Wednesday, September 06, 2006

Live Next Door to Babs for Free!

While waiting for my flight at JFK last week, a little old lady chatted me up and told me the story of her daughter who now lives next door to Barbara Streisand for free (allegedly). To make a long story short, the daughter went through a nasty divorce after 20+ years of marriage and got $15,000 a month in alimony and little else (not that $15k a month is something to sneeze at but she lost her portion of their house and life savings). She then asked her mother (the little old lady talking to me) what to do and her mother told her to “Buy a house.” She asked, “Where?” The mother said, “Where else? Next to Barbara Streisand!” The little old woman asked me to guess who winds up paying for the house and then proceeded to tell me, “The I.R.S.!” Apparently, the mortgage payment is primarily interest (fixed rate, she assures me) and just about covers her entire tax burden on the alimony check. So, the daughter is now living rent-free and has an option on the appreciation of the property. If the housing market crashes, she’s still golden with the fixed rate mortgage. If all else fails, she can simply declare bankruptcy and start over still with $15k a month in alimony coming in. Now I haven’t started modeling the taxes for myself but it got me thinking I’m leaving a huge tax shield on the table by not leveraging to the hilt with my mortgage. Assuming I’ve got stable income and a very affordable mortgage, can I really live in a MUCH nicer house with no effect on my after tax income? Have any of you run the numbers?

This actually "almost" sounds about right, but it also sounds like this woman might win the A.M.T. lottery the next time she files.
And what the heck would you know about alimony payments?
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