Renting VS Buying Homes
Chad
I know this topic has been discussed for a long time and at many
places. But when I came to this question recently, I still keep
thinking, "is it worth to buy a house now? even the market right now
seems nice to buyers." Because every person's financial situation is
different. In order to find out the exact answer, I made this web page
to do some calculation.
The basic idea is to let both renting and buying sides start with the
same amount of money, and spend the same amount of money every month.
At the end, see which side is richer.
There are many factors I did not include in the calculation such as
inflation on HOA, insurance which will make it harder and harder to
calculate.
Here is the link: http://rentingvsbuying.chadstown.com/
Do you guys think if the calculation makes sense?
Thanks.
clams casino
Calculations are fine, but IMO, the two significant factors of renting
vs. buying (from a financial consideration) is whether you would buy vs.
rent the same home and one's tax bracket. It's a whole different
consideration if one needs a 3-5 bedroom home or just likes / strongly
prefers home vs. apartment living.
In most cases, apartments are smaller and tend to be more conveniently
located to one's place of employment. It's tough to find a decent 1200
sq2 home in a decent location. Many single and two person households
are only home at night & weekends. Is a big home really desirable /
worthwhile for them? There is also usually a greater cost (time and
dollars) to commute from housing developments vs. apartments. Then, of
course there is the added cost of utilities, furnishings, taxes,
interest, etc for a home larger than one really needs / desires.
Renting a smaller apartment will often times beat out home ownership -
provided the difference in cost is invested / not spent away.
The second biggest factor is probably tax bracket. Home ownership
makes much sense for 30+% tax brackets where one typically enjoys long
form deductions of interest & taxes, but it's much less clear for
someone in a 15% bracket and/or one who does not (or marginally) qualify
for such deductions.
A third factor is how long one intends to live at a particular
location. It can take several years of appreciation to offset selling
costs.
Rod Speed
> I know this topic has been discussed for a long time and at
> many places. But when I came to this question recently, I
> still keep thinking, "is it worth to buy a house now? even the
> market right now seems nice to buyers." Because every person's
> financial situation is different. In order to find out the exact answer,
There never can be an exact answer, particularly when
the choice is marginal and the future cannot be predicted.
> I made this web page to do some calculation.
Trouble is that it can never include the most important numbers, what the market
will do property value wise in the particular market you will be buying in.
It cant even really get much of a handle on what interest rates will do in the future either.
> The basic idea is to let both renting and buying sides start
> with the same amount of money, and spend the same amount
> of money every month. At the end, see which side is richer.
That is a totally inappropriate way to calculate it.
One of the real advantages of buy over renting is that its a form
of forced saving. It makes it harder to piss the excess of income
over outgoings against the wall on short term spending like
holidays and expensive meals out and entertainment etc etc etc.
> There are many factors I did not include in the calculation such as inflation
> on HOA, insurance which will make it harder and harder to calculate.
So your calculations are useless and it makes more sense to make
general statements like that if you have a decent income and there
isnt any evidence that a major sag is about to happen in the market
you are considering buying a house in, and you dont plan to move
any year soon, you are generally better off buying rather than renting
while loan interest rates are as low as they currently are, but that its
important to only buy what leaves you some slack in your payments,
so that if you are on a variable rate loan, you can still afford the
payments when interest rates inevitably go up and you wont have
to sellup because you cant afford the payments anymore.
> Here is the link: http://rentingvsbuying.chadstown.com/
> Do you guys think if the calculation makes sense?
No it doesnt, for the reasons I stated above.
Chad
wrote:
>
> - Show quoted text -
Yeah, I agree. Financial wise, there is no problem for me to buy a
house, and also, I think I will stick to current work place for at
least couple of more years, maybe even longer. I always think it might
be a better idea to buy a house when I really need it. But since
recently, many people think the house market is turning good to
buyers, and seems like this is a good timing. This makes me to think
this question hard. For the first factor, renting or buy the same
value of apartment or house, I really did not think about this one. I
only thought about the affordability, or how much return it can get.
Chad
> Chad <chadfs...@yahoo.com> wrote
>
> > I know this topic has been discussed for a long time and at
> > many places. But when I came to this question recently, I
> > still keep thinking, "is it worth to buy a house now? even the
> > market right now seems nice to buyers." Because every person's
> > financial situation is different. In order to find out the exact answer,
>
> There never can be an exact answer, particularly when
> the choice is marginal and the future cannot be predicted.
Yeah, I guess this is the problem that I am having right now. There is
no such sure answer to say you should buy or you should rent, which is
why I am trying to do the calculate. It is true that the marginal and
future cannot be predicted, you never know what could happen tomorrow,
but, let's just assume the future will go smoothly, no disaster:).
> > I made this web page to do some calculation.
>
> Trouble is that it can never include the most important numbers, what the market
> will do property value wise in the particular market you will be buying in.
> It cant even really get much of a handle on what interest rates will do in the future either.
>
> > The basic idea is to let both renting and buying sides start
> > with the same amount of money, and spend the same amount
> > of money every month. At the end, see which side is richer.
>
> That is a totally inappropriate way to calculate it.
Why? I don't really mean "richer", but you got to have a way to see
which way is better.
> One of the real advantages of buy over renting is that its a form
> of forced saving. It makes it harder to piss the excess of income
> over outgoings against the wall on short term spending like
> holidays and expensive meals out and entertainment etc etc etc.
"A form of force saving", that is a very good point. I've never
thought about it.
> > There are many factors I did not include in the calculation such as inflation
> > on HOA, insurance which will make it harder and harder to calculate.
>
> So your calculations are useless and it makes more sense to make
> general statements like that if you have a decent income and there
> isnt any evidence that a major sag is about to happen in the market
> you are considering buying a house in, and you dont plan to move
> any year soon, you are generally better off buying rather than renting
> while loan interest rates are as low as they currently are, but that its
> important to only buy what leaves you some slack in your payments,
> so that if you are on a variable rate loan, you can still afford the
> payments when interest rates inevitably go up and you wont have
> to sellup because you cant afford the payments anymore.
>
> > Here is the link:http://rentingvsbuying.chadstown.com/
> > Do you guys think if the calculation makes sense?
>
> No it doesnt, for the reasons I stated above.
