Bad tax law funding the housing bubble?

[laurence]

http://www.msnbc.msn.com/id/8715417/

It makes sense, stocks would have to greatly outperform RE to make up that shortfall. I say exempt the first 500k on stock gains, too.

 

[maddythebeagle]

I saw that article before and without the data, I dont know for sure. I do see these real estate investment clubs cropping up as well as articles on people quitting their "day jobs" to flip houses. I would think that has more to do with as well as demand in some areas. I dont understand how the tax law is a big issue since people have to sell their house (and would make sense that they would have to buy another one to live in, right), so wouldnt that cancel out supply and demand for these people?

 

[Patrick]

Personally, I think it's awesome tax law and it's probably why the ownership rate is up to 69%.  Also, I wouldn't consider living in the property for two years before selling a "flip."  If you are a "speculator" you don't get the tax break.

 

[maddythebeagle]

Isnt is setup so that you only get 1 free captial gain event on your primary residence?

Yep, and the house flippers are paying taxes on their shell game.

 

[Patrick]

Isnt is setup so that you only get 1 free captial gain event on your primary residence?

No, you can do it every two years, forever.

 

[Michael]

Stocks go up over time because earnings grow over time. Houses get older over time, and eventually fall apart. The reason homes go up over time is mostly because of government policies, for better or worse.

 

[Patrick]

Stocks go up over time because earnings grow over time.  Houses get older over time, and eventually fall apart.  The reason homes go up over time is mostly because of government policies, for better or worse.

Really?  I thought stocks went up when there was someone willing to pay a higher price for them.  And though the homes may fall apart, the land is likely to always be there.

 

[laurence]

Right, homes depreciate, land appreciates. Location, location, location!

 

[Andre1969]

There's one reason I can think of for having an interest-only mortgage, versus renting...the writeoff. If you're paying $1000 in rent every month, that's $1000 out the window and gone. If you're paying $1000 on an interest-only mortgage, you're getting a writeoff. So that $1000 per month might really only end up being $600-700, depending on your tax bracket.

Plus, having a mortgage might be give you just enough of a writeoff to make it more worthwhile to itemize, so you can write off state and local taxes, charitable contributions, real estate taxes. etc.

Then, you do have the peace-of-mind of having your own home. Even if the bank owns most of it, I'm sure that a lot of people would prefer that to renting!

 

[maddythebeagle]

I guess that is a point about itemizing. I have a feeling that rents havnet gone up as fast as home prices, though? and with the housing boom, there is a good supply of apartments?

I am just supposing. Has anybody crunched da numbers. I place no value in a place entirely owned by the bank vs. a landlord. Not to mention, a landlord mows the grass and takes care of maintenance (at least supposed to) and the bank probably wont.

 

[Patrick]

I guess that is a point about itemizing. I have a feeling that rents havnet gone up as fast as home prices, though?

This is true, at least in my area. But they are starting to catch back up.

Not to mention, a landlord mows the grass and takes care of maintenance (at least supposed to) and the bank probably wont.

Not necessarily. In my leases the tenants were responsible for the landscaping and any repairs up to a cost of $75. 

 

[Cal]

There's one reason I can think of for having an interest-only mortgage, versus renting...the writeoff.  If you're paying $1000 in rent every month, that's $1000 out the window and gone.  If you're paying $1000 on an interest-only mortgage, you're getting a writeoff.  So that $1000 per month might really only end up being $600-700, depending on your tax bracket.

Plus, having a mortgage might be give you just enough of a writeoff to make it more worthwhile to itemize, so you can write off state and local taxes, charitable contributions, real estate taxes. etc.

Then, you do have the peace-of-mind of having your own home.  Even if the bank owns most of it, I'm sure that a lot of people would prefer that to renting!

You make some good points and it's something I've personally considered being here in crazy CA real estate land. But, my biggest fear, especially being a single wage earner, is what would happen if prices did drop significantly and/or my employment was "dislocated". While I am throwing away $1000/month in rent, I am only financially bound by the terms of my lease. Prices drop and I'm interest only, I'm underwater and looking at a much greater loss than it would be to walk away from a lease.

It's a comfort factor which doesn't always make economic sense.

 

[Marshac]

It's a comfort factor which doesn't always make economic sense. 

Something that is oftentimes too easily dismissed