Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Winter is historically slow, but I can't help to think that new tax reform and rising rates are going to screw the million plus homes. Properties and mortgages in LA had huge itemized deductions. Because of the $10K itemized limit from 2018 forward, you pretty much lose all the tax benefits of owning a home!
Let me provide a counterpoint.
Since November 2016 (the national election), the value of the stock market has increased substantially. Select your favorite index: S&P 500, the Total Market Index, the Dow Jones Industrial Average, NASDAQ -- passive investors have seen their assets increase in value by 28% to 38%. That's a lot of equity wealth that has been created since the election. Most of that wealth is tied up in public sector pension plans and private sector 401Ks and IRAs, but lots of it is in normal taxable accounts.
Much of that increase in equity wealth is primed to be harvested and reallocated into different asset classes. Some people will harvest that money and put it into real estate, driving up demand. Some first time buyers may see the run up in the stock market as being their best bet to finally get into residential real estate.
Moreover, you are misinformed when you say the mortgage interest deduction loophole is the primary tax benefit of owning a home.
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.
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 own identical houses right next to each other, have the same jobs that pay the same compensation. Under normal circumstances, we each live in the house we own.
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 identical houses right next to each other 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 maybe 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 and the like.
At the end of the day, though, we pay our marginal tax rates on that extra $60,000 in income.
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, boys and girls, is the true economic benefit of owning a home and living in it. Notice the above analysis has nothing to do with mortgage payments.
Quote:
Originally Posted by thenext88
Last year you could buy a million dollar home with a 3% mortgage and write off a $50K deduction thanks to the front loaded interest. Rates are now 4% and still rising. And you get, at best, a $10K deduction. I can't see the market still supporting that million dollar price.
Last year you could sell stock and buy a million dollar house for cash.
This year you can sell less stock and buy a million dollar house for cash.
Since November 2016 (the national election), the value of the stock market has increased substantially. Select your favorite index: S&P 500, the Total Market Index, the Dow Jones Industrial Average, NASDAQ -- passive investors have seen their assets increase in value by 28% to 38%. That's a lot of equity wealth that has been created since the election. Most of that wealth is tied up in public sector pension plans and private sector 401Ks and IRAs, but lots of it is in normal taxable accounts.
Much of that increase in equity wealth is primed to be harvested and reallocated into different asset classes. Some people will harvest that money and put it into real estate, driving up demand. Some first time buyers may see the run up in the stock market as being their best bet to finally get into residential real estate.
Moreover, you are misinformed when you say the mortgage interest deduction loophole is the primary tax benefit of owning a home.
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.
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 own identical houses right next to each other, have the same jobs that pay the same compensation. Under normal circumstances, we each live in the house we own.
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 identical houses right next to each other 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 maybe 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 and the like.
At the end of the day, though, we pay our marginal tax rates on that extra $60,000 in income.
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, boys and girls, is the true economic benefit of owning a home and living in it. Notice the above analysis has nothing to do with mortgage payments.
Last year you could sell stock and buy a million dollar house for cash.
This year you can sell less stock and buy a million dollar house for cash.
That's an interesting perspective and that does make sense. Another big benefit is that if you live in a home for 2 years any profit up to 250k if single and 500k if married is tax free.
Long term no doubt owning a home has been a much better move than renting especially in SoCal.
If you're just going to be somewhere for a short period renting probably makes more sense since there are real estate commissions,closing costs,etc associated with selling a home.
Tend to agree with DKM that the cap on mortgage interest deductions affects a relatively small group.
This is from the OC Register, based on research on 2017 numbers from Attom Data Solutions out of Irvine (sorry, formatting seems to have disappeared in copying).
Orange County: 17.3 percent of homes sold this year so far (4,450) had mortgages greater than $750,000; 9.6 percent of property owners (78,011) pay more than $10,000 a year in property taxes.
Los Angeles County: 15.5 percent of homes sold (9,197) had mortgages greater than $750,000; 9.2 percent of property owners (165,078) paid more than $10,000 a year in property taxes.
Riverside County: 1.7 percent of homes sold (458) had mortgages greater than $750,000; 2.3 percent of property owners (18,094) paid more than $10,000 a year in property taxes.
