OT: Is owning property for deduction purposes what its cracked up to be?

[bigbet1234]

I get this from my parents and friends all the time. Telling me I need some deductions because I am paying out the wazooo in taxes. I rent now, and happily doing so.

Are the tax breaks that great owning property? I mean, owning a 200K house, how much in taxes will it save you per year?

BB

 

[Fishhead]

I get this from my parents and friends all the time. Telling me I need some deductions because I am paying out the wazooo in taxes. I rent now, and happily doing so.

Are the tax breaks that great owning property? I mean, owning a 200K house, how much in taxes will it save you per year?

BB

Depends on how much property tax and mortgage interest you are paying.

 

[bigbet1234]

Approx. $6K per year in property tax, and whatever the going interest rate is, 6%?

BB

Depends on how much property tax and mortgage interest you are paying.

 

[Fishhead]

Tax deductions are what they are.

One of the biggest misconceptions in the financial world is that OWNING is better than RENTING.

Many factors come into play and one simply has to "play" with the numbers to see what is best for them financially...........as well as weighing the positives and negatives of renting/owning from a NON-financial standpoint.

Knowing you Bigbet as I do, know you will be able to determine what is best for you.

-FH-

 

[Romanowski]

wouldnt building equity be the main benefit in owning property over renting/leasing

 

[JimmyHoffa]

Betwen owning a home and the kids I haven't owed income taxes for years. And yes, the mortage intrest and property tax deductions make a sizeable difference when you complete your taxes.

As far as investment purposes, God stopped making land a long time ago. The values don't go down, only up.

 

[Fishhead]

wouldnt building equity be the main benefit in owning property over renting/leasing

Sounds good in theory, but many times this can be a misconception if one crunches the numbers.

Building equity is a natural "savings" method.

There are many additional factors to consider.........property taxes, insurance, opening and closing costs, repairs and maintainance, mortgage interest, etc., etc.

If one is in a house for at least 5 years, chances are one is probably going to be better off owning than renting..........and CERTAINLY SO WITH THE RECENT SURGE IN HOUSING PRICES.

The main point im trying to make is that many, many times the "no-brianer" attitude of one should own and not rent is simply not true.

 

[quantumleap]

It depends on how long you plan on holding the property and what area of the country it is in. If you hold on to it for less than 5 years it doesn't build much equity (since you are paying mostly interest) unless you live in an area of the country where housing prices are going up rapidly.

On the other hand, if you rent you can take the money you would have put into a down payment and invest it. Also take into consideration realtor's fees which can be 6% on buying and another 6% in selling your home if you decide to go that route.

Here's a little table. This discusses the financials of owning vs. renting. It doesn't address things like being able to do the things you want to the house if you own it or being able to move quickly if you are renting. Perhaps others can add to it.

Financial pluses of buying:
equity goes up as house price increases
mortgage payments lessen your tax burden as they are written off
mortgage payments stay the same (unless you have a variable mortgage)

Financial minuses of buying:
down payment does not earn you interest
6% realtor fee when buying
6% realtor fee when selling

Financial pluses of renting:
instead of saving for a down payment you can have your money earn interest

Financial minuses of renting:
no equity earning you money
no tax write-offs
rent continues to go up

 

[WVU]

I wish I could buy a house for 200k in south florida. They are more expensive than that in the ghetto here.

 

[jeffksu]

i bought my house here in vegas in 2003 for 180,000...1800 sq ft. 3 bedroom 3 car garage pool and hot tub in privacy fenced backyard...today's value $360,000 plus i get to write off 8,000 per year in taxes from the interest...took it on a 15 yr mortgage..only owe 12 more years...and guess what..in 12 years i will be 60...so yes there are huge benefits to owning your home...why make someone else money when you could be making money for yourself and your family...buy buy....jeffksu

 

[primetime21+]

90 percent of the time if you can afford to buy you do so. Obviously not everyone can afford to lay down a chunk of change for a downpayment, but if you can it is better than just tossing money down the drain in a rental situation.

 

[TTinCO]

Don't let the downpayment cloud hang over your head and prevent you from buying-especially if you are in a hot real estate market. There are a lot of ways to buy with no money up front at all. You just need the right mortgage broker.

 

[jeffksu]

very much so..ttinco...you can always buy with little or no down...jeffksu

 

[JimmyHoffa]

Veterans should be all over the 0% down VA mortgages.

 

[moethepuppy]

There are so many factors to take into account here.

If you own a home, you can deduct your mortgage interest and property taxes on Schedule A when you itemize your deductions. However since I'm assuming you were already taking the standard deduction, the additional deductions might not be a large as you expect.

For instance, in my case for 2004 I could choose between the standard deduction of $9,700 since I'm married or I could itemize. After factoring in state and local income taxes, property taxes, home mortgage interest and charitable deductions my total itemized deductions were about $16,700. Therefore by itemizing I was able to reduce my AGI by seven grand.

Homeownership is not cheap. If something breaks, you don't call the landlord. You either call an expert or head over to Home Depot and fix it yourself. Also you have to remember all the other costs of upkeep (grass mowing, shoveling snow, raking leaves, etc).

Homeownership does have benefits, you're builiding equity with every mortgage payment you make. Also property values generally increase each year. Recently there has been a huge increase in property values and things may slow, but its unlikely most parts of the country will see any huge drops in property value. Regarding the downpayment, talk to your local bank or mortgage broker. There are ways around the standard 20% downpayment.

In general you are better off owning than renting, since buying a house in 1998, I now have approximately $100K in equity in this place with a mortgage payment that is not that much more than it would cost to rent a similar place.

one correction to Quantumleap's post, I believe that only the seller pays the RE agent's commission so if you are buying you don't have to worry about that. The 6% will come out of the seller's pocket, not the buyers.

