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> The government lets you deduct your mortgage interest from taxes This is effectively not true anymore. > Also, what am I going to do instead, rent? My rent

by zie 4y ago

> The government lets you deduct your mortgage interest from taxes This is effectively not true anymore. > Also, what am I going to do instead, rent? My rent can go up $50 bucks a year where my mortgage payment is locked in. For most people, home ownership is the safest and best way to build a retirement nest egg and a tangible asset to borrow against in times of trouble. I'm going to push back a touch on this, it's not really true. Mortgage rates don't usually change in the US(because we take 30yr fixed mortgages generally). But housing costs do go up for owners: property taxes, and property maintenance. Generally renting vs owning is mostly a wash, sometimes one is cheaper than the other, just depending on the local housing market. Historically property has a about a 1%/yr real rate of return, so housing basically keeps up with inflation, but not much more. I know recent history makes people think this is not true, but it really is. It seems unwise to think this recent history will continue forever. Equities historically get a 4-6%/yr real return, drastically outperforming the historic returns of real estate. But yes, lots of people tend to not save for retirement, making their houses their de-facto retirement savings. The problem is, they have to live somewhere, making their house value somewhat hard to spend in retirement.

dont__panic 4y ago
>> The government lets you deduct your mortgage interest from taxes > > This is effectively not true anymore. Care to explain? Is this because the standard deduction is so high, it's generally not worth itemizing for most people since the Trump tax system adjustment? Genuinely curious; I'm a current renter, hopefully purchasing in the next couple of years. But this is an important part of the buying calculus.
- ghaff 4y ago
  I assume that's the point they're making. With relatively recent tax law changes, it no longer makes sense for a lot of people to itemize--and if you don't itemize, you don't get a break on your mortgage.
- niij 4y ago
  They're correct; at least for the short term. A quick search tells me itemized deduction returns are only ~10% of tax returns right now, down from ~26% before the TCJA. So if you're MFJ you'd need ~$25,000 of home interest and other deductions before you'd even break even itemizing. Not counting the hassle of itemizing vs just claiming the standard deduction. But the higher standard deduction is set to expire in just 3 years (2025)[0], which will cut it in half. That may or may not get extended. So you may want to calculate if you'd be in the ~26% of filers who'd benefit from itemizing if it did expire. [0] https://taxfoundation.org/look-ahead-expiring-tax-provisions/ https://taxfoundation.org/look-ahead-expiring-tax-provisions...
  - dont__panic 4y ago
    Very interesting point about that higher standard deduction expiring in 3 years, conveniently after the next election. It'll be interesting to see how that pans out on a federal level -- lowering the standard deduction is equivalent to doubling the effective tax rate for many lower-income Americans, after all.
- rnk 4y ago
  They are probably referring to the $10k salt limit this is the total deductible state and local tax and interest deduction. In any big city your property taxes are probably 5k+, add state taxes, you don't have any room under the 10k limit to deduct mortgage interest. That deliberate Republican property tax screw you change made a big difference (the old deduction was also a huge tax deduction for huger middle class to wealthy people).
- zie 4y ago
  The other commenters covered the reasons just fine. > But this is an important part of the buying calculus. I would argue it probably shouldn't be. Anyways, like I mentioned, sometimes renting is cheaper, sometimes buying is, I'd recommend buying whenever owning is cheaper. It likely will change while you hold the property, but no sense in over-spending on a property if you don't have to. Buying property tends to take a good while, don't get so fixated on a particular house so much that you bid ridiculous amounts for it. It might take a few years once you start shopping. Try to put 20% down if you can, and try to limit your purchases to a single house for your lifetime. Transaction costs will likely eat you alive if you transact all the time. Illiquid transactions are always such a pain. Good luck on your house hunt!

by zie 4y ago

dont__panic 4y ago

>> The government lets you deduct your mortgage interest from taxes > > This is effectively not true anymore. Care to explain? Is this because the standard deduction is so high, it's generally not worth itemizing for most people since the Trump tax system adjustment? Genuinely curious; I'm a current renter, hopefully purchasing in the next couple of years. But this is an important part of the buying calculus.

ghaff 4y ago
I assume that's the point they're making. With relatively recent tax law changes, it no longer makes sense for a lot of people to itemize--and if you don't itemize, you don't get a break on your mortgage.
niij 4y ago
They're correct; at least for the short term. A quick search tells me itemized deduction returns are only ~10% of tax returns right now, down from ~26% before the TCJA. So if you're MFJ you'd need ~$25,000 of home interest and other deductions before you'd even break even itemizing. Not counting the hassle of itemizing vs just claiming the standard deduction. But the higher standard deduction is set to expire in just 3 years (2025)[0], which will cut it in half. That may or may not get extended. So you may want to calculate if you'd be in the ~26% of filers who'd benefit from itemizing if it did expire. [0] https://taxfoundation.org/look-ahead-expiring-tax-provisions/ https://taxfoundation.org/look-ahead-expiring-tax-provisions...
- dont__panic 4y ago
  Very interesting point about that higher standard deduction expiring in 3 years, conveniently after the next election. It'll be interesting to see how that pans out on a federal level -- lowering the standard deduction is equivalent to doubling the effective tax rate for many lower-income Americans, after all.
rnk 4y ago
They are probably referring to the $10k salt limit this is the total deductible state and local tax and interest deduction. In any big city your property taxes are probably 5k+, add state taxes, you don't have any room under the 10k limit to deduct mortgage interest. That deliberate Republican property tax screw you change made a big difference (the old deduction was also a huge tax deduction for huger middle class to wealthy people).
zie 4y ago
The other commenters covered the reasons just fine. > But this is an important part of the buying calculus. I would argue it probably shouldn't be. Anyways, like I mentioned, sometimes renting is cheaper, sometimes buying is, I'd recommend buying whenever owning is cheaper. It likely will change while you hold the property, but no sense in over-spending on a property if you don't have to. Buying property tends to take a good while, don't get so fixated on a particular house so much that you bid ridiculous amounts for it. It might take a few years once you start shopping. Try to put 20% down if you can, and try to limit your purchases to a single house for your lifetime. Transaction costs will likely eat you alive if you transact all the time. Illiquid transactions are always such a pain. Good luck on your house hunt!