I know the "general statement" could help me to make desicion much
much easier. But after I read an article from msn money,
http://articles.moneycentral.msn.com/banking/homebuyingguide/whyrenttogetricher.aspx
I get more confused about this topic. Rich people buy big house, which
is obvious, but here, it says rich people should rent...hoho..
Rod Speed
>>> I know this topic has been discussed for a long time and at
>>> many places. But when I came to this question recently, I
>>> still keep thinking, "is it worth to buy a house now? even the
>>> market right now seems nice to buyers." Because every person's
>>> financial situation is different. In order to find out the exact answer,
>> There never can be an exact answer, particularly when
>> the choice is marginal and the future cannot be predicted.
> Yeah, I guess this is the problem that I am having right now. There is
> no such sure answer to say you should buy or you should rent, which
> is why I am trying to do the calculate. It is true that the marginal and
> future cannot be predicted, you never know what could happen tomorrow,
> but, let's just assume the future will go smoothly, no disaster:).
I didnt mean it in the disaster sense. Even if you go for a fixed interest
rate loan when buying the house, and dont care about what happens
to the value of the house in the short term, because you can be confident
of a decent increase in value of most houses over the long haul, it isnt
possible to calculate what will happen to rents over that time, so it isnt
possible to decide how much better off you will be buying over renting.
All you can really do is come to the general conclusion
that you are generally better off buying than renting, just
because with the current low interest rates, you generally
pay less in interest than you will be losing in rent.
Its even more difficult to decide whether its better to rent and save
the same total per month in good quality investments as you would
be paying on mortgage repayments, basically because cant really
quantify how the rents will change over time and what returns you
will get on the investments and cant compare that with the increase
in the value of the house because thats not predictable either.
>>> I made this web page to do some calculation.
>> Trouble is that it can never include the most important numbers, what the market
>> will do property value wise in the particular market you will be buying in.
>> It cant even really get much of a handle on what interest rates will do in the future either.
>>> The basic idea is to let both renting and buying sides start
>>> with the same amount of money, and spend the same amount
>>> of money every month. At the end, see which side is richer.
>> That is a totally inappropriate way to calculate it.
> Why?
Essentially because you would normally be paying more
for the loan than you will be paying in rent most of the time.
And its impossible to put a value on the fact that you would
normally buy better than you would rent, and when you buy
you arent at the whim of the landlord on changes to the rent,
and the landlord deciding to sell the property or use it himself etc.
> I don't really mean "richer",
Sure, I didnt comment on that bit.
> but you got to have a way to see which way is better.
The trouble is that you can never calculate what rents will do over time,
even if you are comparing the rents with a fixed interest rate loan where
you do know that the loan payments wont change over time. But you
cant calculate what property taxes will do over time either.
>> One of the real advantages of buy over renting is that its a form
>> of forced saving. It makes it harder to piss the excess of income
>> over outgoings against the wall on short term spending like
>> holidays and expensive meals out and entertainment etc etc etc.
> "A form of force saving", that is a very good point. I've never thought about it.
Yeah, and its by far the biggest saving that most people have too.
>>> There are many factors I did not include in the calculation such as inflation
>>> on HOA, insurance which will make it harder and harder to calculate.
>> So your calculations are useless and it makes more sense to make
>> general statements like that if you have a decent income and there
>> isnt any evidence that a major sag is about to happen in the market
>> you are considering buying a house in, and you dont plan to move
>> any year soon, you are generally better off buying rather than renting
>> while loan interest rates are as low as they currently are, but that its
>> important to only buy what leaves you some slack in your payments,
>> so that if you are on a variable rate loan, you can still afford the
>> payments when interest rates inevitably go up and you wont have
>> to sellup because you cant afford the payments anymore.
>>> Here is the link:http://rentingvsbuying.chadstown.com/
>>> Do you guys think if the calculation makes sense?
>> No it doesnt, for the reasons I stated above.
> I know the "general statement" could help me to make desicion
> much much easier. But after I read an article from msn money,
> http://articles.moneycentral.msn.com/banking/homebuyingguide/whyrenttogetricher.aspx
> I get more confused about this topic.
Yeah, its a lot more complicated than it first looks.
Particularly the situation where you choose to save the difference between
the rent and the loan repayments in investments that produce a decent return.
It isnt that hard to do better than you can in most housing markets if you
know what you are doing investment wise, but the risk is rather higher too.
> Rich people buy big house, which is obvious, but here, it says rich people should rent...hoho..
Yes, you can certainly make a case for renting if you have a very good reliable
income. The main advantage with buying, that its a form of forced saving, doesnt
apply to people like that who dont need a form of forced saving and who may
prefer to spend some of their very good income on lifestyle stuff like holidays etc.
In spades if they move around much, renting is a lot more convenient in that situation.
Lou
"Chad" <chad...@yahoo.com> wrote in message
news:f0fb1708-a9f5-4b12...@n20g2000hsh.googlegroups.com...
> hi,
>
> I know this topic has been discussed for a long time and at many
> places. But when I came to this question recently, I still keep
> thinking, "is it worth to buy a house now? even the market right now
> seems nice to buyers." Because every person's financial situation is
> different. In order to find out the exact answer, I made this web page
> to do some calculation.
> The basic idea is to let both renting and buying sides start with the
> same amount of money, and spend the same amount of money every month.
> At the end, see which side is richer.
You're assuming that under both the buying and renting scenarios, you'll be
spending the same amount of money each month. If that is indeed the case,
the person who buys the house generally has two things going for him that
the person renting a dwelling does not:
1. A yearly tax deduction
2. A lump sum payment when the house is sold
If you get a fixed rate mortgage, you can add another item to the list - a
major part of your housing expense will never rise, but can go down (you can
refinance if rates drop).
The tax deduction will most likely be bigger than the standard deduction -
maybe not hugely bigger, but every dollar helps. When/if you sell the
house, you get the proceeds, and usually (but not always) that amount is
larger than the outstanding balance on the mortgage - in other words, you
get some of your housing spending back.
But nothing is certain, and there is no way to realistically assess the
risks 30 years out - your neighborhood could become a slum and the place not
worth what you paid for it, your neighborhood could become fashionable and
appreciate far above the general run of prices.
Just off the top of my head, $200/year for insurance and repairs is a wild
underestimate. 5% interest rate on a mortgage is not real realistic either.
