How Taxes are going to keep me from buying a house.

Yes, we pay more than just that. There's the sales tax, social security, medicare, and others hidden in fees. Property tax isn't a very good system, IMHO. More and more of our economy is dominated by service, and that can escape tax. We need tax revenue for roads and sewers and schools and all the things we buy with tax money to lay a social and physical infrastructure for our cities; It would be better if we had more revenue from medical, for example, that largely escapes tax; also churches, and high-dollar service like law, accounting and finance are under-represented in a property tax system. A refinery might generate a lot less total revenue than a hospital system (or John O'Quinn's office!), but would pay more property tax.

So, splitting the points above :

Texas property tax system is inefficient and reflects another era.

Total tax burden on a productive earner and property owner is pretty high, and that's also inefficient distribution.

 

Why do you hate Amerika?

 

Refman,

Actually, once you buy a house, your tax burden won't be as bad as you might think. In addition to claiming a homestead exemption, which usually saves about 15% on your property taxes, you get to claim 100% of your property taxes and 100% of your mortgage interest as a deduction.

Example:

Lets say you buy a $150K house. Your monthly note will be around $1,500. Around $900 of that is going to be mortgage interest. 12 mos x $900 = $10,800. Now lets say that your property taxes are 2.5%, which would be $3,750 a year. Thats $10,800 + $3,750 = a $14,550 write off on your taxes.

This past year, I was able to write off over $20,000 in mortgage interest and property taxes, which resulted in a nice $4,500 IRS refund.

 

Agree with codell. Since we've bought, we get enormous tax breaks. It almost seems unfair.

And Ref, until you buy, it sounds like you need to pay estimated taxes. Your work pay should be taxed properly, so it must be investment income that's killing you come tax time.

Best of luck.

 

I agree with Codell also. Since I bought my house three years ago, my tax refunds have been huge, and I've been pumping the money back into the house via remodeling, painting, etc. The more money you put into your house the more you get back when you sell it...unless it gets flooded of course!

 

Yes. Take the plunge and get a house. It pays off in the long run. If you can't afford the dream house, buy something small in an area with proven resales. After a few years, sell out and move up. Even if you have to go with mortgage insurance, I think you'll be better off owning. It does help your taxes and the sooner you go, the better chance you have of getting a good interest rate. There seems to be quite a bit of uncertainty out there and I wouldn't bank on interest rates staying down much past the election. (I'm conservative financially and am always expecting the worst, so I would look very carefully at variable rate mortgages... in fact, I don't even look at them at all... I'm a fixed rate kind of guy.)

It is initimidating the first time... "You're going to lend me how many thousands of dollars? Are you nuts? Don't you know who I am?" After the initial shock, it's much easier psychologically and it gets easier everytime after that.

Be resolved that you will make mistakes the first time and that as you change and grow, the first house may not be all you want. The second time, you'll be more comfortable with the process and it will be easier to match your needs and desires.

Good luck.

 

Absolutely. In fact, buy a fixer-upper. When you sell, you're allowed up to half a million dollars in capital gains that are completely tax free (as long as you live in the place as your personal residence for at least two of the past five years). You'd have to earn almost a million dollars every two years as an employee to bring home that much disposable income. There is no bigger tax play available to the average Joe.

Can you hit that "home run" the first time out of the gate and earn half a million in gains on the sale of your first house? Probably not....not unless you can afford a $500K fixer up in a million dollar neighborhood....along with the money to fix it up. Nevertheless, you can make a significant chunk of tax free income and then move up. Each time, you'll get closer to that ulitmate goal.

 

progressive Federal taxes go down, services are cut, regressive state and local taxes go up to fill in the void. Pretty simple.

But anyway, we as a people have the lowest overall tax rate as a % of GDP of any OECD country.

http://www.oecd.org/dataoecd/5/51/2483816.xls

 

Exactly. A fixer-upper is the best way to go for a first house. My wife and I did that with our house in GA and.......I'm still working on it. I bought the place more for the land than I did the house, but we've totally remodeled the house since we bought it three years ago. We get a homestead exemption for our land (since much of land is woods) and get that mortgage deduction as well, so at tax time, we do pretty well. So just roll up your sleeves, become buddies with people who know how fix plumbing and electrical work and hang sheetrock and you will be fine.

 

We close on our first house this Thursday. It's a fixer upper for sure, but I cant wait to get going with it.

 

That's actually very good to know. Thanks for the information. My wife and I are looking to move back to Texas and buy a house in the Austin area. House prices are high, but parts of the market are pretty soft. The taxes, though, are freaking nuts.

We're looking at small, efficient houses in the $100K range and some of the taxes exceed $3,200. That's like $270 a month, just in property taxes.

 

We just came to terms on our first house! We close May 3rd!

And we are quite literally nuts!

We bought a $130,000 house on 2 acres of land two hours north of New York in the Catskills around Ski Windham (one of the best ski mountains in the Catskills). From the deck of the house you can see the ski slopes (they are about 15 minutes away) and the views are drop dead gorgeous. The back yard looks down over the valley from the mountain and there's a trout stream that runs along the back of the property.

We can't wait to start the remodel!

 

Codell or anyone,

I am curious about the benefit of owning a house vs. renting, I don't really see that much saving.

Let’s take Codell’s example for the yearly fixed cost.

Interest pay : 10,800
Property taxes : 3,750 (does this include school tax & home assoc. fee?)

Add the following if applicable :
School Tax : 1,000 (guestimate)
Home Association Fee : 500 (guestimate)
Home insurance : 1,000 (guestimate)


The total expense per year would be 17,050 + 7,200(payment toward the principle). The total fixed cost for owning a house per year would be 24,250 and I am not even including house maintenance cost!

If you rent an apartment for 1,200 a month, the total expense per year would be 14,400. This is a saving of 9,850 per year if you rent instead of buying a house.

Would the house value increased by 98,500 in ten years? Am I missing something in my calculation? The only benefit I see in owning a house vs. renting is more living space & privacy.

 

rbih.. but if you sold at the end of 10 years you'd get at least the 150k back....

 

Plus, rents often rise faster than taxes do.

If you pay $1,200 in rent right now, that's unlikely to remain constant for the next 30 years.

I've had my rent go up 50% in three years.

 

Is it better to pay off a house in 10 years or 30? I'm seeing 10 year payments plans on here but are used to seeing 30 year.

 

I would just add Refman that you might get some references for an accountant if you did your own taxes. I did my taxes multiple years until one time I had resident and nonresident California and AZ incomes taxes for part year and said forget it. That $120 saved me over 10 fold because of legit deductions I just would not have thought of on my own (and I thought I was pretty decent at it)--might be worth checking into.

 

Unless you have major cash or other assets right now I'd get a 30 year fixed loan unless you are confident of moving within 4 years.

 

rb:

you've counted principal payments as a sunk cost. As long as your house retains its value you get that money back. More than likely your house will appreciate with the cost of living....


So....

In your example:

Buying costs $17,050 per year (your actual sunk costs)
Renting costs $14,400 per year

Extra cost per year 2,650

Except you also get to deduct your interest and tax if you buy

So...deduct $14,550 per year from tax -- saving you about 2,900 per year in taxes at 20%.

The extra cost of maintenance should be offset by not having your rent increase each year. And you don't have to deal with a landlord.

You only lose if you have to sell in a short time (selling costs are high)....or if you get stung with a 'surprise' major repair or if the neighbourhood deteriorates.

Longer term -- you're better buying.