Prior to the recent tax law change, we carefully explained the tax benefits from buying real estate to every borrower. This, however, is a reminder that we no longer tout tax benefits b/c the Standard Deductions for every taxpayer are now so large that few buyers enjoy significant tax benefits from buying real estate.
The Standard Deductions are now $12,000 for single-tax filers and $24,000 for joint filers.
BUYERS IN $600,000+ RANGE
If a couple buys a house in Oakland, CA for $600,000 with 20% down, their total interest and property tax deductions might be in the $28,000 range. This is only $4,000 higher than the standard deductions, making the tax benefits from buying marginal at best. If the couple is in a 40% combined tax bracket, they might save an additional $1,600 in income taxes b/c they bought a home.
If a single filer bought that same $600,000 house, she would enjoy more tax benefits b/c her deductions would increase by as much as $16,000.
But, even in the above cases, we would hesitate to explain tax benefits b/c the State and Local Tax Deduction cap (of $10,000) and other issues would come into play.
We recommend that all high-end borrowers review potential tax benefits with their CPA, as it is now far out of our purview.
RULES OF THUMB
1. High-end buyers filing jointly start to see some tax benefits in the $600,000+ price range, depending on down payment, interest rate, property taxes, etc.
2. High-end buyers filing singly start to see some tax benefits in the $350,000 to $400,000 price range, depending on down payment, interest rate, property taxes, etc.
3. Most lower-end buyers, particularly married couples, buying below the $500,000 price point will get little to no tax benefits from buying real estate.
4. All buyers should consult with a CPA before counting on any tax benefits.
DO WE STILL TOUT THE BENEFITS FROM BUYING? HECK YEAH!
Here a just a few: 1. Inflation hedge; 2. Building equity and retirement; 3. Locking in a historically low fixed rate before they go up; 4. Feels awesome to own your own home.
I will elaborate on these in future blogs.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
