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Old 03-06-2018, 03:35 AM
 
71,626 posts, read 71,777,271 times
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Quote:
Originally Posted by Submariner View Post
My understanding was that, you get to roll-over your gains from one property to the next. But you need to declare it as taxable, with a one-time exclusion of X amount.
no that is not how it works
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Old 03-06-2018, 03:42 AM
 
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Quote:
Originally Posted by SportyandMisty View Post
The economic benefit of home ownership is the same as it ever was. Nothing has changed.

It affords tax-free income in the amount of the fair market rental rate.

Stay with me...

When you own a home & live in it (living in it is the key!), you "pay yourself rent" in the amount of the fair market rental rate. This is, of course, not reported as income on an IRS form 1040, so that income is tax-free.

Stay with me...

Imagine you and I have identical economic situations. We own identical houses right next to each other, have the same jobs for the same company that pay the same salary, we have the same investments, same deductions, etc. Under normal circumstances, we each live in the house we own. Imagine our IRS 1040s: they would be identical, of course, because we have identical incomes, mortgages, expenses, etc.


Stay with me...

Now, let's do a thought experiment. Imagine that you rent your house to me, and I rent my house to you. As a tenant, you pay me rent. As a tenant, I pay you rent. Because they are otherwise identical the dollar amount of those rent payments is identical. They cancel each other out, right?

But not when it comes to income tax time. When calculating our respective tax obligations, each of us has jobs with income, and some interest and dividends and maybe some cap gains, and under this thought experiment, each of us must also report rental income.

Let's say for the sake of argument that the fair market rent is $5000/month. So, each of us pays the other $60,000/year, and each of us receives $60,000/year. At tax time, each of us reports that extra $60,000 in extra income. We also have some landlord expenses associated with that income such as depreciation expense, and various other landlord expenses for repairs, maintenance and the like.

At the end of the day, though, we pay our marginal tax rates on that extra $60,000 in income.


Stay with me...

So, coming back to reality... when we own a home & live in it, we "pay ourselves rent" and that rent is tax-free income. If the fair market rental rate is $5,000 per month, we have tax free income in the amount of $60K/year. Not too bad.

That is the true benefit of owning a home & living in it.
nonsense!

this is common wrong thinking because we can also twist and mold it and say what is happening is that home is costing you the amount in rent you are not getting by consuming that place yourself.

the reason it flips both ways from income to expense so easily is because you are trying to create a fictitious situation that is just really improving EXISTING CASH FLOW . it creates no additional income.

your home is ALWAYS AN EXPENSE . it never produces a dime more in income if you consume it yourself . .

it may be a cost cutter and perhaps cheaper than renting but it does not produce income , it only improves cash flow of existing money .

while saving money may appear to be increasing income you will learn the difference when costs bottom and expenses keep rising and there is nothing left to cut ..

increasing income has no limits and is very different from improving cash flow by cutting an expense . this is why wall street looks at both profits and revenue. profits can come from cost cutting which has a bottom .

the cost of housing is on the expense side of a balance sheet , income is on the other side . don't try to turn an expense in to income ,
it is just improving cash flow of existing income .

you can apply all the smoke and mirrors you like but personal housing costs are expenses -period. you may save a few bucks over renting , or you may not .

so if renting is cheaper than i created more income ? nonsense . i have the same income , i improved cash flow .

Last edited by mathjak107; 03-06-2018 at 04:16 AM..
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Old 03-06-2018, 06:06 AM
 
71,626 posts, read 71,777,271 times
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Quote:
Originally Posted by NoMoreSnowForMe View Post
Even if a house doesn't appreciate, when you own it you - usually - lock in your monthly payments, so you don't have to worry about your housing costs going up, such as when you rent. You also used to get to write off interest and taxes, etc., although I think the new tax laws took those away. And of course, if you are still in it after it's paid off, then no mortgage payments eventually.

I think the unknown of future taxes is scary. Prop 13 was voted on because at the time, people were being taxed out of their homes. The home they bought when they were young for say $16,000 on the GI bill (like my father), expecting to live in it after it was paid off in their retirement, would sometimes end up with a home that was assessed for hundreds of thousands of dollars, and they couldn't afford to pay the taxes. People were losing their homes because of this, or being forced to sell them and move somewhere else.

And of course, you would also have the costs associated with upkeep.

But, another upside is that you have control over the place, too. You can paint your walls, get a bunch of dogs, whatever.

I hope you enjoy your new place. I don't know about AZ's property tax laws. Hope you don't have to worry about taxes going crazy down the road.
we saw this happen here as a paid off house meant nothing .

when we all got first homes back in the 1970's in long island they were 30-35k . that was a lot of money back then .

well those homes are paid off today and you retired a 30k mortgage. taxes today are 12-15k on them . the fact you paid off a 30k mortgage has payments that do not even represent a full utility bill today . it is like that all over the tristate area as well as everywhere in this country where the cost of living is high except for those areas which hold the line on senior taxes.

the reality is a paid off home over time may add nothing to the affordability factor because over decades the value of that money becomes less and less .
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Old 03-06-2018, 06:13 AM
 
Location: Tennessee
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Quote:
Originally Posted by mathjak107 View Post
we saw this happen here as a paid off house meant nothing .

when we all got first homes back in the 1970's in long island they were 30-35k . that was a lot of money back then .

well those homes are paid off today and you retired a 30k mortgage. taxes today are 12-15k on them . the fact you paid off a 30k mortgage has payments that do not even represent a full utility bill today . it is like that all over the tristate area as well as everywhere in this country where the cost of living is high except for those areas which hold the line on senior taxes.

the reality is a paid off home over time may add nothing to the affordability factor because over decades the value of that money becomes less and less .
Proportionally, those are probably once ever run-ups. If that $30k house is now $600k, that $600k house would need to go to $12 million over the same time period. Not going to happen.
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Old 03-06-2018, 06:27 AM
 
71,626 posts, read 71,777,271 times
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it still is irrelevant , because the fact the mortgages are paid is not making it any more affordable to stay in these areas . it is not about how much the home appreciates, it is about what happens to expenses to live in that home and whether someone can afford to pay them .
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