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Originally Posted by SamV
Merlocke, along with TFP I am a rookie at tax planning as well, you mentioned in your post on 09-10-2004, 03:13 AM about The Smith Manoeuvre and that more can be found at the bank. Would you be kind enough to share more info on that aspect as well?
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Hi SamV,
You can only do ONE or the OTHER.
Remember these are tax reduction strategies. Therefore - you can only get a return on how much you are paying.
Having said that. The SM works as such: (in general terms)
1) You require a house - with at least 25% equity in it.
2) Take out a second mortgage - based on the equity of said home.
3) Invest money from this second mortgage towards GUARANTEED INVESTMENTS which are equal to - or higher than the interest rate of the mortgage. Don't go blowing this on chicks and booze, the casino, the lottery, or risky markets. (no matter how "easy" they say Foreign Exchange is)
4) You are now able to claim any interest paid on your 2nd mortgage on your tax return as tax credits. However since you're making money on the investments - you're not actually losing anything.
From here - use any of the Extra money from your tax return to Pay down the PRINCIPAL amount of your mortgage. Don't forget to use any extra money you're making from the investments to do the same.
This is just the general high level overview of this method.
Consult with a banker to get this one started as although I understand the method - only a higher level banker would be able to provide you with the proper products in order to accomplish this. The only things I show personally are the methods with Tax Shelters - as I can fully explain those.