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Hello

I am 69, unemployed and on social security. From my investment portfolio I want to pay off my mortgage deducting $75,000 and additional money for 2023 taxes. What do you suggest?

Ask the Experts - Extension - Sept 2023

TimS5

Level 4

Paying off house debt is always a wonderful event. Several items that you need to consider and realize is that first, selling investments that you hold to payoff the home will be a taxable event. Whether you have a capital gain or loss to report will be based on the sales price versus the cost of the investments. Also the holding period will be a factor in determining if the sale is treated as long-term or short-term. The second item to consider is that paying off the principal amount of the loan is not a taxable event and will not reduce your taxable income. The only income reduction you will realize will be the amount of investment income that you do not earn as a result of selling your investments.

WheatVAN5Author

Level 2

Should I schedule an appointment with a tax expert to speak about this in person? I realize selling the investment is a taxable event. How will this deduction affect my taxes? My desire is to reduce my investment portfolio by the payoff quote ($75,000) plus additional money (~$15,000) to cover taxes. Do you have any suggestions how I should proceed.

NateTheGrEAt

Alumni - Intuit

Hi! It sounds like you're trying to find the most tax efficient way to withdraw from your investment portfolio.

Generally speaking, if you sell investments that have appreciated significantly, you'll have a larger capital gain than if you sell things that have appreciated little or have gone down in value. So I would start by checking on the unrealized gains and losses on your portfolio - your broker should be able to provide this information. Depending on your basis and gains/losses, your taxable capital gain would be larger or smaller. To give an example, you said you want to withdraw a total of about $90,000. If you sold investments with a basis of $50,000 to get that withdrawal, you'd be paying taxes on $40,000 of gains ($90,000 sales proceeds - $50,000 basis = $40,000 gain). But if you sold different investments with a basis of $80,000, you would only have a $10,000 taxable capital gain.

Another idea, since we're getting towards the end of 2023: if you can split up the withdrawal across two tax years, you might be able to keep yourself in a lower tax bracket.

Take a look at this article and specifically, scroll down to the table that's labeled

2023 Long-Term Capital Gains Tax Rates

A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes - TurboTax Tax Tips & Videos (intuit.com)

You can compare the info here for your filing status and your income to see if you can keep yourself in that 0% capital gains tax bracket by taking out part of the money this year and part next year. Paying a 0% capital gains rate would definitely be tax efficient! Keep in mind, the amounts in this table are your total taxable income from all sources, not just the capital gain amount. So it would include the part of your Social Security that's taxable, as well as any other taxable income you have from any other source.

Hope this information is helpful!

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