DIYbanter - View Single Post

wrote:
shinypenny wrote:

anita wrote:
No grouse about paying my fair share of taxes, but I dont want to
pay
someone else's share too ! Ours is not a good school district or
anything.

One more thing to consider: you can deduct your taxes *and* your
mortgage. Those people who have a small or no mortgage can't deduct
as
much. So you are paying more in that monthly payment, but you're
getting a much bigger break than they are come tax time. It all
evens
out in the wash.

I scratch my head every time I hear this argument. What tax bracket
are you
in???

I'm about to go up to the 28% bracket, since I just got a raise. :-)

_I'm_ in the 28% tax bracket, so for every extra dollar my local
property
tax bill goes up, I pay $0.28 less in federal income tax. I still
have to
pay $0.72 of that myself.

Also the deduction is only saves me money on the amount my deductions
are
above the standard deduction ($9,700 for married filling jointly in
2004).
My local property taxes/vehicle excise taxes/state income taxes are
about
$10,000/year this year. From your argument it sounds like a good
thing
that I'm paying $5,600 in local property taxes because it allows me
to
deduct an extra $300 from my federal income and save $84 on my tax
bill.
I'd rather pay $2,400 less in property taxes like when we first
bought the
house (1999-2000), and miss out on the $84 tax savings.

All very true, but you are comparing apples to apples, and I was
attempting to compare apples to oranges for Anita.

I was mostly responding to my suspicion (which admittedly may be
incorrect) that she was going from renting to home owning and possibly
concerned about cash flow. Because of the deductions, you can't compare
a montly rent payment to a mortgage plus tax payment. When you rent,
you can't deduct anything, but you are still paying taxes - it's just
that your landlord gets to deduct them, and not you. When you own, you
can raise your deductions and increase cash flow, particularly in the
beginning when your payment is mostly interest. If one's mortgage is
the same amount as one's rent used to be, it is typically *more*
affordable to own vs rent.

I was also comparing someone like Anita who is starting out on a 15 or
30-year mortgage, to someone like her neighbors that may have their
house all paid off. In the beginning of Anita's mortgage, she is mostly
paying interest and not principal, and it's all deductible and if her
mortgage is high enough, it further offsets the tax she is paying (you
can't just look at the property tax deduction - you need to consider
the interest deduction too). Her neighbors probably don't have that
deduction anymore, what's more, they are probably retired or close to
retired, and don't have the same earning ability or 401K leverage as
someone in the prime of their career.

Anyway, I was primarily hoping to suggest to Anita it may not be as bad
as she fears. I remember going through this myself - choking at how
high the monthly payment was and mentally/emotionally comparing it to
my rent - until I sat down and ran all the numbers. (My mortgage is
exactly what I was paying per month in rent PLUS a hefty amount for
taxes on top of that - it was the taxes that made it seem like I was
going to be in big trouble and not be able to afford the place on my
salary).

Ultimately, for me (and yes I have a big mortgage), I have found after
renting for 5 years and not being able to save a dime, I was finally
able to save quite a bit since the cash flow picture is much more
favorable. By increasing my deductions from 2 to 9, I am now able to
save 20% (automatically deducted and goes into 401K, where it earns
even more). Before, I couldn't save anything because it all went into
my landlord's pocket.

jen