactly what your liability will
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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01/21/00: Strategies for paying off debt
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