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artursapek

Why does someone like Zuck need a mortgage? Is it economically advantageous to him in a significant way?

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He doesn't need a mortgage, it's just financially savvy to have one.

He avoids paying taxes on the sale of stocks to finance the home.

Mortgage interest is tax deductible.

His stocks will almost certainly yield more than the interest rate on the mortgage.

He's getting a sweetheart deal from the bank.

For him, selling stock is a PITA because he has special class of stock that grant him voting rights far beyond what a normal share is worth. These special shares are granted to him by the board of directors. So selling 1 share means losing like 1000 votes (they convert back to 1:1 upon sale), meaning he needs to be careful when liquidating assets. By waiting five years, he can use vested options to pay the mortgage, rather than selling his special class stock.

With the net worth equal to the GDP of a sizable country, does he need to worry about saving a few thousand here or there?

Also, free country and all, taking advantage of that special rate is still rather unsettling.

It's all about the special stock since he does not want to part with it. That is how he maintains control of Facebook.

>He avoids paying taxes on the sale of stocks to finance the home.

Can you elaborate on that?

Like-kind exchange? Not exactly sure what the parent was referring to.

https://en.wikipedia.org/wiki/Like-kind_exchange

If you want to buy a million dollar home using shares, you have to liquidate them and pay capital gains. By getting a mortgage you lower the amount of income you 'realize' on a year-to-year basis, lowering your taxable income. There are details on capital gains vs income taxes, etc, but in general I think the point was that the less income you realize in a given year, the less taxes you'll pay.

"If you want to buy a million dollar home using shares, you have to liquidate them and pay capital gains. "

Just to note: you don't :) In fact, if you wanted to pay all cash, and had enough shares, you'd generally take out a portfolio loan against the shares at some very low interest rate (probably not lower than current mortgage rates however) rather than sell the shares at all.

Whether this is better/worse than a mortgage depends on various things.

"Mortgage interest is tax deductible."

In practice, not for zuck.

1. Only the interest on the first 1 million is deductible. 2. The income phaseout probably also hits him hard

Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden.

The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.

There's also a deduction phase-out at high incomes. (450K iirc)

$1MM if single, $500k if married and filing separately.

EDIT: see comment below. One can deduct the interest on mortgages up to $1MM and $500k, but there is a cap on itemised deductions (mortgage interest deductions are this kind of deduction) around $450k.

http://www.bankrate.com/calculators/mortgages/loan-tax-deduc...

There are two different things:

From your link: Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately).

So mortgage interest for loans beyond $1M are not deductible at all.

Then there is the deduction phase-out

> You are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) is more than $309,900 if married filing jointly or qualifying widow(er), $284,050 if head of household, $258,250 if single, or $154,950 if married filing separately. Your AGI is the amount on Form 1040, line 38.

https://www.irs.gov/publications/p17/ch29.html

Though somewhat ironically, Zuck probably isn't high income because his Facebook salary is $1 and the vast majority of his wealth is in FB shares that pay no dividend.

Low income reduces the value of the deduction. I'm sure there are a gaggle of cpa's optimizing his 1040.

There should be a cutoff for deductibility at some price. Let's say 300k or whatever. This would do make miracles for housing affordability.

I think a more effective change would be to remove the mortgage interest deduction for second houses.

With more laws comes more accounts and more loopholes.

We need to overhaul the tax system, not pile more crap on top of it.

Besides, the vast majority of people taking advantage of this deduction is the normal American. Not a business owner or speculator. You'd be ending the largest tax relief the middle class has.

That's why I proposed a cutoff at some rate. The middle class should be subsidized not some millionaires who have ten homes.

More likely that he was borrowing a great deal and preferred not to be forced into an unplanned stock sale. As the article hints, the odds are good it was a short term loan, which could be one reason for the unnatural rate.

Check out my earlier comment. Any time you get to borrow money at 1%, you should take that loan and reinvest it in something (anything) that yields a higher return. It's almost like getting free money.

But is the cost of a house significant to someone worth billions? I'm asking why he wouldn't just pay cash for it.

There's a saying along the lines of "You don't get rich by spending money" that applies here. A mortgage at 1.05% interest as mentioned in the article is basically throwing money at the person taking the mortgage.

Makes sense, thanks.

Billionaires' finances are managed by accountants, money managers, and lawyers. So, the accountant in this case suggests what's best: tax write off (interest expense), and interest rate differential (higher returns elsewhere - mortgage rate).

Time-value of money. Keep cash in YOUR pocket.

How would he get that cash? If he has to sell stocks, his capital gains taxes would probably cost him a lot more money than the interest on a mortgage, or on a pledge asset line of credit with his investments as collateral.

If you have to sell stocks to pay cash for a home, a mortgage could cost you less money overall.

Same reason Apple finances stuff despite their giant cash hoard. With interest rates as low as they are, it's smarter to take the financing and have the money available for stuff with returns higher than the mortgage interest.

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