In New Jersey, $1,500 a year for property taxes is maybe 25% of the average
residential property tax bill. $2,000 for closing costs also seems very
low. Around here, $800/month rent wouldn't get you much. Some rentals
include utilities, some do not, but a homeowner never has someone else
paying the utility bills, and I don't see an allowance for those under
either scenario. I don't know where you're getting the 30% tax rate on the
sale of a house, but the rollover rule and the one-time lifetime exemption
make that seem very high. A 3% annual house appreciation also seems low
(the average ove the last 20 years or so is on the order of 4%-5%). The 8%
investment income rate is a low as well (the S&P over the last 20 years or
so averages 9%-10%). The investment tax is also probably overstated - you
don't pay taxes on stock gains unless you sell the stock and if you wait
until you retire to sell, you'll possibly be in a lower bracket. A 2%
annual increase in rent also seems low - it's a long time since I was a
renter, but whoever you're renting from is subject to all the price
pressures for taxes, utilities, and cost of paid help that a homeowner
faces, and they want to make a profit. If the Fed holds inflation down to
2% annually over the next 30 years, I'll be surprised. I don't know what
the current requirements for a down payment on a house are, but I bought my
first house with 5% down, so I think that your $40,000 initial investment
fund under the rental scenario compared to the $0 initial fund under the buy
scenario overstates the the case.
Buying a house is not merely, purely, or even mostly about money however
(assuming you have the money to make it possible in the first place). It's
a choice about how you want to live, and I don't mean just your physical
surroundings. I don't know if it's still true, but for instance when I got
out of school, if you were aiming at becoming a partner in a large
accounting firm, you wouldn't have a shot if you didn't own a house.
Historically, most people who buy die with a bigger pile of money than those
who rent, but there are no guarantees.
val189
I don't know your age, income, tax bracket, other expenses etc. but I
can tell you that I regret the years I rented and never regretted
ownership, which turned out to be profitable in the long run.
clams casino
>"Chad" <c
>
>
>Just off the top of my head, $200/year for insurance and repairs is a wild
>underestimate. 5% interest rate on a mortgage is not real realistic either.
>In New Jersey, $1,500 a year for property taxes is maybe 25% of the average
>residential property tax bill.
>
The numbers will obviously vary significantly around the country, but...
I'm paying almost .001% of my current home value in insurance, my credit
union is offering fixed rate loans in the 5.5 - 6% range and my property
tax is about 1.3% of its current value.
If one is looking at a 250k home, that could be about $250/yr insurance,
$3000/yr in property taxes and a 30yr loan at 5.5% would be $496
principle / $639 monthly interest at the half way mark (180th payment),
assuming a 20% down payment ($200k loan). That would be about $909/mo
in insurance, taxes & interest (plus utilities & maintenance which could
easily be another 1.0% / yr (perhaps $200/mo when it comes time to
replace the roof, paint, replace a few hot water heaters, appliances,
carpeting etc over the life of a home - none of which are a concern when
renting).
> $2,000 for closing costs also seems very
>low. Around here, $800/month rent wouldn't get you much. Some rentals
>include utilities, some do not, but a homeowner never has someone else
>paying the utility bills, and I don't see an allowance for those under
>either scenario. I don't know where you're getting the 30% tax rate on the
>sale of a house, but the rollover rule and the one-time lifetime exemption
>make that seem very high.
>
There should be essentially no tax on the gain of selling most homes
($500k) which is the primary financial reason to own a home.
> A 3% annual house appreciation also seems low
>(the average ove the last 20 years or so is on the order of 4%-5%).
>
I've also read about 5% / yr appreciation has been more typical over the
past 25 or so years and $1100 rent probably doesn't get much over 1000
ft2, but it should include water/ sewer and sometimes heat..
> The 8%
>investment income rate is a low as well (the S&P over the last 20 years or
>so averages 9%-10%).
>
9-10% over the very long haul, but certainly NOT near that over the past
10 years.
Gordon
4d3fce...@n20g2000hsh.googlegroups.com:
You are ignoring the long term advantages of home ownership.
1) Apprieciation. The value of your home will increase over time.
Current market dynamics excepted, there will be the occasional
downturn. But in the long run the trend will be up.
2) Taxes. rent is not tax deductable. Mortgage intrest is.
3) Equity building. As you pay down the mortgage and the value
of your home increases, you get build up equity in your home.
This is money that you get when you eventually sell (or take out
a home equity loan). This equity becomes the down payment on the
next house, letting you buy into bigger and larger properties
without creating a large monthly payment.
4) Payment stability. (unless you buy an ARM with a teaser rate).
your monthly payment will not rise from year to year, while rents
will.
Chloe
news:-vidnRw0HM-IMMna...@comcast.com...
><snip>
> The tax deduction will most likely be bigger than the standard deduction -
> maybe not hugely bigger, but every dollar helps. When/if you sell the
> house, you get the proceeds, and usually (but not always) that amount is
> larger than the outstanding balance on the mortgage - in other words, you
> get some of your housing spending back.
An often overlooked angle is that being able to take the mortgage deduction
might mean you can take other deductions as well--ones that wouldn't exceed
the standard deduction without it.
clams casino
>Chad <chad...@yahoo.com> wrote in news:f0fb1708-a9f5-4b12-a641-
>4d3fce...@n20g2000hsh.googlegroups.com:
>
>
>
>>hi,
>>
>>I know this topic has been discussed for a long time and at many
>>places. But when I came to this question recently, I still keep
>>thinking, "is it worth to buy a house now? even the market right now
>>seems nice to buyers." Because every person's financial situation is
>>different. In order to find out the exact answer, I made this web page
>>to do some calculation.
>>The basic idea is to let both renting and buying sides start with the
>>same amount of money, and spend the same amount of money every month.
>>At the end, see which side is richer.
>>There are many factors I did not include in the calculation such as
>>inflation on HOA, insurance which will make it harder and harder to
>>calculate.
>>Here is the link: http://rentingvsbuying.chadstown.com/
>>Do you guys think if the calculation makes sense?
>>Thanks.
>>
>>
>
>You are ignoring the long term advantages of home ownership.
>
>1) Apprieciation. The value of your home will increase over time.
>Current market dynamics excepted, there will be the occasional
>downturn. But in the long run the trend will be up.
>
>
As others have shown, homes appreciate about 4-5% over the long haul,
but the same dollars have historically appreciated 9-10% with stocks.
