Can I Cashflow Grad School? (Hour 2)
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What is the main topic discussed in this episode?
Live from the headquarters of Ramsey Solutions, broadcasting from the pods of Moving and Storage Studios, it's The Ramsey Show, where debt is dumb, cash is king, and the paid off home mortgage has taken the place of the BMW as the status symbol of choice. We help people build wealth, do work that they love, and create actual amazing relationships. Thank you for joining us, America. Christina Ellis, number one bestselling author. Ramsey Personality is my co-host today.
How can I pass rental properties to my children?
We'll take your calls at 888-825-5225. Barbara's in Phoenix to start this hour off. Hey, Barbara, how are you? I'm well, thank you for asking. How are you? Better than we deserve. What's up?
Well, I have some rental property and some cash, and I'm 80 years old, and I want to leave all of this money to my children. And I want to get rid of these four last rentals, but I have tenants that have been in there for a long time, and I don't know, should I lose money by letting them stay in there because they're comfortable, or should I sell them and put the money aside?
How are you losing money?
I said, I'm not losing. Well, because the market is going down, and I feel like if I wait another year, I'm going to get a year less in income. I mean, not in income, but for the sale.
Okay. Are you ill?
Am I ill?
Mm-hmm.
Are you sick? No, I'm not sick. Okay.
Just asking. So, well, Phoenix has had some price adjustment, but it's not had a lot of value adjustment. The difference is that some of the properties were priced up, up, up, up because it was such a hot market, and now they're not pricing them quite so crazy. But the values have held overall. The houses are bringing less than they were asking before. But we're not seeing a huge drop in value in Phoenix. And I don't think that you're going to lose substantial money in one year. And if you make it two years, then you're probably going to make money by keeping them. Are they under-rented? It sounds like you're not charging enough rent the way you described it.
I'm not charging enough rent, but I'm real comfortable. I don't need any money.
I know.
So I would rather help those people that are struggling than to make any extra money and pay it out to the government because I do pay taxes on it. Sure, sure.
Okay. So you have tenants that are charity cases?
Yes, for the most part. They don't fix income, yes.
Okay. Okay. All right. Well, here's the deal. All right. Your kids probably don't want the real estate, right? They probably just rather have the cash.
They don't. They don't want it.
Okay. What did you pay for these rentals, and have you been depreciating them for many, many years?
You know what? I bought them in the 70s. Oh, good Lord. And I paid for five houses less than $100,000.
And the group is worth what now?
Right now... I would say three-quarters of a million.
Yeah, okay. So here's the thing. If you sell them now, you're going to pay capital gains on the difference in what you sell them for and your basis, your adjusted basis, which your basis is what you paid for them minus the depreciation that you have taken, and you probably depreciated them all the way out. You're probably going to pay taxes on every dollar that you sell them for. If you sell them now, okay? Right. If instead you do a will, do you have a will?
Yes, I have a will on living trust, yes.
What strategies can help cash-flow grad school effectively?
Okay. Then in the will, leave detailed instructions to the executor of the estate. Who's the executor? One of your kids? Yes. That they are to sell the properties upon your death and distribute the proceeds. Okay. Here's why. When they inherit $750,000 worth of market value property, if they sell it for $750,000, there's zero tax. If you sell it, you're going to pay tax on all of it. Okay, that's what I needed to know. There's a stepped-up basis. Their basis is market value at death. Your basis is what you paid for it minus the depreciation you've taken, which has probably got these houses at zero basis or close.
Yes.
Okay. And so you're going to pay taxes on almost the whole thing. They're going to pay taxes on nothing, and they can sell it and turn it into money, you know, three weeks after you're gone or whatever the proper procedure is in Arizona.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:27–1:01
2
How can I pass rental properties to my children?
1:01–4:32
3
What strategies can help cash-flow grad school effectively?
4:32–6:28
4
How can I manage $750k in dental school debt?
6:28–12:18
5
What should I consider when moving while paying off debt?
12:18–16:34
6
What are the unintended consequences of divorce on finances?
16:34–20:00
7
How can I ensure my estate plan benefits my heirs?
20:00–25:00
8
What are the best practices for managing a high mortgage payment?
25:00–39:31