In reply to Fueled by Caffeine :
Not rational, nor factually correct. You see the exact same same "benefit" from the first dollar over the bottom of the tax bracket threshold, as you would the last dollar below the top of the same tax bracket threshold.
In reply to Fueled by Caffeine :
You only pay more tax on the dollar that is in the higher bracket.
Everything under that threshold is still taxed at the lower rate.
But angry I understand.
SVreX said:In reply to Fueled by Caffeine :
You only pay more tax on the dollar that is in the higher bracket.
Everything under that threshold is still taxed at the lower rate.
But angry I understand.
This.
It seems very few do not understand how the income tax actually works.
That said, it still hurts to see I pay more in taxes per month than my girlfriend takes home.
mtn said:We're going to be right on the cusp of that 10k limit on property+state taxes. But I still don't see how itemizing will help even if our property taxes were $15k--the standard deduction is $24k, which is almost always going to cover any itemizing.
Everything else is still deductible- donations, mortgage interest (up to a limit), etc. So if the sum of all of that exceeds $24k, then you itemize.
It's very possible to find a house that has similar taxes, so that your sum of the property+state ~$10k, you have interest payments in the $15k range (which is not a lot for a new mortgage over 12 months), and even with out the rest of the expenses, you should itemize, as your deductions are over the standard deduction.
If you will never exceed $24k, then there's not much you can do (and your donations can end, too).
Property tax of $5k per year and interest payment of $15k means your mortgage is in the $2500/month range probably. I guess not exactly far fetched but certianly well above average. Quick estimation shows that'd be like a 500k house loan.
And remember, to get the deduction you have to spend the money. Deduction doesn't mean free, it means income tax free. You are much better off paying the tax and saving the money.
Edit: and if the benefit is capped at $750k home loans, then there is a very small window of people who will be able to leverage this, essentially it will be people who owe between 500 and 750k on their homes, in places with large property tax or large state income tax, or both.
Robbie said:Property tax of $5k per year and interest payment of $15k means your mortgage is in the $2500/month range probably. I guess not exactly far fetched but certianly well above average. Quick estimation shows that'd be like a 500k house loan.
And remember, to get the deduction you have to spend the money. Deduction doesn't mean free, it means income tax free. You are much better off paying the tax and saving the money.
The $15k was just a number I threw out... but our property tax is closing in on $8k a year; our house is only about $330k. I hate Chicagoland.
In reply to mtn :
Oh I know. Way too well. I was referencing alfas 15k in mortgage interest example.
I welcome the $24K deduction. We haven't had a mortgage since 1995 so no interest deduction there. With the $41K pension exclusion from MD, our state and local taxes last year were only $3K. Property taxes are another $3k. So the increase in personal deduction is very welcome.
The new changes will make a big difference for my family, despite living in California with high state and local taxes. When we had our taxes done, we went side by side with the 2017 and 2018 code. For the first 3/4's it looked bleak-you can't deduct this anymore, or this, or this... But near the end, we got to the child tax credit. It went up from $1000 per kid to $2000 per kid, and the phase out moves from $110k to $400k. With three kids, we got a whopping $500 credit last year. This year, it will be $6k! Overall, we would have have paid just over 4k in taxes less under 2018 code.
Robbie said:Property tax of $5k per year and interest payment of $15k means your mortgage is in the $2500/month range probably. I guess not exactly far fetched but certianly well above average. Quick estimation shows that'd be like a 500k house loan.
Maybe later in the mortgage but Alfa specifically said a newer mortgage. It takes many years before that much of the payment goes toward principal. There would be a decade or more on a $300k loan where you’re paying $12k-$15k in interest. And $300k doesn’t get you a fancy house nowadays.
Robbie said:Property tax of $5k per year and interest payment of $15k means your mortgage is in the $2500/month range probably. I guess not exactly far fetched but certianly well above average. Quick estimation shows that'd be like a 500k house loan.
And remember, to get the deduction you have to spend the money. Deduction doesn't mean free, it means income tax free. You are much better off paying the tax and saving the money.
Edit: and if the benefit is capped at $750k home loans, then there is a very small window of people who will be able to leverage this, essentially it will be people who owe between 500 and 750k on their homes, in places with large property tax or large state income tax, or both.