 

[Aquaman]

You should definately look into homeownership. That is the single most common difference between wealthy and unwealthy people. I'm not saying it is a guarantee or is for absolutely everyone, but I do believe that for most people home ownership is a better situation. Plus with all the different options out there, it is easier to get into a home than ever.

 

[WildBill]

Approx. $6K per year in property tax, and whatever the going interest rate is, 6%?

BB

Are you kidding, $6k on a $200k place? I pay about $1500 a year on a $300k place! I know our property taxes are lower than average here, but that is ridiculous if you really have to pay that much.

There are a lot of conclusions people reach on this from generalities, but really its a tailored situation. Married people gain far less than single people. As noted when you are married you get about $10k in standard deduction. My interest on my place was a tad under $10k and that included me engineering more interest by making 13 payments this year, so I'll have 11 next year and might end up in the standard deduction as a result. There were some good reasons to plot out my strategy that way, which is often the case with taxes. Think the scenarios out completely with next year in mind and then do what you figure works best. If you don't understand these concepts, its worth it to pay someone who does a couple hundred dollars to learn just what the benefits are to being a homeowner.

FYI, since I know you live in Ohio it doesn't apply to you, but out here in the West for many of us its a lot better financially to rent over the short-term. The cost to rent a house is often half as much as the mortgage payment is. Many people don't realize it because they are basing the decision on what they are paying on their loan, not on what they would be paying if they bought a place with little equity today. If you buy a house with no money down for $300k, your payments (insurance and taxes included) will be well over 2 dimes a month and even over $1600 if you do like many around here and take out an interest-only loan. Now if you wanted to rent a similar house? You are looking at about $1200 max. So there is a huge savings to renting, but of course to fully realize that you should be saving every penny of the difference or else in the long-run you will get screwed.

Simplest rule is generally don't buy a house right now purely for investment purposes. Buy if you like the area, plan to stay there at least 5 years, and can comfortably handle the payment. Don't buy if you have to stretch much and don't buy thinking about the gains it will earn you. Buy because you are going to live somewhere and you have the time to make sure you make some equity gain when it comes time to sell. In 2 years you could easily have a house worth less than it is worth today. In 5 years you probably have little chance of it not being at least worth a little more than you paid for it barring some major calamity or economic depression.

 

[Tahoekid]

I get this from my parents and friends all the time. Telling me I need some deductions because I am paying out the wazooo in taxes. I rent now, and happily doing so.

Are the tax breaks that great owning property? I mean, owning a 200K house, how much in taxes will it save you per year?

BB

You can't afford not to. Lets say you bought a $200,000 house and financed $160,000 at 6.5%. Your Principle and Interest payment would be $1025 per month. Out of that 1025 approx $866 would be the interest portion of the payment. At the end of the year your mortgAGE company would send you and interest paid statement and that comes right off the top of your income. If you make $75,000 a year you would deduct approximately $10390 right off the top and only pay taxes on $64610.

Your home should also increase in value therefore building equity etc. Just like others have told you renting is wasting money while owning not only gives you a tax break it builds wealth.

 

[sinnedsoul]

The main point im trying to make is that many, many times the "no-brianer" attitude of one should own and not rent is simply not true.

amen.. this is even more applicable in countries where mortgage interest is NOT tax deductable (canada)

 

[bigbet1234]

Actually WB, it is more along the lines of 6.4K per year, and yea, VERY ridiculous, down right robbery if you ask me.

I do not plan on staying here for another 5 years or so, 6 months to a year tops, then it is back out west for me. I most likely will end up in the Denver area. I will rent for a year, see if it's for me, then look at buying when that time comes.

Thanks for the input.

BB

Are you kidding, $6k on a $200k place? I pay about $1500 a year on a $300k place! I know our property taxes are lower than average here, but that is ridiculous if you really have to pay that much.

There are a lot of conclusions people reach on this from generalities, but really its a tailored situation. Married people gain far less than single people. As noted when you are married you get about $10k in standard deduction. My interest on my place was a tad under $10k and that included me engineering more interest by making 13 payments this year, so I'll have 11 next year and might end up in the standard deduction as a result. There were some good reasons to plot out my strategy that way, which is often the case with taxes. Think the scenarios out completely with next year in mind and then do what you figure works best. If you don't understand these concepts, its worth it to pay someone who does a couple hundred dollars to learn just what the benefits are to being a homeowner.

FYI, since I know you live in Ohio it doesn't apply to you, but out here in the West for many of us its a lot better financially to rent over the short-term. The cost to rent a house is often half as much as the mortgage payment is. Many people don't realize it because they are basing the decision on what they are paying on their loan, not on what they would be paying if they bought a place with little equity today. If you buy a house with no money down for $300k, your payments (insurance and taxes included) will be well over 2 dimes a month and even over $1600 if you do like many around here and take out an interest-only loan. Now if you wanted to rent a similar house? You are looking at about $1200 max. So there is a huge savings to renting, but of course to fully realize that you should be saving every penny of the difference or else in the long-run you will get screwed.

Simplest rule is generally don't buy a house right now purely for investment purposes. Buy if you like the area, plan to stay there at least 5 years, and can comfortably handle the payment. Don't buy if you have to stretch much and don't buy thinking about the gains it will earn you. Buy because you are going to live somewhere and you have the time to make sure you make some equity gain when it comes time to sell. In 2 years you could easily have a house worth less than it is worth today. In 5 years you probably have little chance of it not being at least worth a little more than you paid for it barring some major calamity or economic depression.