We have been debt free for a number of years, and it is important to our peace of mind.
My wife became very debt adverse several years back. We had a mortgage (at a low rate) and a couple car lows (also at low rates â near 0%). I went through the calculations of the difference in 5-10-15+ years of paying down debt first versus paying down debt more slowly and investing the difference (at varying levels of return). But she always viewed those calculations as missing the value of something important to her: peace of mind.
Wasnât going to argue. So we embarked on an aggressive debt reduction plan. Car debt went first and now the mortgage. Little over a year left. About 1/2 of take home income going to it. Thereafter we will invest that when mortgage is gone. Nest egg will be a little lower than it otherwise could have been. Her peace of mind. I have always used a very low rate of return when planning/determing if there will be âenough.â Thatâs my peace of mind.
Anyone concerned about a new administration with talk of getting rid of the low capital gains rates (15% for most) and replacing it with legislation that would tax the gains as ordinary income?
If this happens, do you sell some stocks in 2020 or is this not a concern for you?
Re: mortgage. We paid off our house, purchased 29 years ago, awhile ago. We have an offer in on a second home and would take out a mortgage on that only bc rates are so incredibly low. Dh believes itâs better to have the money in the market which has been very favorable for us. Weâll have to watch it carefully. We also donât know if we got the house yet --waiting on pins and needles!
@collage1 - hope you get it!
Historically, tax increases are prospective. Couldnât be enacted until late January 2021. If that holds (no guarantee), people would have until end of 2021 to sell. Reductions are often retroactive.
Back in 2011, was certain that taxes were going up (at least highest brackets) January 1, 2012 (I think those dates are right). I always have a busy year end with M&A deals. But every year, there are transactions that do not close by December 31st and get pushed to January/February of the following year. No one really cares. In 2011, every deal that could have conceivably closed in December, did. Made for a slow Jan/Feb. I expect the same will happen in 2021. But there are people who are not taking any chances and are looking to close by the end of this year.
Based on what I can findâŠ
Current US federal income tax rates on long term capital gains are 0%, 15%, or 20%, where the 20% rate starts at total income in the hundreds of thousands of dollars, varying by filing status.
Bidenâs proposed tax plan would make the long term capital gain tax rate the same as for ordinary income for those with total income > $1,000,000. This marginal tax rate is currently 37% (starting at incomes in the hundreds of thousands of dollars, varying by filing status), but Bidenâs proposal would make it 39.6%.
There are big caveats in that any proposed change would need to go through legislative processes, so there is no assurance that a change would be implemented, nor that if it is implemented, it will be the same as proposed. Of course, that would also be conditional on Biden and enough legislators supporting of such a proposal winning the election.
But even with the proposed change as is, it does not seem that this forumâs demographic has a lot of posters with income levels high enough to be directly affected by this part of any proposed income tax change. This forumâs demographic seems to be heavy with the lower end of the âno college financial aidâ range, or in the $200,000 to $350,000 income range, where paying private college list price is still a significant portion of income even though they are unlikely to get college financial aid, but is generally below the levels that would be directly affected. For most, any strategizing based on proposed tax changes would be trying to guess if market prices of various securities will be affected if other people with far higher incomes trade based on any speculated tax changes.
Wall Street has opined that they prefer an administration change.
Google Wall Street and Biden and there are many stories.
I am a buy and hold investor in general so donât incur many capital gains. . I wonât be adjusting my portfolio due to the election.
Nah, buy and hold type here, so will hold a little longer. In a community property state, so 100% stepped up basis when one of us goes.
I think when/if I retire, I might get rid of the debt for psychological reasons.
I donât let the tax tail wag the investment dog.
It remains to be seen what happens, but IMO the wealth gap is not good for the country. I do think that the fair way to do it is to index for inflation, but I can see where that might be difficult to implement.
âI donât let the tax tail wag the investment dog.â 100%
Also goes back to the earlier discussion on whether financial advisers are worth it. Mine does a pretty good job creating and balancing losses with gains.
In the recent market environment, itâs been hard to have losses. Not complaining though.
To get the house we wanted to retire in, we had to take out a substantial mortgage. But we are comfortable with it, we will have the income to pay it* and have enough in retirement savings that we can pay it that way if needed.
*assuming the rental housing business doesnât get completely destroyed by whackadoodle legislation that keeps getting getting proposed in my state
We didnât have any debt, but we took some on by borrowing money from my mil in order to be able to make a cash offer on our new condo we purchased back in July. We paid down a chunk when we closed on our old place and have made two other substantial principle payments since. Itâs interest only. We could pay it off now, but it would lower our cash balance that we are trying to maintain in anticipation of another real estate opportunity. That may or may not happen. Itâs only a 3-year note, but itâs definitely a manageable amount for us and allows her to earn a better rate of return than she could elsewhere - say in CDs or treasuries or similar, safe instruments. Weâre a pretty good credit risk 
@Hoggirl - It sounds like you had a good plan with the MIL condo loan. Bet she did not mind at all. And of course âshe knows where you liveâ 
Ok., I didnât see that there was income threshholds for treating capital gains as ordinary income, that is good news.
With that said, while not directly affecting individuals with income under $1 million, the stock market âcouldâ be adversely affected as the market movers/large investors choose to put their capital to work in cheaper, more tax advantaged income streams. I always assume the wealthy have the means to hire the best tax professionals and financial advisors to maintain their wealth and not pay too much in taxes.
ROFLMAO
There are a lot of variables that arenât known to be able to make any determinations right now on what likely is (or at least should be to a certain degree) a diversified investment portfolio. If you are looking to sell a business in the next year or two with a sizable tax gain, may make sense to sell before any tax increase goes into effect. Same if you are selling real estate (and unable or not looking to roll gain into another property).
When I read about the proposed tax changes, it looks like anyone making above 400K is going to get hammered. And they keep mentioning individuals and, individual tax rates. But do they actually mean families? Big difference between family income and individual income if you have two higher income earners.