A client with a $60,000 tax bill due in April wants to delay payment to buy a fixer-upper, either to flip or rent to workers. Donna Genie walks through the math: compare your down payment and mortgage costs against the interest and penalties you'd pay for postponing taxes.
About $60,000.
I had a meeting with a great customer the other day, and he asked me if he could delay paying his taxes for a year because he thought he had a better use for the money. Now, on the surface, most people would say, no, you can't do that. You have to pay your taxes. But when we're talking about dollars, the easy way to do this is to make decisions based on the results and the numbers. So I walked him through some questions. We talked about the situation. Turns out he has the opportunity to buy a house that is in need of some repairs to be sold. Now, that house could be either a quick flip, maybe he could do the work. He's in a trade where he could do some of the work to improve that price and make some money on the deal. But he also had another idea. He's got some workers who need a place to live, and those workers would love to be able to rent that house from him. It's in a great location and they would probably take really good care of it since they rent for him and he's their landlord. So the question became a little deeper about what would it take to get that house, what would the cost be, and what would he need to get in return to make this a viable deal for him? So we walked through a couple of scenarios and we looked at what the burden would be of buying that house if he used his tax dollars to pay for it. Now he's going to owe about $60,000 come April. If he waited one year to pay that, what would that look like? Well, his first thought process was to just guess and to say, okay, I think I'll do this. And then hopefully it all works out. But luckily, I got the chance to talk to him before he did it so that we can actually look at the numbers. I suggested to him, why don't you figure out what it would take, how much down payment you'd need, and what your interest rate would be on a mortgage on that property. You bring that information back to me. In the meantime, I will tell you how much it will cost in interest and penalties to wait one year to pay either the full 60,000 or half of that, and we'll do some real numbers comparison. Well, when we did that, we pulled the numbers together and we were able to make a real live decision, knowing the effects rather than guessing. That's the power of having someone that you can talk to before you make decisions, make sure you are making calculated moves.
