Buying a House as a Tax Shelter [in a Depreciating Market]
Does it make sense to buy a house for the tax advantages? Apparently quite a lot of people think so. check out the comments on Renting is for suckers”. There are over a hundred comments. Quite a few of them say you should buy even if the housing market is heading down because “in the long run, its a good investment”. Funny, thats exactly what I heard today in the office. One of my co-workers wants to buy a house right now. So what if its going down. It can only go down a little bit and in the long run, it can only go up. Of course, in the long run we’re all dead and some people are always broke!
Not wanting to figure out how investing works and what rich people do to become rich and stay rich is a trait that most of my friends share. They also believe that buying a house for the tax write-offs is a good idea. Since when is spending a dollar to save 30 cents a good idea? If you can rent an apartment for half of what the mortgage is, why would you buy it? You’re better off buying a house in an appreciating area even if its out of state and holding that for a few years. With the depreciation, you’ll probably save the same if not more on taxes. And once the local market settles, you can sell the out of state property and buy a bigger house for less.
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June 16th, 2006 at 12:32 pm
Even the chairman of my Economics Department told me I should buy a house to get the tax break! Irrationality is everywhere. Economic theory suggests that house prices are higher than they would be if there were no tax break. So it’s not like it can be cheaper to buy due to tax breaks, unless sellers all give their houses away for less than they are worth. Additionally if everyone is so irrational they will push house prices up even further.
The exception here is if you buy a house that is relatively cheap for someone in your tax bracket you will get a bigger deduction than the typical buyer. So there may be a benefit there.
With the standard deduction, AMT etc. a lot of people don’t get all those tax benefits anyway.
June 16th, 2006 at 4:58 pm
yeah, i’m in a 10% low tax bracket because of real estate deductions and funneling my gains into other entities. But for most people, that’ll probably be the only investment[and the best]that they ever make, except that your home is NOT AN INVESTMENT!
June 17th, 2006 at 11:59 am
Yeah that’s one point I disagree with Kiyosaki on. An owner occupied home is an investment. The return on investment is the cash you would have otherwise spent on rent. One of the first things we try to teach our economics students is being aware of these implicit opportunity costs and benefits. The real question is whether homes are good investments or not. I think they can be if you buy at a good price.