So I used some numbers based on our mortgage, which was shortened to 10 years to save a lot of money over the life of the loan.
And you are 100% right that the net OUT is more- you still pay interest and taxes and whatnot.
BUT- if you can afford it, going with a 10 year loan will still result in a huge amount of interest for 4-5 years that should be able to be deducted, and the 20 years less of the mortgage will save one probably hundreds of thousands of dollars.
Kind of points out that one needs to really do the math to find the right size home to either rent or own.
dculberson said:Robbie said:Property tax of $5k per year and interest payment of $15k means your mortgage is in the $2500/month range probably. I guess not exactly far fetched but certianly well above average. Quick estimation shows that'd be like a 500k house loan.
Maybe later in the mortgage but Alfa specifically said a newer mortgage. It takes many years before that much of the payment goes toward principal. There would be a decade or more on a $300k loan where you’re paying $12k-$15k in interest. And $300k doesn’t get you a fancy house nowadays.
Yeah, I was doing quick and dirty math. And of course it depends on your interest rate heavily. 5% gives you 300k with 15k interest in first few years, 4% 400k, etc.
I still submit that a 300k loan is not the same thing as a 300k house. Though I'm sure many people buy one with the other.
And Alfa - don't you normally pay a lower interest rate with a shorter term? The payments are much larger but mostly in principal. So yes you save thousands in interest if you can swing the payments, but it won't help maximize for tax deductions (which again, is probably the wrong way to prioritize).
For tax deductions I guess you could "sell" points to the lender so they give you money up front and you pay a higher rate. Get a long term loan and pay the minimum to the lender while taking the extra payment and paying yourself in savings or growth fund. Then when growth fund = outstanding balance on loan, pay the loan off early. That would be how to maximize interest payments you can deduct while still paying less interest (because you only pay interest for 10 years instead of 30).
But one thing this whole discussion leaves out is the benefit of owning rather than borrowing someone else's home. If it were more costly people would still prefer to own. Most home transactions aren't about the tax deduction, that's just an added plus.
#1 there's pride of ownership. Study after study shows that people just simply feel better about themselves when they own.
I've owned and I've rented and I've had to rent again after owning a home and it was awful. There was this horrible 1970's type of foil wall paper staring me in the face every time I opened the front door and there was nothing I could do about it. I couldn't spruce up the front yard so that my neighbors & friends would think I cared. I took care of it minimally, but still I spent more than the average renter & I felt like white trash. Your rental house isn't a reflection of who you are.
The stability factor and not having to pay all the moving costs over & over again is a big help in the pocketbook and it's a big help to the kids in school. They aren't constantly being moved from school to school. I was a trailer baby and I'd sometimes move 3 times in a school year. That is tough on a kid.
As an adult it means I can get used to shopping in the same places and know the store's layouts. It means I can go to the same church. It means I'm not constantly having to change how I get to work. And speaking of work home owners tend to have a more stable job history and therefore make more $$$. It means that just like in school, I can make lasting friends.
Which brings me to the point that kids of people who own generally do better in school and are more active in extracurricular activities (you could also argue that's a downside with the number of activities many kids have nowadays), which means they have more & better friends. I used to envy other kids with long time friends. Friends they'd known for most of their lives.
Homeowners vote more, volunteer more contribute more to their communities.
And then there's the fact that for most people home ownership is the best way to build wealth. Here in Texas that's almost a given, but I realize that in the states have offer 125% home equity lines of credit tied to a credit card (that was the common element to the states that lost the most value during the Recession), there's no guarantee of making money. But regardless of that it's still the #1 way most normal people are able to generate wealth.
carguy123 said:But one thing this whole discussion leaves out is the benefit of owning rather than borrowing someone else's home. If it were more costly people would still prefer to own. Most home transactions aren't about the tax deduction, that's just an added plus....
Huh? Did you read the thread at all? What in the world was this a reply to?
Nobody is talking about renting whatsoever; we're talking about if it possibly makes sense to move your house into an LLC or S-Corp (which it sounds like it most certainly does not). You'd still own the home, it'd just be by proxy at this point.
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