They narrowed the gap between itemizing and standard but homeowners should still be itemizing ~100% of the time. If you’re hitting the mortgage interest cap you should be itemizing based on that alone.
This is incorrect. A landlord can often expect to spend about half of rental income to just maintain the property. You can do your own quick google search to confirm this, but if you want some links I am sure I could easily find some.
I guess if we take out vacancy and reduce insurance costs, then you can cut it down a bit, but it would take an incredible amount of creative accounting to turn those costs into a “very small” percentage of overall cost to own.
And this is before we’ve talked about the cost of “renting” the money to buy the place (which you can get a bit of a discount on via tax deductions).
You’re making a very common mistake. People dramatically underestimate the cost of home ownership.
I think the number is high, but not quite that high. Once you get to the last 5ish years of the mortgage, only a small amount of your monthly payment goes towards interest.
Yeah, I mean, that’s like my entire point. No disagreement with that.
What? No, that’s not even close to accurate. I can tell you that as a married homeowner my standard deduction is significantly larger than the mortgage interest cap, and I’m not a small business owner so I don’t have anything else to itemize. The SALT cap is $10,000 per household. The standard deduction is $27,700 for married filing jointly. Part of this was also the elimination of personal exemptions and rolling them into the standard deduction.
Edit: Maybe if you’re unmarried you can make the math work because of the way they capped the deduction the same for married people versus single, but other than that, unless you own a McMansion with crazy high taxes, I’m not seeing it.
Second Edit: If I’m missing something obvious here, please educate me (seriously), it means I’ve been doing my taxes wrong for all these years….
If you are a small business owner you should set it up as an S corp, deduct any/all business expenses at the level of the corporation (including your own market rate pay that you give yourself a W2 for, this is really important if you ever have to prove your income) dividend what’s left after that and take the standard deduction.
To not use the standard deduction you realistically need to be rich enough to be able to cost justify a tax attorney doing your taxes. It used to make a lot more sense before they raised the standard deduction and significantly limited the deductions for normies.
The standard deduction is 27,700 for married filing jointly which is roughly 25% of my wife and I’s combined student loan balances and more than 10% of our gross income most years. We’re never going to find that many deductions, particularly with the business absorbing the business related deductions and health insurance.
I figure it will start making sense to look for a tax guy when I get north of 400k regularly.
For the sake of this conversation ‘normie’ means someone who doesn’t have enough income/assets to be able to support what the Heritage Foundation strictly because of the tax breaks being worth more than both their kids private school tuition.
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Not a tax expert but at most simplistic level for people who would be in a potential border area are going to have maxed salt so it’s just a question of if Mortgage Interest + Charitable Giving is more than 17k?
Yeah 17k is a lot of money to be spending on mortgage interest and deductible charity. My number one charitable cause is non corporate sponsored Democratic primary races and that’s not deductible and doesn’t happen every year. Tipping comedically well also isn’t a charity.
Well sure, because I’m a set of ‘almost everyone’
And, correct me if I’m wrong, but the mortgage interest is capped at the interest on the first $750,000, correct? So, you’d have to really be in the sweet spot of living in a very high tax state/locality AND having a mortgage at $750k or greater. The vast majority of middle class married homeowners effectively lost the mortgage deduction in 2017.
Homeowners insurance is about 0.5% of the value of the home. Maintenance is often estimated at 1% to 5%, so let’s say 3%.
So about 3.5% of the value of the home each year is pumped into maintenance/upkeep/insurance. That part is subject to inflation, the mortgage payment is not.
I just ran a quick mortgage calculator on a $500K home with $100K down, and an 800 credit score in Pennsylvania. The mortgage would be $3,168 not including homeowners. $3,168 * 12 = $38,016. 38K/500K = 7.6%.
So, about 31.5% of the annual expenses to own a home are maintenance/upkeep/insurance and subject to inflation. The other 68.5% is stable. Hence homeowners are significantly shielded from inflation.
And I wasn’t talking about landlords, I was talking about homeowners who reside in their home.
As I said, you could probably get it lower as an owner who lives there, so I don’t think that your estimate is unreasonable.
My point was that this
is not the same as
I’d say you were very likely overrating the benefits of home ownership somewhat until your last post.
It is a very small percentage in the context of inflation. The 68.5% is running at 0% inflation, so even if the 31.5% is running at 10% inflation, they’re experiencing 3.15% inflation in shelter costs. Rent inflation has slowed to 6%. In 2020 my landlord at the time asked for a 38% rent increase. Even here, with a great deal, I am experiencing a 7.1% rent increase.
And yeah I think an owner who lives there can probably keep it closer to 1-2% than 3%, which substantially lowers it.
Going back to the original point, there is a tremendous gap in exposure to inflation between renters and homeowners. Renters will experience significantly worse inflation than the overall number, homeowners will experience significantly less. The outcomes are polarized, so basing policy or campaign messaging off the average is silly.
