< Back to JVM's Blog

We No Longer Tout “Tax Benefits” From Buying; We Do Tout Inflation Hedge, Equity Building

WE NO LONGER EXPLAIN TAX BENEFITS

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