San Bernardino County: 0.9 percent of homes sold (190) had mortgages greater than $750,000; 1.1 percent of property owners (6,345) paid more than $10,000 a year in property taxes.
In all, 10.8 percent of Southern California home buyers from those four counties face reduced mortgage interest deductions under the GOP tax plan, while 6.7 percent face reduced property tax deductions.
One way to interpret the above data is that people who are taking out mortgages greater than $750K are not "stretching to buy the most house they can possibly afford" but rather they are leveraging their stock portfolio. They would rather have a mortgage greater than $750K while keeping the $750K worth of stock in the stock market.
That, boys and girls, is the true economic benefit of owning a home and living in it. Notice the above analysis has nothing to do with mortgage payments.
This is my new reality. I moved in early 2017 to a rental outside of LA. I rent my previous home to the tune of $40k/year. This $40k is now considered income, though nearly all of it goes to covering my mortgage. Even my tax deductions from my home (mortgage interest, property tax, etc.) now go to reducing this rental income rather than my regular W2 income. I now have to accept the standard deduction, which has greatly affected my tax return for 2017. I stand to be a big winner in 2018 because of the expanded standard deduction even though I'm a home owner in high cost state.
Back to the original question of the market peaking, it seems like demand is still so much higher than supply that any slow down will be minimal.
Since November 2016 (the national election), the value of the stock market has increased substantially. Select your favorite index: S&P 500, the Total Market Index, the Dow Jones Industrial Average, NASDAQ -- passive investors have seen their assets increase in value by 28% to 38%. That's a lot of equity wealth that has been created since the election. Most of that wealth is tied up in public sector pension plans and private sector 401Ks and IRAs, but lots of it is in normal taxable accounts.
Much of that increase in equity wealth is primed to be harvested and reallocated into different asset classes. Some people will harvest that money and put it into real estate, driving up demand. Some first time buyers may see the run up in the stock market as being their best bet to finally get into residential real estate.
Moreover, you are misinformed when you say the mortgage interest deduction loophole is the primary tax benefit of owning a home.
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.
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 own identical houses right next to each other, have the same jobs that pay the same compensation. Under normal circumstances, we each live in the house we own.
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 identical houses right next to each other 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 maybe 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 and the like.
At the end of the day, though, we pay our marginal tax rates on that extra $60,000 in income.
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, boys and girls, is the true economic benefit of owning a home and living in it. Notice the above analysis has nothing to do with mortgage payments.
Last year you could sell stock and buy a million dollar house for cash.
This year you can sell less stock and buy a million dollar house for cash.
Is a pool considered a plus??? Lots of people don't want pools
Yep. The last appraisal I saw gave $20K towards the addition of a pool versus the comps. I think JustMike is an appraiser so he can more officially weigh in though.
Since November 2016 (the national election), the value of the stock market has increased substantially. Select your favorite index: S&P 500, the Total Market Index, the Dow Jones Industrial Average, NASDAQ -- passive investors have seen their assets increase in value by 28% to 38%. That's a lot of equity wealth that has been created since the election. Most of that wealth is tied up in public sector pension plans and private sector 401Ks and IRAs, but lots of it is in normal taxable accounts.
Much of that increase in equity wealth is primed to be harvested and reallocated into different asset classes. Some people will harvest that money and put it into real estate, driving up demand. Some first time buyers may see the run up in the stock market as being their best bet to finally get into residential real estate.
Moreover, you are misinformed when you say the mortgage interest deduction loophole is the primary tax benefit of owning a home.
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.
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 own identical houses right next to each other, have the same jobs that pay the same compensation. Under normal circumstances, we each live in the house we own.
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 identical houses right next to each other 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 maybe 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 and the like.
At the end of the day, though, we pay our marginal tax rates on that extra $60,000 in income.
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, boys and girls, is the true economic benefit of owning a home and living in it. Notice the above analysis has nothing to do with mortgage payments.
Last year you could sell stock and buy a million dollar house for cash.
This year you can sell less stock and buy a million dollar house for cash.
Great argument SportyandMisty! <3
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
