For years, our client dreamed of buying a Florida beach condo, spending relaxing weekends while still working, and, upon retirement, permanently relocating there. During our client meetings, we frequently discussed different options and potential pain points.
When the correct opportunity presented itself, we structured a payment plan using a tax-advantaged method to pay most of the purchase price in cash. We recommended taking a margin loan from the client’s managed trust account so that no investments were sold. This action would avoid a large capital gain for the tax year. The margin loan was also tax-deductible, with an effective net interest rate of 4.9%. This would be significantly lower than the prevailing market rate of mortgages for vacation homes. Combining the margin loan with the sale of outside investments that were not too highly appreciated allowed the client to pay for most of the condo in cash.
The client then performed a cash-out refinance to repay the margin loan on her investments.
With the smaller outstanding mortgage balance, the client can repay the condo sooner and get this asset in the trust’s name.
