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Realtor on tax advantage of owning a home.
2011 Apr 13, 3:01am 12,687 views 38 comments
by swebb follow (0)
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"Well, isn’t it that once people itemize there will be other deductions besides the mortgage interest and property tax?"
Well, yes, but not a whole lot. At least not for me when I was in essentially this exact situation.
I got some sort of tax credit for insulating / weatherproofing my house, but it was pretty small (and it may have been independent of the standard deduction). I was able to count a portion of my square footage for business purposes, and I had some charitable contributions. So there was some additional benefit, but I was *nowhere near* deducting 100% of my interest payments against my income -- *maybe* 25%. (The standard deduction is quite a bit to make up for once you decide to itemize).
And, yes, depreciation on rentals is a huge benefit to landlords. I'm not sure that it serves the public interest, though.
-S
klarek
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2011 Apr 13, 3:39am
Of my question is whether or not this Realtor already knows this and is just being disingenuous, or if they are just repeating what they hear without understanding it. (willful misrepresentation, or ignorance..?)
I wonder whether they have any real sales pitch for somebody to buy a house other than that the govt is stupid enough to bribe people according to how much mortgage interest they are paying. It's amazing to me that we have this tax provision that seems to only benefit scumbag realtors. It sure makes their job easier which might explain why they operate on a near-retard level and are incapable of creative thoughts beyond "how can I push this transaction?"
Fitzclarence
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2011 Apr 13, 3:46am
Not to mention that regardless of how much interest you can use as a deduction, the majority of it will be lost forever. If you paid $10,000 in mortgage interest over a year and you're in the 33% tax bracket, yes your taxes will be reduced by $3,300, but the other $6,700 you paid in interest is gone.
zzyzzx
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2011 Apr 13, 3:57am
Well, isn’t it that once people itemize there will be other deductions besides the mortgage interest and property tax?
State income tax alone makes it worthwhile.
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I thought the forum readers might enjoy the email I received in my inbox this morning:
"You've heard again and again how buying a home is the best tax break around. Maybe at one time you were called a chump for renting. After all, paying $1,200 a month for your mortgage is really the equivalent of paying $900 a month in rent. But how does that work exactly?
Here's the deal: Mortgage interest (including points) and real estate taxes are tax deductible. That doesn't sound very sexy, but it adds up. Since most of what you pay for your mortgage in the first years is interest, on a $1,200 mortgage payment you get to deduct about $1,080 a month. That reduces your taxable income by about $13,000 a year. If you're in the 25% tax bracket, that deduction is worth $270 a month."
My response:
'The tax deduction is is one of the least understood aspects of owning a home, and your example illustrates that. The typical buyer with a $1200 payment will be married (filing jointly) and will not have many deductible expenses other than mortgage interest. The $13,000 reduction in taxable income sounds great until you consider that without a mortgage they would be able to claim the standard deduction ($11,600 for tax year 2011). The difference of $1400 leaves the buyer with a net $350 for the year. The mortgage interest tax deduction makes more sense if the owner has other deductible expenses (most median house buyers do not), as the annual interest payments significantly exceed the standard deduction, and when the buyer is in a higher tax bracket. So in some cases it is a very powerful force, but in this example it is negligible."
Of my question is whether or not this Realtor already knows this and is just being disingenuous, or if they are just repeating what they hear without understanding it. (willful misrepresentation, or ignorance..?)
-S
#housing