>2) Taxes. rent is not tax deductable. Mortgage intrest is.
>
>
Only useful when it exceeds the standard deduction. Fewer and fewer
are qualifying for the long form.
>3) Equity building. As you pay down the mortgage and the value
>of your home increases, you get build up equity in your home.
>This is money that you get when you eventually sell (or take out
>a home equity loan). This equity becomes the down payment on the
>next house, letting you buy into bigger and larger properties
>without creating a large monthly payment.
>
>
Can be saved elsewhere with higher returns.
>4) Payment stability. (unless you buy an ARM with a teaser rate).
>your monthly payment will not rise from year to year, while rents
>will.
>
>
Finally an advantage, but you also need to factor in maintenance for a
home vs. care free living when one rents..
Lou
"clams casino" <PeterG...@drunkin-clam.com> wrote in message
news:AZb5j.2098$su4...@newsfe14.lga...
>
> >2) Taxes. rent is not tax deductable. Mortgage intrest is.
> >
> >
>
> Only useful when it exceeds the standard deduction. Fewer and fewer
> are qualifying for the long form.
EVERYBODY qualifies for the long form. Using the short form is priviledge
extended to some people (I know, probably everyone you've ever known) but
legally, not everyone can use it, while anyone can choose to file the long
form.
Chad
> "Chad" <chadfs...@yahoo.com> wrote in message
>
> - Show quoted text -
Oh, if you sell your home, you don't need to pay tax on net gain? I
also heard people saying they don't need to pay tax if the house was
their primary residence for at least 2 years. Otherwise, they have to
pay tax. Is this true?
Chad
returned will be put into the investment account yearly.
>2. A lump sum payment when the house is sold
What is the lump sum payment when you sell your house?
clams casino
>
>
>Oh, if you sell your home, you don't need to pay tax on net gain? I
>also heard people saying they don't need to pay tax if the house was
>their primary residence for at least 2 years. Otherwise, they have to
>pay tax. Is this true?
>
>
There are some limitations to the tax free gain (look it up), but most
will qualify for the tax free gain.
I'm guessing the 2-year residency was placed into the law so as not to
reward flipping.
clams casino
OK - everyone "qualifies" for the long form, but fewer and fewer have
adequate deductions to utilize it vs. a standard deduction even
including interest and property taxes.
For those who do have adequate deductions, it's also important to
realize that the advantage is really only an advantage to the amount
which surpasses the standard deduction.
Chloe
>fewer are qualifying for the long form.
I'm assuming you don't actually mean what you say about qualifying for the
long form, since anyone who chooses to can file using it. I think your
implication is that fewer and fewer people qualify for anything exceeding
the standard deduction. I don't usually ask people for cites to back up this
type of information, but I'm kind of at a loss where to search for these
statistics. Would you mind telling me your source--and over what time frame
is involved in your statistics?
Lou
It's your equity - the amount of money left over when you've paid the
broker, the closing costs, and the mortgage.
For instance, some 30-odd years ago I bought my first house. It cost the
then princely sum of $55,000. I lived in it for 10 years, at which time I
sold it. I had to pay off the outstanding balance on the mortgage, the
closing costs, etc. When all was said and done, there was $60,000 left over
that went to me. In effect, I got back the money I spent on payments over
the 10 years I lived there. If you rent a place for 10 years and decide to
move, you walk away. It's easy and quick, but nobody hands you a pile of
money as you walk out the door for the last time.
Lou
> OK - everyone "qualifies" for the long form, but fewer and fewer have
> adequate deductions to utilize it vs. a standard deduction even
> including interest and property taxes.
Maybe yes, maybe no - since my property taxes exceed the standard deduction,
that seems dubious to me, but then, NJ has higher than average property
taxes. In any case, do you have any figures to back up your assertion?
> For those who do have adequate deductions, it's also important to
> realize that the advantage is really only an advantage to the amount
> which surpasses the standard deduction.
Well, they should realize that, yes, but I probably wouldn't characterize it
as "important" - you get the deduction, and your tax bill is lower than it
would be if you rented. Since the initial premise was that your monthly
outlay was the same, own or rent, you come out ahead if you own.
clams casino
>"clams casino" <PeterG...@drunkin-clam.com> wrote in message
>news:7Se5j.66$3b7...@newsfe23.lga...
>
>
>>OK - everyone "qualifies" for the long form, but fewer and fewer have
>>adequate deductions to utilize it vs. a standard deduction even
>>including interest and property taxes.
>>
>>
>
>Maybe yes, maybe no - since my property taxes exceed the standard deduction,
>that seems dubious to me, but then, NJ has higher than average property
>taxes.
>
Considering 2007 federal standard deduction is to be $10,700 for a
married couple, that's quite a bit of property tax. Furthermore, with
that much property tax, you are likely paying the AMT which greatly
diminishes such tax advantages.
My sons are renting quite nice apartments for not much more than your
property taxes (albeit not NJ).
Perhaps you are single ($5350 std deduction) ? That could greatly
change the equation, although most single persons would likely be better
off renting an apartment vs. owning a home.
> In any case, do you have any figures to back up your assertion?
>
>
I don't have a quick reference, but less than half file for itemized
deductions which is heavily skewed towards >$50k incomes (progressively
more as the income increases).
>>For those who do have adequate deductions, it's also important to
>>realize that the advantage is really only an advantage to the amount
>>which surpasses the standard deduction.
>>
>>
>
>Well, they should realize that, yes, but I probably wouldn't characterize it
>as "important" - you get the deduction, and your tax bill is lower than it
>would be if you rented.
>
Depends significantly on the circumstances.
>Since the initial premise was that your monthly
>outlay was the same, own or rent, you come out ahead if you own.
>
>
Fully agree it generally makes little sense (with a few exceptions) to
rent for the same cost as owning. The advantage of renting is that you
can usually pay less for similar quality (albeit generally a smaller
dwelling) and bank the difference. Then again, a lot comes down what
is the real cost of owning (it's not simply mortgage, closing costs,
future selling costs, property taxes & insurance less deductions).
I suspect many new home owners have little idea what it really costs to
maintain a home.
clams casino
I've read that many times, but I'm not quickly finding a reference.
I did, however, find the following:
"The difference between the short tax form and long tax form is
simple.
If you use the short form, the government gets your money.
If you use the long form, the accountant gets your money."
