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A few notes: Deductability of interest (and property tax) is a lot smaller than it was before with the new tax code. On a $1M house for a married couple, you m

A few notes: Deductability of interest (and property tax) is a lot smaller than it was before with the new tax code. On a $1M house for a married couple, you might get ~$9k back but (in CA) that's offset by the $12k (EDIT: likely non-deductable due to SALT max) property tax. Anyway, using my own calculator (https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calculator-22d0bf9bbbb5 https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul... with other defaults), the situation you describe only works if the market is offering a price/rent ratio of 14 (years) or less (which is true in much, but not all, of the country). Regardless, there's a lot of added costs to ownership: property taxes, HOA fees, loss of leverage as you pay down mortgage, closing costs, etc.

pfarnsworth 9y ago
Property tax is deductible up to $10k.
- phamilton 9y ago
  eh... property tax AND state income tax. Living in CA with near 10% marginal state income tax above $100k means that if you're buying a $1M home you're probably hitting the 10k without property tax.
- deleted 9y ago
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gnicholas 9y ago
Good point about the property tax deduction becoming much less valuable in high-income tax states like CA. It used to be the case that property tax was basically built-into the cost of renting. That is, your landlord pays property tax, gets to deduct some, and then passes the pro rata share onto each of the renters. This implicit property tax created an equivalence with the property tax that you would pay if you bought a home. But we now find ourselves in a strange situation where businesses (i.e., landlords) can deduct property taxes but individuals cannot. So it shifts the balance in favor of renting because one major cost (at least in SF/LA/etc) is no longer deductible to most individual homeowners. I found it odd that as the tax bill was winding its way through Congress, no one asked why businesses should be allowed to deduct SALT, but individuals should not be able to. I can't think of a good reason for this, and I am a (former) corporate tax lawyer.
- cperciva 9y ago
  Businesses get to deduct property taxes because they're earning income from the property. Individual owner-occupiers of property aren't earning any taxable income from the property. Yes, individuals should get to deduct their property taxes... but only after they start paying income tax on imputed dividends.

pfarnsworth 9y ago

Property tax is deductible up to $10k.

phamilton 9y ago
eh... property tax AND state income tax. Living in CA with near 10% marginal state income tax above $100k means that if you're buying a $1M home you're probably hitting the 10k without property tax.
deleted 9y ago
[deleted]

gnicholas 9y ago

Good point about the property tax deduction becoming much less valuable in high-income tax states like CA. It used to be the case that property tax was basically built-into the cost of renting. That is, your landlord pays property tax, gets to deduct some, and then passes the pro rata share onto each of the renters. This implicit property tax created an equivalence with the property tax that you would pay if you bought a home. But we now find ourselves in a strange situation where businesses (i.e., landlords) can deduct property taxes but individuals cannot. So it shifts the balance in favor of renting because one major cost (at least in SF/LA/etc) is no longer deductible to most individual homeowners. I found it odd that as the tax bill was winding its way through Congress, no one asked why businesses should be allowed to deduct SALT, but individuals should not be able to. I can't think of a good reason for this, and I am a (former) corporate tax lawyer.

cperciva 9y ago
Businesses get to deduct property taxes because they're earning income from the property. Individual owner-occupiers of property aren't earning any taxable income from the property. Yes, individuals should get to deduct their property taxes... but only after they start paying income tax on imputed dividends.