Comments on: Tax Benefits of Homeownership – Three Reasons Its Over-rated

By: Kevin M

Kevin M — Fri, 11 Nov 2011 01:20:01 +0000

J–You’re taking the discussion beyond the topic of the post, which is centered on the tax benefit of homeownership. And it is overrated for all of the reasons presented in the post, at least for the majority of people. Tax benefits are hyped as a central reason for buying a house, but with the reduction in both tax rates and interest rates, that advantage has declined substantially over the years. A home buyer needs to know that there may be no tax windfall and buy accordingly. A lot of them are banking on that windfall as it’s promoted by the real estate community and many “experts” who over generalize.

As to the increasing equity situation, you’re correct. But as the loan balance reduces and the principal portion of the house payment increases, the tax benefit will decline even more.

As to rich people owning and not renting, that’s categorically true. But because they’re in higher tax brackets and buying more expensive homes they’re the ones who ARE getting the tax benefit and it makes perfect sense. When ever you write a post, you write to a general audience, but there will always be exceptions. I hope this all makes sense…

By: J

Thu, 10 Nov 2011 19:07:19 +0000

In your example above it seems like your saying owning a house is only marginally ($107/ month in your ex.) better than renting? What i didn’t see you mention was how much of that $1399 in mortgage is different in a $1399 rent… difference being how much went to equity. In 20 years of owning vs renting you are actually building equity, and yes your tax deductions will get less as your interest piece is lower but you are still paying the same $1399 which means a bigger percentage of your pmt is going towards equity rather than a bank. I think there are definite ways to rationalize renting, no maintenance, no down payment, marginal benefit in taxes and ussually the ppl who are rationalize / beleive you are not in a financial position to own a house anyways but real estate will continue to be one of the most fiscally rewarding investments you can make and important in building true net worth….You don’t see too many rich ppl renting, instead they own and rent to the poor / debt ridden ppl who believe renting is better

By: medical seo

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By: An Oil-Leak Capping Roundup » JoeTaxpayer

An Oil-Leak Capping Roundup » JoeTaxpayer — Sun, 18 Jul 2010 12:04:31 +0000

[...] at Out Of Your Rut tells us about Tax Benefits of Homeownership – Three Reasons Its Over-rated. Kevin helps bring to light an overlooked aspect of the tax code – that for many, the tax [...]

By: Kevin M

Kevin M — Tue, 13 Jul 2010 17:41:48 +0000

Joe – The mortgage interest and property tax deductions were put in place for people like you! Since your property taxes exceed the standard deduction, everything else you have is deductible, which is not a bad deal. In high cost areas like the Northeast and the West Coast, there’s far greater incentive to own. The tax code makes it almost the choice by default.

By: JoeTaxpayer

JoeTaxpayer — Tue, 13 Jul 2010 16:44:31 +0000

I have a rough draft on this topic as well.
You really nailed it, I like when authors run the numbers instead of talking in vague generalities.
For better or worse, my property tax exceeds my standard deduction. So I think of my 5% mortgage as costing 3.6%. Nonetheless, I plan to pay it in full before the kids goes to college in 7 years.
At that point, I’ll likely use to maximize the deductions over time.

Note to Shari’s Realtor – CFPs don’t sell real estate, you should not be offering tax advice. (Not that you’d ever be reading this.)

By: Kevin M

Kevin M — Fri, 19 Feb 2010 01:11:14 +0000

Shari, the fact that your house will be paid off in four years is worth many years of tax deductions. You’ll no longer have a house payment, and you won’t need to be concerned about property values the way the indebted do.

Too bad the author of that quote is unknown, it’s truly brilliant. Even if the ship does go down for reasons beyond our control, we’re still reponsible for us!

Thanks for reading and thanks for sharing your thoughts.

By: Shari

Shari — Thu, 18 Feb 2010 19:09:36 +0000

I definitely concur with this article. My husband and I had our home built in 1993, and at the time we were told by our real estate agent that we would be able to deduct the interest and property taxes on our new home. At the time, that sounded like a nice added benifit of owning a home. Granted the excitment and thrill of having a new home built just the way you want it was what we were so focused on. Very emotional like the previous post says.
As it turned out, never once were we able to deduct the interest and property taxes. Each and every year the standard deduction was always higher than our interest and property taxes. This was something that I always understood, because I personally do our taxes every year, but my husband had a hard time grasping the fact that we couldn’t deduct this from our taxes. I’d like to also mention that I’ve always completed our taxes honestly which is what is expected, however I know too many people that do not uphold to that. It’s a shame!
Moving forward, this year, much to my surprise, in addition to the standard deduction for 2009, we can now deduct our property taxes as well (up to $800 for married filing jointly). So it’s been a long time coming, but finally some good changes for what it’s worth. I totally agree that making payments on your mortgage is truly the way to go, ours we’ll be paid off in 4 years, which will save us $1000′s of dollars.

“An honest person ought not go down with a dishonest ship. But the responsibility of building and maintaining the lifeboat rests with the individual who expects to occupy it later”. Author Unknown

By: Kevin M

Kevin M — Wed, 10 Feb 2010 18:31:36 +0000

Paul, like I wrote in the comment above, buying a home is mostly emotional. A “fact” will be used, often blindly, in support of that decision. It won’t be examined closely if it doesn’t support the desired outcome.

We all have our “blinder places” in life, this one maybe one of the more obvious.

By: Paul Williams

Paul Williams — Wed, 10 Feb 2010 17:36:57 +0000

Great analysis, Kevin. I wrote about the same thing a while back. Too many people think of owning a home as a great tax deduction, but they don't net out the standard deduction. I think a lot of realtors use that fact to exaggerate the tax benefits of owning a home. If people did the math, they'd see that it's usually not that great. .-= Paul Williams´s last blog ..Personal Finance in the Bible: Proverbs 19:20 =-.