The Single-Family Home Tax Shelter Myth
- Thread starter Martin Gale
- Start date
The poll results show more than 2-to-1 against owning a home strictly as a tax shelter. I'm pleasantly surprised. Perhaps some of the numbers posted here helped clarify the trade offs. I agree with Hamlet and others that a rental property may be a profitable investment. My poll was meant to refer only to the house in which you live.
To those who point out that their houses have doubled in price in the last five years, I have have only one response: You lucky bastards, well done, now get out while you can. But that's another debate.
To those who point out that their houses have doubled in price in the last five years, I have have only one response: You lucky bastards, well done, now get out while you can. But that's another debate.
I don't understand your first post. Who ever said that buying a single family home strictly as a tax shelter was a good idea? The mortgage interest deduction certainly makes home ownership more affordable but most people buy a house because they want to live in one, not as a tax shelter.
Your analysis did not include rental income so I assume you are talking about buying a home and living in it but real-life benefits of owning vs renting a house were not touched upon.
Why would you compare renting an apt vs owning a house? That apples to oranges. Why don't you compare the cost of a renting a house to the cost of owning the same house?
Edit: I see that you mentioned later that you are comparing apples to oranges but I fail to see why. If you want to have a discussion about frugal living (where quality of life doesn't matter) that's fine but that misses the mark as far as I'm concerned.
Most people's lives arent about savings every possible penny, its about enjoying yourself while you are here.
BTW, do you own a home or do you rent?
More edit:
Property taxes are tax deductible as well & renters likely need renters insurance (albiet much cheaper then home owners insurance) so those factors change your numbers slightly.
Winter,
Again, this was strictly a home econ exercise. I ignored quality of life since it is highly subjective and can't be quantified. You and others have suggested that living in a house implies a better quality of life, but of course that depends on your preferences and on the particular house or apt. I live in a high rise apt on the top floor with an unobstructed view of the SF Bay and three blocks from my city's downtown as well as the train that takes me to work. Also once lived in an apt atop Nob Hill, which is an exceedingly nice environment (too nice for the likes of me). I personally can't imagine living in monotonous beige-colored tract housing with a view of the neighbor's driveway, commuting hundreds of miles to work each week for the privilege of doing house chores and yard work on the weekend. But that's just me.
Thanks for the tip on the property tax deduction. I'll factor that in.
Again, this was strictly a home econ exercise. I ignored quality of life since it is highly subjective and can't be quantified. You and others have suggested that living in a house implies a better quality of life, but of course that depends on your preferences and on the particular house or apt. I live in a high rise apt on the top floor with an unobstructed view of the SF Bay and three blocks from my city's downtown as well as the train that takes me to work. Also once lived in an apt atop Nob Hill, which is an exceedingly nice environment (too nice for the likes of me). I personally can't imagine living in monotonous beige-colored tract housing with a view of the neighbor's driveway, commuting hundreds of miles to work each week for the privilege of doing house chores and yard work on the weekend. But that's just me.
Thanks for the tip on the property tax deduction. I'll factor that in.
dont forget to factor in the standard deduction. you have to overcome that before the home interest deduction becomes advantageous to you.
Unless your situation is such that your state income taxes paid exceed the std deduction already, then any additional write-offs (like home interest deduction) are gravy. Its hard to make any analysis like this realistic without getting into the details of an individuals situations because there are so many variables.
And then when you try to factor in historical equity and real-estate market data to forecast future appreciations (which no one really knows) it really becomes a big guessing game.
Do what makes you happy.
Suppose you were considering two investments. The first was an unoccupied house and the second was a financial investment. Suppose that the two investments generated exactly the same cash returns over your expected holding period and had exactly the same risk characteristics. Holding other things equal, the unoccupied house would ordinarily be the preferred investment because you could occupy it and benefit from an "imputed rental value." That imputed rental value might be measured by the pre-tax cost of renting a similar property. That value could be significant and would never be subject to tax. That value causes people to pay more for housing than they would pay for an alternative investment without the imputed rental value. As a result, if you only look at cash returns, you would expect the cash returns on housing (for which you paid a premium to obtain that rental value) to be lower than alternative investments.
Quote from OldTrader:
The way I always thought of this is that the interest payments are tax deductible.
The "tax shelter" comes in when you sell. Currently married tax payers pay no tax up to $500K in gains after two years. That would be tax shelter wouldn't it?
OldTrader
I've found it is a good idea to pay attention when Old Trader offers advice.
I've never known anyone who regretted buying real estate. End of discussion.
ps. Is there a bigger tax break available than the $500k cap gains exclusion? Plus you can take it every two years.
Looking at ONLY the total profit of an investment is not always the best way to evaluate it. But instead of going through a bunch of calculations to prove that one is better than the other... there are three simple facts that I know.
1. People have become millionares through the stock, future, option, etc markets.
2. People have become millionares through real estate investments.
3. Having multiple forms of cash flow is always better than having just one.
DO BOTH. Diversify.
1. People have become millionares through the stock, future, option, etc markets.
2. People have become millionares through real estate investments.
3. Having multiple forms of cash flow is always better than having just one.
DO BOTH. Diversify.
Unless one happens to be fortunate and live in an area where property taxes are capped. I paid my house off in 2001. Looked into building a new house in 2003 and then learned alot about the "Save our Homes" ammendment passed years ago in my county. If I sold my house to myself today my taxes would increase by approx. 140%. Our property tax rate is capped at 3% on your homesteaded house.
T