- quote -

I read the above as your buying in Ca immediately after
selling in Wa. That's good - homes appreciate and if you
were to be out of the market for a year it could cost you a
substantial amount.

Good luck with your plans.

dick w

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

To everyone, thanks for the great advice. I had no idea
that the 1040ES existed and have already run through several
scenarios.

In response to Gary, what we're considering doing is selling
our current WA house while still in WA, and then buying a
"vacation" home in CA after moving, debt-free, into a rental
in WA. Then, at the appropriate time (ASAP) we would quit
our jobs and move to the CA vacation house while paying the
mortgage and living expenses using savings. My plans
indicate that a year off will use absolutely no more than
50% of our cash savings without having to dip into 401K and
other sacred pots of gold.

Rick, I'd love to deduct the moving expenses but the whole
point of this year off is that I don't want a job. I
looked into it and found that I'd have to be working
relatively full time in order to deduct the moving expenses.


Dick, you're absolutely right about prices in So Cal -
they're outrageous. We're looking for a tiny cabin with one
bedroom and basic facilities. Our hope is that it will
remain our vacation home for many year, and then we can
either sell it our build/retire to it. Thanks for the
advice regarding moving the deductions - I will look into
that more.

Thanks again to all!

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

You may want to stay there! California is becomming very
unfriendly. There's yet another bill (AB 6) that wants to
raise personal income taxes. If it passes, then in
combination with our recent Prop 63, there will be a 12% top
bracket (granted, at $1M TI), and with one of the highest
statewide sales taxes (7.75% statewide; some localities have
8.75%), do you really want to be in a state that is taxing
its citizens at over 20%? That rivals the Federal rates.

- quote -

NOT NOW nor the near future.

- quote -

Then you definently don't want to come here.

- quote -

It appears that he is considering only the income tax. The
CA sales tax rate by itself says "stay out."

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Gary Goodman" <garyXg7X[at]yahoo.com> wrote:

- quote -

If he applies for the mortgage before he quits his job,
they'll approve it based on the salary he was generating.
As long as they don't read this newsgroup, they won't know
he's planning on reducing his income.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

bobboberts[at]gmail.com wrote:

- quote -

The main problem I see is not a tax problem. Banks, et al
don't like to loan money for houses unless the borrower
(that's you and your wife) have sufficient *income* to
service the payments. The percentages vary depending on your
credit record, but a lender would like for your housing
costs (mortgage payment, taxes, insurance and condo fees, if
any) to be no more than 40% of your gross income. In this
case, income does not include drawing from savings, only the
interest generated.

Gary

--
E-mail to the above address is rarely read. If you want to
contact me directly, please send an e-mail to: gary at
gdgoodman dot com.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

bobboberts[at]gmail.com wrote:

- quote -

With only 40k equity, taking a year off AND moving to
California may not be possible. Please check out housing
prices where you plan to move to; you might have an unhappy
surprise.

Consider the 4 consecutive years, 1, 2, 3, and 4; where you
plan not working the last 1/2 of year 2 and the 1st 1/2 of
year 3. Your tax deductions are worth less those years. If
you are itemizing deductions, you want to move deductions
from year 2 to year 1 and from year 3 to year 4.

Many deductions can be moved:

Make charitable deductions in years 1 and 4, none in 2 and
3. Don't wait for year 2 state filing, make an estimated
final payment of year 1 state taxes 12/25 of year 1. Default
on year 3 property taxes, pay a penalty (10% ? - check 1st).
Its good business to pay a penalty if you save more on year
4 taxes. Don't wait for year 1 medical bills, make estimated
payments on everything by 12/30. In year 3 you can at least
wait until Jan 1 of year 4 before mailing December payments.
And if you have optional procedures, schedule them
accordingly.

And so on - look at every deduction and what can be done to
move it.

dick w

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

bobboberts[at]gmail.com wrote:

- quote -

Get a JOB in So. Cal. and you can write off the moving
expenses.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Thanks to the both of you for your advice and confirming my tax
advisors theory.

Also, thanks for the wine advice. My tax advisor will be very happy!
Matthew

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

bobboberts[at]gmail.com wrote:

- quote -

Please do this your self using a 1040-ES for 2005 and 2006
and let us know what you decide.

--
Alan
http://taxtopics.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

You are correct, Sir, to quote Ed McMahan's response to the
late Johnny Carson. If you took your year off during one
calendar year you would lose all your itemized deductions
(mortgage interest, property taxes, DMV fees, chaitable
contributions, job hunting expenses, investment expenses,
etc.) plus your personal exemptions for that year. You would
also pay taxes at your usual rate in the years around the
sabbatical.

Make that bottle of wine something from Joe Hart's winery in Temecula
CA. he makes some great vintages.

Linda Dorfmont E.A., CFP, CSA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

bobboberts[at]gmail.com wrote:

- quote -

Okay then. If he likes red wine, a Chateauneuf du Pape or
even a really good Beaujolais; even though it IS french.
For a white, any really good California Chablis or
Chardonnay; I'm kinda partial to Austrailian Yellowtail
Chardonnay these days.

Oh, almost forgot, the tax aspect.

Yes, I would second his notion that you split the years if
possible. This is an up to date version of what we used to
call "income averaging".

ChEAr$,
Harlan Lunsford, EA n LA

---------------------------- Moderator: I'll send you my recipe for Chateau Trailer Park.
----------------------------
<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

My wife and I are considering taking a year off from the rat
race and are interested in the tax situation that this will
create.

Our current situation: Under 30, no kids, have a house with
maybe $40K equity in it, earn $150K a year household income,
and have a decent amount of savings.

What we want to do is take a year out and combine this with
a move to Southern California - we currently live in
Washington State. We plan on buying a house down there and
living off savings for paying the new mortgage and general
expenses.

The big question is WHEN?

Obviously, one of our desires while living off savings for a
year is decreasing the amount we pay in taxes. So what
we're thinking is that instead of taking a year off between
January and December, we would take the year off between
July and the following July.

The logic is that in both years we will be earning money for
6 months of the year. In both years we will be paying
mortgage interest for the whole year. In both years we will
have HALVED our annual gross salary.

My internal tax advisor (the one in my brain) is telling me
that this would result in a hefty decrease in my tax
liability for both years and assuming that we take the
"normal" federal tax withholding for our salary level, we
would get large refunds.

The tax advisor argues that taking the time off January to
December results in me wasting my deductions as we will have
no salary to use them against, and we'll also be in a higher
tax bracket for the two years on either side of the year
off.

Is my tax advisor correct? If not, I'll have him surgically
removed. If he *is* correct, then I'll buy him a nice bottle
of wine. You decide.

Finally, are there any other ways of reducing the tax burden
in the scenario above?

Thanks for all responses!

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->