If I bought a townhouse like the one I’m renting now back in, say, 2018, I’d have paid about $285K. Even with 5% down, my mortgage would have been $1,934 including homeowners and taxes. Throw in maintenance costs and you’re probably looking at $2,400 a month maximum, with like $700/mo give or take going towards equity for a net cost of $1,700 a month. If I wanted to move, I could rent it out, cash flow $600/mo and build $700/mo in equity.
Market rent now for this place is $3,000, and buying it would yield a monthly payment of $3,480 including taxes and homeowners, plus maintenance call it about $3,980, with about $1K/mo going towards equity. So renting vs. buying is about a push right now, but the rent is going to keep going up so locking in current costs for 30 years is a win. Plus you get leveraged upside exposure if the value of the home goes up, and you can walk if it goes down and take the hit to your credit score.
However you massage the numbers, you’re not going to convince anyone that 1/3 of the cost is a “very small percentage”. By your own logic the other 2/3 isn’t shielded. So what you’re trying to sell is that X is a “very small percentage” but 2X is a massive cost that makes me hate my life.
Also if your landlord asked for a 38% increase you can’t just assume that all of that was due to local market conditions and none of it was due to the fact that his costs also experienced above average inflation. But even we accept that it was true in your specific market, your experience can’t be generalizable to all markets.
Yeah, that’s what I’ve been getting at. I also think that this is market dependent and in less desirable metros, ownership will have a greater advantage over renting. If you lived in Nebraska and couldn’t own, I think that would be a worse plight.
Maybe it’s a win, but you don’t know that. You think every owner in the history of the world has come out ahead? And if they didn’t why can’t those things happen to you.
You’re also ignoring some of the benefit of renting. What if you want to move? Maybe you have a kid and need more space. Maybe you want to live closer to work. Or maybe it is one of the myriad reasons that people want to move. If you own, you’re more trapped.
If you rent, you just pick up and move. If you own, then you’re hit with a massive transaction cost to sell and another one to buy (unless you decide to rent at that point). Maybe when you need to move the market is down.
Maybe your area becomes less desirable and rents go down due to local market conditions.
The point is that there are a lot of other variables to consider.
I’m not saying that renting is always better or even often better. All I’m saying is that when considering everything, depending on which market you live in, the differential between the two options (financially) is not as large as people depressed about being unable to purchase a home would have you believe.
The difference isn’t that large in a vacuum of short-term. Long-term the gap often becomes massive, and the likelihood imo going forward is that the gap becomes bigger than ever.
As for the 38% increase, it was in the fall of 2020 and they were 25% vacant. It was not driven by market forces, it was driven by maintaining the property valuation because they were borrowing against it.
Your source decidedly doesn’t say you can’t use unemployment. It’s imperfect, but nowhere does the economic dismiss it for vibes.
Labor force participation rate is a better stat in that it tells you something you could actually use to do useful analysis, although it has its own flaws with how it interacts with different demographics.
Labor force participation rate is on a straight line up since the pandemic.
Basically your entire argument exaggerates what are imperfections in economic data into “pretty close to worthless” which is not actually supported in any real way, nor do you come up with any alternative way of describing the economy.
If, for example, you presented any sort of measurable thing to show how the economy isn’t doing well, I’d be much more persuaded. Instead, what you’ve presented is just bad vibes, and that’s the whole point. Pushing bad vibes is not what you should be doing as an incumbent. You should be pushing good vibes.
I think you are (understandably) hyperfocused on your situation and not considering that there are a lot of people out there in a lot of different situations in a lot of different housing markets. Yes, many are just like you, and as one might expect, those are the people that you interact with the most, and it probably feels like it’s the same for everyone. But for a lot of people, renting instead of owning isn’t quite as much a sacrifice as you feel that it is.
It’s probably a much different situation away from major job centers. I just see a lot of the houses in the desirable suburbs around Philly being turned into rentals, and it seems like they’re trying to get a big market share and then it’s obvious what they would do with that. That probably isn’t the case in areas with less housing demand near a major metropolitan center with a lot of jobs.
But for a lot of people, we’re always going to need to live in/near those areas so it’s very much a thing.
That’s true. I think it’s also true that a lot of people don’t literally need to live in/near those areas, but feel that they do. I’m probably one of those people myself. In a lot of cases it’s just something that you really want. Don’t get me wrong, that’s still important, and it’s unfortunate if someone can’t fulfill that desire, but it’s not quite the same.
The issue is that the median wage is as high as it is largely because of good paying jobs in the city. Out in the sticks the wages drop faster than the housing costs which is really saying something. I live an hour and a half from downtown Austin and houses out here still cost 500k so I’m not sure how far you think people should live from work.
I work from home so I could definitely move, but that would mean having worked my whole life to get to where I can afford this lifestyle only to deliberately downgrade it hard because it’s cheaper. Pass. And people in my boat are going to keep on passing and driving up the cost of living for people who have to live in the city so best to plan around that.