Lou
.
>
> > In any case, do you have any figures to back up your assertion?
> >
> >
>
> I don't have a quick reference, but less than half file for itemized
> deductions which is heavily skewed towards >$50k incomes (progressively
> more as the income increases).
Whatever the overall percentages for short form and long form filers, that
doesn't really back up your assertion.
My feeling is that, if you buy a house, and are in the early years of your
mortgage (like the first 20 years or so of a 30 year mortgage), you'll find
it advantageous to itemize. If you own your house and the mortgage is
(nearly) paid off, or you had a large down payment, it might not be worth
the trouble, provided you qualify for using the short form.
I freely admit that it's just a feeling, based on personal experience and
the experience of friends and family - I don't have any "official" figures
to back that up.
Lou
> I did, however, find the following:
>
>
> "The difference between the short tax form and long tax form is
> simple.
>
> If you use the short form, the government gets your money.
>
> If you use the long form, the accountant gets your money."
Ha Ha. Better the accountant. But for most folks, that's an exaggeration -
it's not all that difficult to fill in a few lines on Schedule A.
clams casino
It's a bit dated and obviously varies significantly by state, but
according to http://www.smbiz.com/sbspec131.html - only about a third
(43,949k / 130,423k) of 2003 returns had itemized taxes (doesn't
include many home owners that don't even file returns - think many
seniors - that would probably lower that level).
Chloe
Yeah, I've never paid a tax preparer a red cent in 30 years of preparing my
own returns. And I've dealt with a lot of schedules and tax questions that
are way more complicated or difficult than Schedule A. It's a no-brainer, or
perhaps that's the description that should be applied to people who'd rather
pay more in taxes than file it.
Chloe
Well, there's a little bit of progress. Now (a) can you relate those numbers
to numbers of people holding mortgages on personal residences and (b) then
give us something to compare those 2003 figures with, to back up the "fewer
and fewer" contention? Or, if you just made it up, maybe tell us so?
clams casino
Since I do not file every magazine article I've ever read, I am
currently unable to provide a reference. I've wasted about 15 minutes
trying to search google, but could never come up with a proper set of
search conditions to get anything close other than the above reference.
Do you have any references to support the contrary? That the number
of filers using the long form for deductions are constant or increasing?
Lou
> Since I do not file every magazine article I've ever read, I am
> currently unable to provide a reference. I've wasted about 15 minutes
> trying to search google, but could never come up with a proper set of
> search conditions to get anything close other than the above reference.
>
> Do you have any references to support the contrary? That the number
> of filers using the long form for deductions are constant or increasing?
Since it's you who made the assertion, it should be you who has to back it
up. However, according to http://www.irs.gov/pub/irs-soi/05in01fg.xls we
can see the following:
For 2005, 134,462,537 individual tax returns were filed, an increase of 1.6%
over 2004
Of these returns, 81,144,182 used form 1040 - an increase of 1.1%
31,607,574 used form 1040A - an increase of 2.4%
21,710,782 used form 1040EZ - an increase of 2.3%
74,813,073 filed electronically, an increase of 7.7%
According to http://www.irs.gov/pub/irs-soi/03indtr.pdf the number of
returns taking the standard deduction in 2003 rose by 2.4% to 64.9% of all
returns filed - HOWEVER, the increase is attributed to a change in the law
making the standard deduction for married taxpayers filing jointly to twice
that of single taxpayers (previously, it had been less).
In 2002, the number of returns taking the standard deduction was 63.5% of
all returns filed, a decrease of 1.9% from the previous year, according to
http://www.irs.gov/pub/irs-soi/02indtr.pdf
I think I've given you enough hints to enable you to follow up the numbers
for yourself, and either show your assertion to be accurate or acknowledge
it to be in error.
clams casino
OK - Can't argue with the data provided. I stand corrected. All I
can guess is that either there has been a reverse trend since GW took
over or the article I'm recalling was referring to a specific sub group.
Thanks for the references. I sure was not able to find anything in my
searches except for one site that stated charity donations have been
dropping in recent years due to reduced long form itemizing, but that
article did not did not provide any specifics.
Vic Smith
wrote:
>
>"clams casino" <PeterG...@drunkin-clam.com> wrote in message
>news:gsk5j.5502$pq....@newsfe24.lga...
>> Since I do not file every magazine article I've ever read, I am
>> currently unable to provide a reference. I've wasted about 15 minutes
>> trying to search google, but could never come up with a proper set of
>> search conditions to get anything close other than the above reference.
>>
>> Do you have any references to support the contrary? That the number
>> of filers using the long form for deductions are constant or increasing?
>
>Since it's you who made the assertion, it should be you who has to back it
>up. However, according to http://www.irs.gov/pub/irs-soi/05in01fg.xls we
>can see the following:
>
>For 2005, 134,462,537 individual tax returns were filed, an increase of 1.6%
>over 2004
>Of these returns, 81,144,182 used form 1040 - an increase of 1.1%
>31,607,574 used form 1040A - an increase of 2.4%
>21,710,782 used form 1040EZ - an increase of 2.3%
>74,813,073 filed electronically, an increase of 7.7%
>
>According to http://www.irs.gov/pub/irs-soi/03indtr.pdf the number of
>returns taking the standard deduction in 2003 rose by 2.4% to 64.9% of all
>returns filed - HOWEVER, the increase is attributed to a change in the law
>making the standard deduction for married taxpayers filing jointly to twice
>that of single taxpayers (previously, it had been less).
>
No HOWEVER about it; an increase is an increase.
>In 2002, the number of returns taking the standard deduction was 63.5% of
>all returns filed, a decrease of 1.9% from the previous year, according to
>http://www.irs.gov/pub/irs-soi/02indtr.pdf
>
>I think I've given you enough hints to enable you to follow up the numbers
>for yourself, and either show your assertion to be accurate or acknowledge
>it to be in error.
>
You've shown clams to be correct for the latest figures you have
found, which is a 2.4% increase in those taking the standard deduction
from 2002 to 2003. Assuming that percentage increase represents
"fewer and fewer" filers itemizing, of course.
But to reinforce that, here are the figures for 2002-2004, taken from
the tables (Individual Income Tax Returns with Itemized Deductions and
Individual Income Tax, All Returns) at
http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133414,00.html
Year Itemized Total PCT
2004 43335237 132226042 0.327736022
2003 43949531 130423626 0.336975227
2002 45647551 130076443 0.350928654
This also backs up clams. Your 2005 figures serve no point in this,
as they don't shed light on itemization, which requires Schedule A.
