Financial advice - please help!

[Storm]

I need some financial advice, and the people here are smarter than anyone else I could possibly ask in my personal life.  Please help me out and let me know what you would do in my situation.

Here is the situation:  The wife and I are looking to buy a house.  With a 1 year old and another on the way, and the in-laws staying with us for a week at a time, our 2000 sq. foot apartment (fairly large for a 2 bedroom) is getting too small.

We want to buy a house in Fairfield, CT, which has the good schools, so we don't have to pay for private education.  Our price range is around $750K, considering that we will need that much money to buy a house in decent condition with at least 3 bedrooms and 2500 sq. foot.  Luckily, we have been diligent savers and have just over $200K in a taxable brokerage account (outside of 401k) that can be liquidated for this purpose.  We plan on putting 20% down to avoid PMI and get the best possible 30 year interest rate (would do 15 year, but the payments are too steep).

The $200K brokerage account is part of our PP (the rest being in the 401k) and contains the stock and gold portion of our PP, so you can imagine since 2009 it has about $40,000 unrealized capital gains (mostly long term, some short term).

We need to close by April time frame, so we are going to start looking after the holidays.

Here is my question:  Should I go ahead and liquidate the brokerage account now, then rebalance my 401k to contain stock/gold?  The main reason I am considering liquidating now is because of the fiscal cliff, and the potential for capital gains to go up on Jan. 1.  I actually think there is a 50/50 chance that the cliff is averted and congress caves, but I'm not sure I'm willing to risk it, and there is still the likelihood that capital gains will go up next year above the 15% it is now.

Here are the pros and cons, as near as I can tell:

Sell now:

• Pro - Avoid capital gains tax increase on Jan. 1st if fiscal cliff is not averted.
• Pro - Avoid possible market losses if fiscal cliff is not averted and people panic.
• Pro - Lock in market gains.
• Con - Stock market might see a rise if fiscal cliff compromise is reached and I've already sold out.
• Con - Might miss 1 quarter of PP gains in 1Q 2013 by selling early and going to cash.

The wife and I also have about $41,416 worth of Series I Savings bonds that are over 1 year old and could be cashed in as well, but I'd prefer not to touch those if possible.

What would you do in my situation?

I really appreciate your advice and insight as I need to make a decision on this before the end of the year.  If any of you are ever in Fairfield county, CT, I promise to buy you a beer.

[Pointedstick]

Aaaargh, I'm in nearly the same situation!!! I'm also buying a house and have no idea whether I should sell now to avoid possible fiscal cliff nonsense, or later!

[KevinW]

Question: have you analyzed whether it might be cheaper to stay where you are, or move to a lower-rent area, and pay for private schools?

I've seen my parents, and some of my friends, really stretch to pay for a posh house+school combo when IMO the TCO of buying them separately would be more economical. People tend to overlook the fact that a kid is only in primary school for 12 years, but people tend to stay in that expensive house for 30+ years or even their whole life. So compare

(30 years rent/mortgage+taxes in cheap town) + (30 years commuting from cheap town) + (12 years private tuition)
to
(30 years mortgage+taxes in expensive town) + (30 years commuting from expensive town)

Commuting costs factor in because my friends were moving from the city core where their jobs are, out into the suburbs. I don't know how the commuting costs would play out for you in Connecticut.

The private school scenario has certain intangible benefits too. You get to live and raise your kids in a place of your choosing, rather than the place the state is encouraging you to do so. And you bypass the whole public school complex entirely.

[Storm]

Question: have you analyzed whether it might be cheaper to stay where you are, or move to a lower-rent area, and pay for private schools?

Thanks for posting.  Yes, we did consider this.  Tuition at Hopkins, one of the best private schools in the area, runs around $33,700 annually per kid.  If you have one kid, perhaps it makes sense to do this and save the money on housing, since you are correct, they will only need to go there for a short number of years.  Perhaps, let's limit it to grades 7-12 and say they will attend public primary school.  For a single child, that's $168,500 for 5 years (in 2012 dollars, I might add), but for 2 kids it's $337,000.  The difference in tax rates between a town with average schools and a town with good schools is about $5,000 a year.  So, the $150,000 difference in tax rates (over 30 years) is not going to offset the cost of tuition for 2 kids.  1, perhaps you have that option, but 2, forget about it.

Anyway, I do appreciate your response, but private school can get very expensive around here.

[TripleB]

Sell your taxable brokerage stuff now, immediately rebuy it. Pay the taxes on the $40k, reset the cost basis, maintain the same position.

Re-evaluate the situation next year and if you decide to buy a house and liquidate your brokerage holdings, you don't have to worry about increased taxes because you locked in now. Of course, if you decide not to buy the house, then you paid taxes for no reason in 2012.

Without getting too deep into my personal views (which involve getting out of CT entirely - NH is the only state in the north east I'd personally want to live in), I'd suggest considering waiting several years to buy a house because if the primary reason of buying an expensive house is good schools, but your kids won't even be attending public school for 4 to 5 years, then you're better off renting another 5 years until the school situation becomes an issue. While the "good" homes may appreciate in value over that time, your money should also be appreciating due to remaining in the PP.

[KevinW]

Thanks for posting.  Yes, we did consider this.

Good, all I ask is that people give it some serious consideration. The nearest Montessori here is $6k/year, the nearest Waldorf $19k/year; tax differentials can be higher and running a commuter car costs about $8k/year on average. There's also the matter of the interest paid on the larger mortgage. So you can see that private schools can be a win, depending on the variables.

[MediumTex]

You might hedge by locking in capital gains on one-half of your gains by December 31.

[Storm]

Sell your taxable brokerage stuff now, immediately rebuy it. Pay the taxes on the $40k, reset the cost basis, maintain the same position.

You might hedge by locking in capital gains on one-half of your gains by December 31.

These are both good advice.  Thanks!

[TripleB]

Sell your taxable brokerage stuff now, immediately rebuy it. Pay the taxes on the $40k, reset the cost basis, maintain the same position.

You might hedge by locking in capital gains on one-half of your gains by December 31.

These are both good advice.  Thanks!

You might hedge the advice of TripleB and MediumTex by selling 3/4 of your positions