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Paying off car loan

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  • Avatar ophthodoc 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/06/2019

    First time poster and appreciate the advice! l have a 17K loan on a car we purchased 1 year ago with an interest rate of 4.1%. Since I paid off my student debt I have shifted my payments to the car loan and will have it paid off in approximately 5 months. I also have an American Funds account with about the same amount of money to just pay off the loan tomorrow if I sold everything in it. I don’t plan to contribute to that account anymore due to high fees and loading costs. I would have to pay long term capital gains tax on it though. This year its earned 13% but total annualized return is 4.9%. I’m debating if I should a. sell the American Funds and just pay off the car loan then I can start my taxable account at vanguard. This option would also help simplify my overall portfolio or b. hold onto the account just let it ride and pay off the car loan over the next 6 months.

    #239377 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4405
    Joined: 01/08/2016

    Depends how large and LTCG rate

    #239385 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1004
    Joined: 01/11/2017

    Do you donate $17k to charity per year or two? If so donate the American fund to a DAF, take the tax deduction, avoid the LTCG tax, and clear the loan from your income/cash flow.

    #239386 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    In general, I would have strong feelings about ditching a 4.1% car loan (going to the ditch, obviously). You didn’t give us the amount of LTCG you would owe on liquidating, but it shouldn’t be significant on $17k. Impo taking this step is as much about or more than principles than math.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #239387 Reply
    Liked by Lordosis, Tim
    Avatar ophthodoc 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/06/2019

    Thanks for the comments/advice! I don’t have a DAF set up yet. I am in my 3rd year out of residency and just finished paying off 230K of student loans so I want to keep the momentum up and just kill the rest of my debt.  I’m not sure exactly how to figure out the amount of LTCG I would owe. I think the percentage bracket I would be in is 15%.

    #239391 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3030
    Joined: 09/18/2018

    Long-term gains are those on assets held for over a year. Below, the percentage of taxes paid are listed on the left with the corresponding income on the right.

    Long Term Capital Gains Tax Brackets
    Tax Bracket/Rate
    Single
    Married Filing Jointly
    Head of Household
    0%
    $0 – $39,375
    $0 – $78,750
    $0 – $52,750
    15%
    $39,376 – $434,550
    $78,751 – $488,850
    $52,751 – $461,700
    20%
    $434,551+
    $488,851+
    $461,701+

    https://www.irs.gov/forms-pubs/about-schedule-d-form-1040
    •Sales price – cost basis= gain

    Finish your house cleaning. The dishes are in the sink, put them in the dishwasher. Clear out your advisor account and move on.
    Congratulations.

    #239393 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 936
    Joined: 02/06/2016

    You won’t pay capital gains on the entire amount, only on the difference between the gross redemption amount minus your cost basis (the amount you paid to purchase the investments).

    #239403 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 697
    Joined: 06/18/2018

    5 months to pay off a 17k car note as an attending doc? Interesting. Where does all your money go?

    Regardless, dump those American funds and pay off the car loan. You’ll be better off getting rid of both.

    #239430 Reply

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