I file form 1040 and haven't itemized for a few years.
The increased standard deduction has made it unnecessary.
There are no doubt other economic reasons for "fewer and fewer"
(as a pct of total) people itemizing, but I won't speculate on what
they are.
Unless you have more recent (2005-2006) itemization statistics, clams
appears to be correct.
--Vic
Vic Smith
<PeterG...@drunkin-clam.com> wrote:
>>
>OK - Can't argue with the data provided. I stand corrected. All I
>can guess is that either there has been a reverse trend since GW took
>over or the article I'm recalling was referring to a specific sub group.
>
>Thanks for the references. I sure was not able to find anything in my
>searches except for one site that stated charity donations have been
>dropping in recent years due to reduced long form itemizing, but that
>article did not did not provide any specifics.
You give up too easy.
--Vic
Chloe
Heavens, no. Never suggested I did. We're talking about *your* contention on
this topic, not mine. Don't try to divert, you'll just make yourself look
silly.
clams casino
spent too much time on it already - time to move on.
timeOday
> It's a bit dated and obviously varies significantly by state, but
> according to http://www.smbiz.com/sbspec131.html - only about a third
> (43,949k / 130,423k) of 2003 returns had itemized taxes (doesn't
> include many home owners that don't even file returns - think many
> seniors - that would probably lower that level).
I really do not see the point of debating statistics here... you can
determine for your own finances whether it will benefit you.
clams casino
>On Tue, 04 Dec 2007 07:45:22 -0500, clams casino
><PeterG...@drunkin-clam.com> wrote:
>
>
>
>>As others have shown, homes appreciate about 4-5% over the long haul,
>>but the same dollars have historically appreciated 9-10% with stocks.
>>
>>
>>
>>
>
>assuming your claim to be correct, while your money could earn greater
>returns elsewhere, a person usually needs a place to live, so rather
>than paying rent, why wouldn't it be better to acquire an asset that
>offers a return on investment? when paying rent your money is gone and
>there is no ROI
>__________________________________________
>
>
Depends. Several years ago, I rented a quite nice two-BR apartment
for a year while I relocated. Simple CD interest from my equity nearly
paid for the apartment where I did pay taxes on that interest, but paid
no (direct) property taxes, mortgage, water or sewer for that year. I
also had free access to their gym, swimming pool & tennis courts with no
maintenance costs and a reduced insurance cost. An added benefit was
no mowing of the yard plus not only was the snow removed quickly from
the parking lot, but the help brushed the snow off the cars - well
before sun up on the day of the storms.
Banking the property taxes while paying no interest and enjoying a full
standard deduction was sweet - more than a typical home appreciation
Bottom line is that is would be foolish to pay the same for rent as one
would pay for home ownership. Trick is to invest the difference, not
simply spend it. Not everyone needs / desires a 3-5 BR home when an
apartment can be adequate.
James
wrote:
The other factor is how long you plan to stay in one place.
Most people I know who relocate for work rent until they know the city
better. If you buy then decide to move within a couple of years, the
costs of buying (RE commissions, lawyers fees etc) can add up.
The same can be said if you are single and mobile.
James
Chloe
>> for a year while I relocated. Simple CD interest from my equity nearly
>> paid for the apartment where I did pay taxes on that interest, but paid
>> no (direct) property taxes, mortgage, water or sewer for that year. I
>> also had free access to their gym, swimming pool & tennis courts with no
>> maintenance costs and a reduced insurance cost. An added benefit was
>> no mowing of the yard plus not only was the snow removed quickly from
>> the parking lot, but the help brushed the snow off the cars - well
>> before sun up on the day of the storms.
>>
>> Banking the property taxes while paying no interest and enjoying a full
>> standard deduction was sweet - more than a typical home appreciation
>>
>> Bottom line is that is would be foolish to pay the same for rent as one
>> would pay for home ownership. Trick is to invest the difference, not
>> simply spend it. Not everyone needs / desires a 3-5 BR home when an
>> apartment can be adequate.- Hide quoted text -
>
> The other factor is how long you plan to stay in one place.
>
> Most people I know who relocate for work rent until they know the city
> better. If you buy then decide to move within a couple of years, the
> costs of buying (RE commissions, lawyers fees etc) can add up.
>
> The same can be said if you are single and mobile.
I certainly agree that there can be circumstances where it makes more sense
economically to rent than to own. The fact is, though, that in Clams'
glowing description of his renting experience, he's not mentioning one
economic factor that's close to 100 percent certain: he was paying what it
actually cost to live in that apartment PLUS something to constitute profit
for the landlord AFTER the landlord paid all the expenses of owning and
renting out the property. Yes, there might be times when one would want to
do that, but it's at least something people should be aware of and factor
into their decision.
My own experiences with renting weren't all that great, what with problems
getting landlords to maintain the property, plus noise and aggravation from
living in such close proximity to other people. The day may come when I have
to go back, or at least need to go back, but I'm not entirely looking
forward to it.
clams casino
>
>I certainly agree that there can be circumstances where it makes more sense
>economically to rent than to own. The fact is, though, that in Clams'
>glowing description of his renting experience, he's not mentioning one
>economic factor that's close to 100 percent certain: he was paying what it
>actually cost to live in that apartment PLUS something to constitute profit
>for the landlord AFTER the landlord paid all the expenses of owning and
>renting out the property. Yes, there might be times when one would want to
>do that, but it's at least something people should be aware of and factor
>into their decision.
>
>
>
Of course, that's true for most everything you buy. Only common
exception I can think of are the many clueless sellers on eBay who seem
to have no clue as to their actual selling costs.
In fact, the bank charges their cost to borrow PLUS something to
contribute to profit on their loans as well, but certainly that is not
going to stop anyone from getting a loan.
In reality, what someone pays for their items has NO effect on what I am
willing to pay. Either it's worth the price or it's not worth the price.
Chloe
><snip> In fact, the bank charges their cost to borrow PLUS something to
I'm sure it's stopped many people from getting loans.
