Posted by mattc on September 04, 2003 at 16:14:34:
Sometimes buying all the house you can afford may
not be the best thing. Circumstances change. I wish
I would have read the book before buying my home.
It might be better to use some money to buy other properties to give you cash flow over the longer-term, than to sink in all into your personal residence.
JMHO
buying a house for tax reasons… - Posted by J
Posted by J on September 04, 2003 at 15:43:50:
Is an 80-10-10 basically an 80-20 loan or am I wrong? My friend is buying a house because he needs to for tax reasons. He’s making too much money. Nice problem. What are some things he can/should do to minimize taxes as well as give him the best deal on buying a home. ANy certain ways he should purchase the property? The home he is approved for is worth around $200,000. His credit is good.
THanks in advance
J
Re: buying a house for tax reasons… - Posted by phil fernandez
Posted by phil fernandez on September 04, 2003 at 18:55:01:
You never buy real estate for JUST tax reasons. For every dollar you save on taxes, you are spending $3 or $4 to get that deduction.
You buy real estate for the following :
You buy for the combination of benefits and the tax benefits are just a small part of the puzzle.
Re: buying a house for tax reasons… - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 04, 2003 at 16:14:15:
J-----------------
Well, 80-10-10 means 80% first loan from institutional lender, 10% second loan from some other source, typically the seller, and 10% down payment by the buyer.
Is that the same a 80-20 loan? I wouldn’t think so. 80% first loan from institutional investor, 20% down payment by buyer? Doesn’t sound the same to me. From the first lender’s point of view, it is the same, they are only lending 80% LTV. In a way 80-10-10 is actually better, as there are two different people who could pay them, the owner and the second lender.
A 80-10-10 would be good for your friend, assuming that he can make the payments on both loans, which sounds likely as you say “He’s making too much money.”
He can reduce taxes also by the deduction for the interest on the loans on his own home, assuming that he itemizes his deductions on his 1040. So, the more loan interest he has to pay the better.
If his income is less than $150K taxable income each year, there are yearly tax benefits from investing in long-term rental real estate. For those between $100K and $150K taxable income, the immediate tax benefits of rental properties are reduced progressively, the more income, the less tax savings. At least immediately. The tax benefits which cannot be taken on a yearly basis can be saved up and obtained should one sell a investment property. However, that is not a good strategy. It is better to never sell rental properties, from a tax standpoint. It is better to either exchange into other income properties or die with properties which your heirs get with a stepup in basis which may completely eliminate capital gains tax if they sell soon after inheriting from you.
To maximize tax benefits, one wants to own lots of properties to depreciate. This suggest highly leveraging–small cash payment, big loans. However, this is not applicable to one’s own home, as one does not depreciate it, unless one uses part of it for income purchases, such as renting it out or running a business in it.
If he needs to reduce taxes even more, he should consider getting into tax credits. These are found by investing in historical properties and low-income property investments. They are usually larger projects, not individually owned. I would expect that tax advisors would know of some. Perhaps an internet search would turn up such investments.
Good Investing*Ron Starr
Have him read Rich Dad before buying - Posted by mattc
Posted by mattc on September 04, 2003 at 16:05:07:
Ask him to read the book “Rich Dad” by Robert Kiyosaki
before he buys. Lots of good ideas there.
Re: buying a house for tax reasons… - Posted by J
Posted by J on September 04, 2003 at 15:58:01:
He’s single (nt)
Re: buying a house for tax reasons… - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 04, 2003 at 21:46:06:
Phil Fernandez---------------
“You buy for the combination of benefits and the tax benefits are just a small part of the puzzle.” I agree that one buys and may get several benefits from property ownership. But that is for income property.
For one’s own house the “cash flow” is not important, I think. The “equity build up” is actually a subpart of the “cash flow” with income properties–the forced saving part, not a separate benefit. With your own house however, hmmm. Interesting question. I’ll have to think about that.
It seems to me that buying a home to live in mainly to get the tax benefits makes sense for a renter. There are not many ways to reduce taxes these days. We can’t even write off our credit card debt unless the items were bought for investment properties.
Good InvestingRon Starr****