How to minimize taxes you pay and best way to fund a deal

4 Replies

Hi All, 

I am trying to figure out the best way to fund a potential deal. My company awarded me some stock a while ago which recently vested. I didn't want to get hit with major taxes if i sold it. Is there any way to avoid the tax associated with selling the stock to leverage for real estate investing. I am just getting started with investing and I know there are lots of loopholes but don't yet know them. I also am considering using some equity from my house either via a cash out refinance or a HELOC. Are there any tax implications i should be aware of if I went either of these routes?

Also if anyone knows any good articles, blogs, etc. that cover taxes in NJ and how to best maximize your returns despite the massive taxes, please send them my way. 

Finally, anyone know of any good tax advisors / accountants in the northern NJ area that specialize in real estate investing?

Thanks,

Hiral 

Originally posted by @Hiral Lai :

Hi All, 

I am trying to figure out the best way to fund a potential deal. My company awarded me some stock a while ago which recently vested. I didn't want to get hit with major taxes if i sold it. Is there any way to avoid the tax associated with selling the stock to leverage for real estate investing. I am just getting started with investing and I know there are lots of loopholes but don't yet know them. I also am considering using some equity from my house either via a cash out refinance or a HELOC. Are there any tax implications i should be aware of if I went either of these routes?

Also if anyone knows any good articles, blogs, etc. that cover taxes in NJ and how to best maximize your returns despite the massive taxes, please send them my way. 

Finally, anyone know of any good tax advisors / accountants in the northern NJ area that specialize in real estate investing?

Thanks,

Hiral 

Did you get stock options or restricted stock? RSUs for example are taxed when vested whereas options are not taxed until exercised. RSUs will be included on your W-2 in box 1 issued by your employer. You should consult with a CPA to help you navigate your tax situation.

Your company's HR department may have info available about the tax consequences of your stock options, but perhaps you could reduce taxes by watching the timing of exercise if your household income varied from year to year. 

i.e. if your income was regularly under the Social Security wage limit of $127,200, then it might make sense to exercise multiple options in one year to get above the SS wage limit and avoid 6.2% tax on the amount over the limit. Of course, the opposite could also be true, where it might make sense to only exercise a few at a time to keep your income in lower federal tax brackets. Would be best to consult a CPA who understands your entire household income picture.

Also, the tax implications for getting a cash out refi or HELOC are in regards to the mortgage interest. Your home mortgage interest is deductible on 1040 Schedule A only if you itemize, and interest on a rental property mortgage is deductible on Schedule E, taken against the rental income regardless whether you itemize or not. If you take a cash out refinance, then this interest will be deductible on Schedule A only if you itemize. However, if you take out a HELOC and use the proceeds to purchase rental property, you can deduct the interest from the rental income on Schedule E. The second way is likely to be slightly better tax treatment, but your CPA can look at your overall picture and let you know which way is best.

Thank you both! My stock is Restricted shares so they did already get taxed when they vested but i thought there would also be tax implications when i sold the shares. I think i should definitely discuss with a CPA though as you both suggest. 

I agree with Daniel on the HELOC. If you can use the HELOC to purchase rental properties, you can deduct the interest on your schedule E. This will possibly give you a larger passive loss to reduce your taxable W2 income.

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