After retiring four years ago at age 63, you have been supplementing your pension and investment income with dividends from a one-man electrical and plumbing repair business structured as an LLC. The arrangement has, overall, worked quite well, but, in order to expand, it is now important for you to purchase several more sophisticated tools and pieces of equipment.
Your own home is in shape and now paid for, but the additional cash flow resulting from retiring the mortgage has long ago been absorbed in building the business. Your plan is to remain in your home, and you’re now considering a refinance, which you see as preferable to generating more taxable income by selling tax-deferred account assets….
As your tax advisor has no doubt explained, whenever you put personal money into your LLC, you can label it as either equity or a loan to your business. But, rather than taking out a new forward mortgage or home equity line of credit, you might consider tapping your housing asset in the form of a reverse mortgage.
Importantly, with reverse mortgage funding, there will be no monthly mortgage payments due*, and withdrawals you make may be tax free**. You would take dollars as needed out of your housing wealth, using those dollars to make contributions to your LLC, making equipment purchases in the name of the business.
Meanwhile, the available unused portion of your housing wealth will be growing at the same rate as that being charged on the reverse mortgage loan balance.
*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. **Not intended as tax advice. Consult your tax advisor.