Do you own a house/condo/townhouse or rent?

[odoreater]

Originally Posted by kwilkinson

There are tax deductions for owning property?
I thought you got taxed on your properties.... Do the two offset each other? Do you come out ahead or behind?

Next year, after I buy my house, I will come out a few grand ahead on my taxes by virtue of owning a house. But, buying a house for just the tax benefit is kind of stupid becase at the same time you are paying interest, so really you are paying X amount of money to save 33% of X (or replace 33 with whatever your tax rate is).

 

[kwilkinson]

Originally Posted by odoreater

Next year, after I buy my house, I will come out a few grand ahead on my taxes by virtue of owning a house. But, buying a house for just the tax benefit is kind of stupid becase at the same time you are paying interest, so really you are paying X amount of money to save 33% of X (or replace 33 with whatever your tax rate is).



33% tax bracket? My God I thought I was getting raped at my 21%.

Jesus, I really ought to take a personal finance course. This stuff gets crazy.

 

[odoreater]

Originally Posted by kwilkinson

I definitely see the advantages to owning your own home versus renting, those are obvious, but I had no idea about deductions.... I knew the interest on your mortgage was deductible, but why are property taxes? Why would they tax you and then allow you to deduct that, versus just not taxing you and leaving out that step?

I mean... are the deductions less than the taxes you pay? Like say you pay $5,000/yr in property taxes, but can only deduct $3,500, then that would make sense b/c then they would be making a gain, versus if you could deduct all 5 grand, then what's the point?

Oy vey, I'm glad I've got a few years before I even think about buying.

Remember, when you deduct the property tax, your saving is only whatever your tax rate is x the amount of the property taxes. In other words, your property taxes are not a credit that is given to you in your rebate, but rather, it is an amount that they allow you to deduct from your income.

So for example, if you have a $100,000 income and you are paying $10,000 in property taxes and your tax rate is 25%, they will allow you to deduct the $10,000 from your income, and then they will tax you at 25% - so, you will pay $22,500 (25% of 90,000) in taxes and end up with $77,500 for the year.

What they do NOT allow you to do, is to take 25% of $100,000 ($75,000) and then add your property taxes ($10,000) as a credit after taxes are calculated for a total of $85,000 in income.

So, in effect, the government is tapping into that money twice, just once at 100% and once at 25%.

 

[Thomas]

Originally Posted by kwilkinson

33% tax bracket? My God I thought I was getting raped at my 21%.

Jesus, I really ought to take a personal finance course. This stuff gets crazy.

Welcome to the big leagues. I think Odoreater probably pays a state income tax (NJ?) as well, while I get pounded on property taxes.

Generally speaking, Uncle Sam won't double-dip, but he kind of does as OE pointed out.

 

[kwilkinson]

Ahhhh okay. That makes a lot more sense knowing that it comes from your income. Definitely cleared things up. Thanks OE and Thomas.

Taxcode is probably honestly the most confusing thing in the world to me.

 

[Thomas]

Originally Posted by kwilkinson

Ahhhh okay. That makes a lot more sense knowing that it comes from your income. Definitely cleared things up. Thanks OE and Thomas.

Taxcode is probably honestly the most confusing thing in the world to me.

It can get a little troublesome and a good tax lawyer/CPA can save you some good $$$.

One of my side projects is to become an Enrolled Agent, which means I've got a bundle of tax code to deal with. Ironically, Mrs. T. will be taking her taxation course in a semester or so. We'll find out if misery loves company.

 

[Piobaire]

Originally Posted by kwilkinson

33% tax bracket? My God I thought I was getting raped at my 21%.

Just wait until you get a six figure tax bill one day. You'll understand why I sound bitter sometimes.

 

[kwilkinson]

Originally Posted by Piobaire

Just wait until you get a six figure tax bill one day. You'll understand why I sound bitter sometimes.

The more I'm on this forum, and the more I make money, the more I realize that that whole "If you are not a liberal at 20, you have no heart. If you are not Conservative by 40, you have no brain." quote makes more sense. Except at the rate I'm going, it's liberal at 20 conservative at 22.

Maybe that's just a testament to the fact that I'm easily swayed, and this is honestly the first time I've had contact with smart conservatives.

 

[VKK3450]

I rent. In London.

excuse me while I weep

K

 

[Thomas]

Originally Posted by VKK3450

I rent. In London.

excuse me while I weep

K

Well, co-weepage really depends on a number of things. For instance, if you're working an expat job in London and do not have to worry about expenses, then I will shed no tears for you.

However, if you're a native resident of Britain and have to rent in London because the property rates are on the other side of outrageous, then I feel your pain.

...

However, the upside to renting is this: You can walk away, with no regards to credit liquidity or property values or obligations. Lotta homeowners and former homeowners are probably wishing right now they'd never taken the plunge.

 

[Ace Rimmer]

I own a condo, in downtown Philly.

And as for deductions relating to your home, don't forget about AMT. Ask me how I know! grr

 

[EL72]

Deducting mortgage interest and property taxes in the US is a huge tax break, not to mention the lower marginal rates. I own income properties so I can deduct interest and expenses (except on the part of the property I live in) but my overall tax rate is above 50% (if you include sales and property taxes, more than 60% of what I make goes back to the government).

 

[Mr T]

Originally Posted by odoreater

So for example, if you have a $100,000 income and you are paying $10,000 in property taxes and your tax rate is 25%, they will allow you to deduct the $10,000 from your income, and then they will tax you at 25% - so, you will pay $22,500 (25% of 90,000) in taxes and end up with $77,500 for the year.

So, in effect, the government is tapping into that money twice, just once at 100% and once at 25%.

Well, not really. The US has a marginal income tax so (in this example) you would not be taxed 25% on your entire income, just the income above a certain margin. The income below the margin is taxed at a lower rate.

As to the OP...I live in San Antonio and own a house. Texas did not enjoy the bubble and is not hurting as much from the slowdown. What I have noticed however, but have not heard from the media, is the number of military families that are facing foreclosure because they used the VA's no down payment program and are now being moved for the needs of the military. These folks have zero equity and zero chance of selling their home. Their competition here are the national builders who have no problem dropping their price below the resale market.

 

[California Dreamer]

Melbourne, and I rent. I'll be buying later this year, now that our housing boom has finally cooled off.

 

[haganah]

I love people that are so absolute that renting is throwing money away.

Here is a calculator to help you decide whether it's worth it to buy.