Markham Lee_

Adjusted Case Schiller Housing Data

I'm not sure where you're getting the number of $5,880.00 - but the data does have the tax benefit factored in. I assume the person is in the 28% tax bracket and adjust their interest expenses accordingly.

It's also worth noting that the tax benefit is a bit of a misnomer:

1) It's only a "discount on your interest" so buying a home for the tax benefit, is akin to buying a TV to make money via the $50 rebate.

2) When you use the mortgage tax deduction, you have to itemize your deductions therefore giving up the standard deduction, which makes your effective tax savings less than many think.

For a single person the standard deduction is $5,350 and for a married person the standard deduction is $10,700.00. So, in terms of the tax benefit over a married person, you're really only benefiting by the amount OVER the standard deduction - even though it's standard practice to depreciate the entire interest expense and not just the amount over one's standard deduction.

For the this example, first year interest is $15,521.02.

A married person really only saves on the interest over the standard deduction or on $4,821.02 of their interest, whilst for a single person it would be $10,171.02. Net impact? The tax benefit amounts to $1,349.89 for a married person and $2,847.89 for a single person.

However, standard deduction amounts change annually and factoring it in properly would've made things quite complicated.

Still, it does wipe out a lot of the benefit from rent avoidance.

It's also worth noting, that married couples who purchase homes for less than $225,000.00 will see zero benefit from the tax aspect, as the first year interest (the most they'll ever pay) is less than the standard deduction.

-M

Adjusted Case Schiller Housing Data

The problem is this: would a person who can afford to buy a $300k home, pay a higher cost to rent one instead? It's not a realistic scenario, more realistic is that they traded up from a cheaper home or a rental property with a lower rent.

I think the best way to consider potential returns is to look at the likely, real life scenario.


-M