But my only point was that whereas a direct mortgage borrower pays an
interest rate that indeed includes a profit for the lender, a renter pays an
amount that also covers the profit for the lender TO the landlord, PLUS a
profit for the landlord. That's an expenditure of money that has never
really appealed to me. Your Mileage obviously varies.
clams casino
A significant portion of a landlord's profit is from their tax
deductions (essentially subsidies). Many renters would never qualify
for any of these deductions if they owned a comparable 1200 ft2 home /
condo. In some respect, much of the landlord's profit likely actually
comes from tax payers rather than the renter.
Dennis
<PeterG...@drunkin-clam.com> wrote:
>A significant portion of a landlord's profit is from their tax
>deductions (essentially subsidies). Many renters would never qualify
>for any of these deductions if they owned a comparable 1200 ft2 home /
>condo. In some respect, much of the landlord's profit likely actually
>comes from tax payers rather than the renter.
A landlord gets to subtract his expenses from gross receipts to arrive
at taxable income, just like any other business. Hardly a subsidy.
Dennis (evil)
--
What the government gives, it must first take.
Lou
"Vic Smith" <thismaila...@comcast.net> wrote in message
news:m93cl31s41hfis5l3...@4ax.com...
A change in the law makes the data not directly comparable. If the law
pre-2003 had been the same as it was post-2003, there may have been no
change in percentages at all. We'll never know.
> You've shown clams to be correct for the latest figures you have
> found, which is a 2.4% increase in those taking the standard deduction
> from 2002 to 2003. Assuming that percentage increase represents
> "fewer and fewer" filers itemizing, of course.
> But to reinforce that, here are the figures for 2002-2004, taken from
> the tables (Individual Income Tax Returns with Itemized Deductions and
> Individual Income Tax, All Returns) at
> http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133414,00.html
>
> Year Itemized Total PCT
> 2004 43335237 132226042 0.327736022
> 2003 43949531 130423626 0.336975227
> 2002 45647551 130076443 0.350928654
>
> This also backs up clams. Your 2005 figures serve no point in this,
> as they don't shed light on itemization, which requires Schedule A.
> I file form 1040 and haven't itemized for a few years.
> The increased standard deduction has made it unnecessary.
> There are no doubt other economic reasons for "fewer and fewer"
> (as a pct of total) people itemizing, but I won't speculate on what
> they are.
> Unless you have more recent (2005-2006) itemization statistics, clams
> appears to be correct.
I don't really care if clams is correct or not - I only asked that he back
up an unsubstantiated claim.
Gordon
$su4...@newsfe14.lga:
>>2) Taxes. rent is not tax deductable. Mortgage intrest is.
>>
>>
>
> Only useful when it exceeds the standard deduction. Fewer and fewer
> are qualifying for the long form.
>
1) You don't have to "Qualify" to use the long form.
2) There are other deductions you can take on the long form.
Mortgage intrest alone does not have to exceed the standard
deduction.
Gordon
$su4...@newsfe14.lga:
>>1) Apprieciation. The value of your home will increase over time.
>>Current market dynamics excepted, there will be the occasional
>>downturn. But in the long run the trend will be up.
>>
>>
>
> As others have shown, homes appreciate about 4-5% over the long haul,
> but the same dollars have historically appreciated 9-10% with stocks.
So instead of making a monthly house payment I should be investing
that in stocks?? Then what?? Am I supposed to live out on the street??
So let's assume that I have divert some of my income toward a houes
or rent payment. Renting appreciates 0%. In fact, as a renter I
wouldn't participate in the appreciation of the property at all.
Compared to that, the 4-5% increase in housing actually looks good.
>
>>2) Taxes. rent is not tax deductable. Mortgage intrest is.
>>
>>
>
> Only useful when it exceeds the standard deduction. Fewer and fewer
> are qualifying for the long form.
Answered that in another post.
>
>>3) Equity building. As you pay down the mortgage and the value
>>of your home increases, you get build up equity in your home.
>>This is money that you get when you eventually sell (or take out
>>a home equity loan). This equity becomes the down payment on the
>>next house, letting you buy into bigger and larger properties
>>without creating a large monthly payment.
>>
>>
>
> Can be saved elsewhere with higher returns.
Yes, but see my first response. I have to spend some of my
income on a housing payment. Rent is money gone, never to be
seen again. But a mortgage payment reduces the ammount I owe
to the bank. When I sell the house I get the difference between
what the house is worth and what I owe (minus the closing costs).
>
>>4) Payment stability. (unless you buy an ARM with a teaser rate).
>>your monthly payment will not rise from year to year, while rents
>>will.
>>
>>
>
> Finally an advantage, but you also need to factor in maintenance for a
> home vs. care free living when one rents.
>
A bogus assertion. The landlord has factored in the maintenance costs
for the property and includes that in the rent. Since most landlords
are not in the business of losing money, your rent includes taxes,
insurance, and maintenance costs.
Gordon
news:ksdel3126d2sqpr7v...@4ax.com:
He's refering to depreciation. It's not an expense.
Unfortuantly it cuts both ways. And certianly is not a subsidy.
Depretiation reduces the tax basis on a property. Thereby
increaseing the capital gains taxes that are owed when the
property is sold.
clams casino
Depends on your definition of a subsidy - typically it's a monetary
grant from a government.
Personally, I appreciate the extensive housing subsidy I've received
through the years through all my tax & interest deductions.
clams casino
>On Wed, 05 Dec 2007 15:46:28 -0500, clams casino
><PeterG...@drunkin-clam.com> wrote:
>
>
>
>>A significant portion of a landlord's profit is from their tax
>>deductions (essentially subsidies). Many renters would never qualify
>>for any of these deductions if they owned a comparable 1200 ft2 home /
>>condo. In some respect, much of the landlord's profit likely actually
>>comes from tax payers rather than the renter.
>>
>>
>this is pure nonsense, the landlord more than likely makes enough to
>cover his expenses plus a little positive cash flow, in addition he
>OWNS the property and history has shown that 99.9 of the time real
>estate appreciates, so to sum up, he has his tenants covering the
>costs of owning, he's generating positive cash flow, he does get many
>tax saving advantages and in time when he sells he'll make a profit on
>the property.
>__________________________________________
>Never argue with an idiot.
>They'll drag you down to their level and beat you with experience.
>
>
You've obviously never been on the landlord side. Without the tax
advantages, rents would have to be significantly higher for most
landlords to turn a profit.
