Real estate is among the most significant financial assets for many clients. That said, only about 4.3% of Americans own a second home. Fortunately, various investing strategies exist to help avoid second home taxes or those associated with upgrading your current home.
Did you know that you can work with your bank or brokerage firm to borrow from yourself? You can take margin loans or securities-based lines of credit to borrow against your portfolio. This is a tax-smart investing strategy to avoid taxes when purchasing a second home. Here are a few investing strategies you can learn to avoid second home taxes.
Two Investing Strategies to Avoid Second Home Taxes
To avoid being subject to taxes when buying a second home or upgrading a current home, consider these two options:
- Portfolio Loans: Borrowing a margin loan or a securities-based line of credit against your portfolio to put an offer for a new house without having to sell your portfolio (and trigger taxes).
- If upgrading to a bigger home, consider waiting until your current home has been sold before putting an offer on another one.
What Do These Choices Mean?
Portfolio loans mean using investments as collateral. This allows you to retrieve the cash you need without actually selling an investment in your portfolio. If you were to apply this strategy, you would ask your bank or brokerage firm to organize a margin loan or a securities-backed line of credit derived from your investments.
Securities-Based Lines of Credit Explained:
- Generally, you need $100,000 initial advance.
- The loan is secured after pledging the value of an asset; you claim the value of an asset in your portfolio as collateral for the loan to buy your house.
- Typically a good strategy for short-term loans is a bridge between transactions.
- A good strategy when you need “immediate” access.
The risk involved with this strategy considers the value of the investment you want to use as collateral. If the value of this investment drops, you will be forced to make up that difference. This is an important strategy to review with your financial advisor before executing.
Buying a Second Home.
Using your investments as collateral helps you be subject to less taxes but can also help you secure a lower interest rate than traditional loans. Plan ahead and keep building the home that is waiting for your arrival.
Disclosures: Aventine Financial Group LLC (“AFG” or “Our”) is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration as an investment adviser with the SEC does not imply any level of skill or training. All written content on this site is for information purposes only. Opinions expressed herein are solely those of The Company, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.