Comments on: Arcadia Mania

By: SavedbyGrace

SavedbyGrace — Sat, 22 Mar 2008 23:30:18 +0000

“Everybody always seems to overestimate the tax benefits. You can only count the mortage interest deduction that is above the standardized deduction of $10,700 (married) in your cost analysis.”

Many people don’t realize or understand this point and often fall into the trap of buying for the tax benefits only to find out later that it’s not what they thought. I wrote about some other real estate myths back in January here.

http://www.arcadiahousingblog.com/2008/01/31/a-load-of-bull/

By: KY

KY — Sat, 22 Mar 2008 21:40:07 +0000

Sorry Matt, read your post again, and you’re right, out of pocket cost for mortgage/tax is probably 2200. But i guess if you’re going to include the entire tax benefit from buying, you should also include the ‘tax benefit’ from renting, which is the standard deduction of 10700 (married)

10700/3/12 = 300 per month of tax return

So home cost is 2700, while renting is 2300 in your ex.

By: KY

KY — Sat, 22 Mar 2008 21:28:34 +0000

Everybody always seems to overestimate the tax benefits. You can only count the mortage interest deduction that is above the standardized deduction of $10,700 (married) in your cost analysis.

3300 x 12 = 39,600/year of interest and tax

39600 – 10700 = $28,900 is the amount on top of the standardized deduction that you can deduct from your taxable income

28,900/3/12 = $800 is your tax benefit per month, not $1100

I think that’s more accurate. Since renters get the standard deduction, you can only count benefits above that standard ded. That puts home cost effectively at $3000, not including lost return from down payment.

By: Matt

Matt — Sat, 22 Mar 2008 18:43:32 +0000

The mortgage and property tax is about $3300. The mortgage is nearly all interest and very little principal in the first 10 years. You can deduct about a third from your income taxes ($1100) and actual out of pocket cost is $2200. Also there is maintenance which can run about $100 to $200 a month. Adding $110 for insurance, $210 for HOA, $200 for maintenance, and $2200 for out of pocket cost, the total is about about $2700 to own the home. This house is still priced too high because it is about 1800 square feet in comparing to the rental of $2600 at 2100 square feet.