Dennis
wrote:
Most definitely not a subsidy. For example, when I had to replace the
roof on my rental, I paid the $5000 to do it up front, out of my
(business) pocket. Could I deduct that $5000 (non-) expense from my
rental income for tax purposes that year? No, so I paid more tax. I
had to depreciate it over something like 18 years (or whatever the IRS
allowed). And, as you note, when I sold the rental, my basis was
reduced by the amount depreciated, so I paid more capital gains tax on
the sale. Hardly a free lunch. Just some accounting parlour tricks.
rick++
runup this decade, but is the possible they may
and you may see huge rent increases.
This appears to be happening in the San Francisco
and Los Angeles areas now.
The long term rental price is approximately the
annual pruchase carrying cost plus a landlord
profit (often from the tax breaks).
So renters, dont count your chickens ...
clams casino
>On Thu, 06 Dec 2007 09:37:56 -0500, clams casino
>you're quibbling over a small portion of a larger equation, if there
>is no cash flow from owning the property there is little reason to
>invest in or buy that property in the first place, people do not
>invest hoping to profit from the tax advantages, they invest for ROI ,
>the tax advantages are just part of the reasons for making the initial
>investment
>
>
Are trying to suggest the tax advantages are not a significant part of
the ROI?
Try figuring such an ROI without the tax advantages.
Suppose I own a condo, but do not quite have enough deductions to exceed
the standard deduction. I'm paying the full price of interest,
property taxes & maintenance.
Second example - I rent from Joe. He has three condos & thus has more
than enough to itemize, realizing a good 35% discount on interest,
property taxes & maintenance. Granted Joe will have to pay 35% taxes on
his gain, but his net cost will still be lower than mine. Meanwhile,
I'm enjoying a full standard deduction.
Dennis
<PeterG...@drunkin-clam.com> wrote:
>Suppose I own a condo, but do not quite have enough deductions to exceed
>the standard deduction. I'm paying the full price of interest,
>property taxes & maintenance.
No. Your standard deduction includes an allowance for common
expenses, such as mortgage interest and property taxes. How much is
determined by the IRS.
>Second example - I rent from Joe. He has three condos & thus has more
>than enough to itemize, realizing a good 35% discount on interest,
>property taxes & maintenance. Granted Joe will have to pay 35% taxes on
>his gain, but his net cost will still be lower than mine. Meanwhile,
>I'm enjoying a full standard deduction.
And paying your portion of Joe's interest, property taxes and
maintenance through your rent.
clams casino
>On Thu, 06 Dec 2007 16:36:49 -0500, clams casino
><PeterG...@drunkin-clam.com> wrote:
>
>
>
>>Suppose I own a condo, but do not quite have enough deductions to exceed
>>the standard deduction. I'm paying the full price of interest,
>>property taxes & maintenance.
>>
>>
>
>No. Your standard deduction includes an allowance for common
>expenses, such as mortgage interest and property taxes. How much is
>determined by the IRS.
>
>
>
OK - I'll try to simplify it for you.- If I have $10k in deductions,
in 2007, I can deduct $10,700 (std deduction). If I have $1k
deductions, I still get $10,700 in deductions. If I have $12,000 in
deductions, I only gain $1300 in deductions vs. having $1k.
For the record, the IRS does not determine your deductions. You must
do that.
>>Second example - I rent from Joe. He has three condos & thus has more
>>than enough to itemize, realizing a good 35% discount on interest,
>>property taxes & maintenance. Granted Joe will have to pay 35% taxes on
>>his gain, but his net cost will still be lower than mine. Meanwhile,
>>I'm enjoying a full standard deduction.
>>
>>
>
>And paying your portion of Joe's interest, property taxes and
>maintenance through your rent.
>
>
>
What is that suppose to mean? Are there cookies in the library?
How does my indirectly paying a portion of taxes, interest and
maintenance have anything to do with his net costs being lower than mine?
Hint - the interest, property taxes & maintenance will be paid in full
by both of us. The difference is that he will get a subsidy to lower
his costs where the difference is profit for the landlord. at the
expense of other tax payers.
Dennis
<PeterG...@drunkin-clam.com> wrote:
>Dennis wrote:
>
>>On Thu, 06 Dec 2007 16:36:49 -0500, clams casino
>><PeterG...@drunkin-clam.com> wrote:
>>
>>
>>
>>>Suppose I own a condo, but do not quite have enough deductions to exceed
>>>the standard deduction. I'm paying the full price of interest,
>>>property taxes & maintenance.
>>>
>>>
>>
>>No. Your standard deduction includes an allowance for common
>>expenses, such as mortgage interest and property taxes. How much is
>>determined by the IRS.
>>
>>
>>
>
>OK - I'll try to simplify it for you.- If I have $10k in deductions,
>in 2007, I can deduct $10,700 (std deduction). If I have $1k
>deductions, I still get $10,700 in deductions. If I have $12,000 in
>deductions, I only gain $1300 in deductions vs. having $1k.
Sure, the IRS has simplified the process for piddling amounts. So the
little guy with $1K gets a slightly better deal than the guy with
$10K. Mice nuts in the grand scheme of things (from the IRS' point of
view).
>For the record, the IRS does not determine your deductions. You must
>do that.
The IRS determines what the standard deduction is. Many factors go
into it's determination.
>
>>>Second example - I rent from Joe. He has three condos & thus has more
>>>than enough to itemize, realizing a good 35% discount on interest,
>>>property taxes & maintenance. Granted Joe will have to pay 35% taxes on
>>>his gain, but his net cost will still be lower than mine. Meanwhile,
>>>I'm enjoying a full standard deduction.
>>>
>>>
>>
>>And paying your portion of Joe's interest, property taxes and
>>maintenance through your rent.
>>
>>
>>
>
>What is that suppose to mean? Are there cookies in the library?
>How does my indirectly paying a portion of taxes, interest and
>maintenance have anything to do with his net costs being lower than mine?
>
>Hint - the interest, property taxes & maintenance will be paid in full
>by both of us. The difference is that he will get a subsidy to lower
>his costs where the difference is profit for the landlord. at the
>expense of other tax payers.
Hint -- you are living on the property and thus gaining direct benefit
from whatever you pay. To Joe it is a business, so he gets to
subtract his expenses, just like any other business.
Dennis (evil)
--
An inherent weakness of a pure democracy is that half
the voters are below average intelligence.