rippyl2000[at]yahoo.com (Janene) wrote:

- quote -

Your concern for taxes is good and well, but there may be
other things to think about too. For example, is the
mortgage at a favorable rate? Is the house in a market where
it's likely to appreciated in the near future? What's the
rental market in the neighborhood like?

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ippyl2000[at]yahoo.com (Janene) wrote:

- quote -

I don't know of any tax consequences upon the sale of the
house that would be affected by the existence (or
non-existence) of a mortgage.

That being the case, and assuming that you are going to sell
the house as quickly as possible, the only question is
whether the after-tax cost of the mortgage interest is more
or less than the after-tax benefit from investing the life
insurance.

The after-tax cost of the mortgage interest will be affected
by:

1. Whether there is any federal estate tax (unlikely from
what you describe) or state inheritance tax (possible since
you didn't say what state). The mortgage interest may be
deductible as an expense of administration until the house
is sold, so the mortgage interest might reduce death taxes.

2. Whether there is any income tax deduction. Because the
house is not yet yours (and is probably not your residence),
you are not going to be entitled to a personal income tax
deduction. But the estate might be entitled to an income
tax deduction for the interest as an expense of estate
administration. However, if the estate does not have enough
income to use up the deduction, then the only benefit is a
possible excess deduction on final distribution (assuming
that you can settle the estate in one year), which is
subject to the 2% floor on miscellaneous itemized deductions
and might not really do you any good.

The after-tax benefit from investments is simply the yield
on the investments you might make with the life insurance
procees, less the probably income tax at your marginal tax
rate.

Given the uncertainty about whether the mortgage interest is
deductible against any tax, and the current low yields on
investments, it's quite possible that you'll find that
you're better off paying the mortgage now.

*Dan Evans
*"One is not superior merely because one
*sees the world as odious."
*Francios Rene de Chateaubriand (1768-1848).

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Janene at rippyl2000[at]yahoo.com wrote:

- quote -

As beneficiary, the insurance money is yours right now
without question. The mortgage isn't. It is a debt of your
mother's estate.

- quote -

Suppose something goes wrong in the settlement of the estate
and things get tied up in probate? Suppose another debt
comes out of the woodwork? What if a distant relative
challenges the will and wants a share? A bird in the hand is
worth two in the bush.

- quote -

The only thing you are losing is the mortgage interest.
Suppose the house doesn't sell? What if there is a
landslide or an earthquake? Let the lender wait for the
sale. Even if they foreclosed, they get the house and you
have the insurance money.

- quote -


All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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Janene wrote:

- quote -

You might want to recheck inheritance taxes. (My mother
died about 18 months ago in Indiana.) If the home is
included in inheritance tax calculations, particularly
if the GROSS value of the home is included, there may
be some inheritance tax due. (As my mother's estate
did have to file an estate tax return, obviously there
is more money involved in her estate than in your
mother's.)

I might also remind you that medical bills paid by the
estate can be taken as a medical deduction on your
mother's final tax return, rather than as a deduction
on the estate's income tax return, if that produces
a better overall result.

As for paying off the mortgage on the house from
your life insurance proceeds -- the tax consequences
don't seem significant. I'm not a financial advisor,
but I'd suggest doing it if it makes financial sense.

The tax and legal consequences if you end up
NOT inheriting the full estate seem more
problematical. Perhaps (again, this is outside
my range of legal and financial expertise) you
should LOAN the money to the estate at a interest
rate comperable to what you could get in a
short-term CD? It's possible that you'd have
phantom income, but no more than you would
if you'd just invested the life insurance
proceeds.

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My mother recently passed away, and as a result, I am the
sole beneficiary of her life insurance policy (actually, the
sole benficiary for all in the estate). The balance on the
mortgage on her house is about 5K less than the amount of
her life insurance policy. There are some other monies tied
up in probate, as well as quite a few medical bills/other
bills that will deduct from the estate, most likely leaving
less than 15K in the estate. The estate is small, and will
not incur estate taxes in the state where she lived
(Indiana).

My question is this: Do I pay off the balance of the
mortgage with the life insurance money, while the estate
goes through probate, since I alone will recieve all of the
proceeds of the sale of the house? Tax wise, is it better
for me to pay the mortgage off, and recoup the money after
the sale of the house (and hope it sells relatively quickly
even though I know the market is tight there), or are there
taxes that I am unaware of that will result from the sale?
The alternative is to continue to pay the mortgage while the
house is on the market (from the 'estate', and not my
pocket). I just am unsure of what to do, since I know the
life insurance will not be taxed as income, but I am afraid
that if I pay off the mortgage, I will end up paying taxes
that I am not aware of.

Thank you,
Janene

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