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Realtor on tax advantage of owning a home.
2011 Apr 13, 3:01am 12,676 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.
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.
It helps. In Colorado with 4.63% flat income tax the couple buying the "$1200 per month" home given in the example would likely be earning something in the $70k/year range (?). State income tax would be just north of $3000, leaving a good deal of the standard deduction intact. So yes, they would be able to deduct some of their interest payments, but not the majority. Property taxes (are they deductible?) on such a home in Denver would be around $1000 per year.
FuckTheMainstreamMedia
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2011 Apr 13, 4:14am
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.
Maybe. Maybe not.
For me personally, state tax plus a potential mortgage interest would be around $12k. Then add in property tax deduction. So I'd get to write off around $16 k more than than the standard deduction. So I'd save around $4k in federal income tax if I had a mortgage.
Hardly comes close to the $1200 less per month it costs me to rent vs own
Actually it is 11,400 not 11,600.
Not that it really matters, but:
For 2011: "The standard deduction should increase from $5,700 to $5,800 for single filers and from $11,400 to $11,600 for those married filing jointly."
http://www.moneybluebook.com/2011-federal-income-tax-brackets-irs-tax-rates/
LAO
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2011 Apr 13, 9:03am
I'm in the market for a $400K home in Los Angeles though... So my mortgage interest deduction+property tax on that type of home works out to around $23K in deductions (18K in interest 5K in taxes). Take 25% off my top income bracket... And I'm getting back $5750 or $480 a month off my $2600 monthly PITI... (which includes my PMI with 10% down).
So essentially... I've calculated that I'm paying only $427 more a month to OWN a 4 bedroom/2bath home... than I currently am to rent. (I'm building $5K in equity a year also... but for the first few years I consider that a wash since it's an aesthetic fixer with a pool that we will be slowly upgrading about $5K a year for the first few years).
So essentially i'm about to enter escrow on a place that is $427 more a month for a 1957 4bed/2bath with a pool.. vs. my 2 bed/2bath $1700 a month apartment rental about 15 minutes closer commute wise.
It's a toss up for us right now... It'd be a no brainer if my wife were working... All depends on how the inspection goes. We can't afford much more than aesthetic fixes and normal maintenance in the short term. My wife's eventual income is 100% savings for us though... so we aren't buying a dual income home.
Comments 1 - 9 of 38 Next » Last » Search these comments
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