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JCK
Joined: 15 Feb 2007 Posts: 559
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Posted: Fri Feb 16, 2007 1:20 pm GMT Post subject: |
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Looker wrote: |
If I do not buy:
My total federal tax bill this year is $26,055.
My monthly rent is $1800. Yearly = $21,600.
Total Outlay Housing + Fed Taxes = $47,665.
If I buy with the interest and tax figures shown:
My total federal tax bill would have been $17,855
My monthly housing will cost $2,466. Yearly = $29,592
Total Outlay Housing + Fed Taxes = $47,447
I don't know if there is any other way that makes it clearer: Either I pay $8200/yr in extra taxes or $8200 to the mortgage on a 450K home.
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I pretty sure you're counting the deduction twice. You will be paying $2712 in Interest and Property Tax, according to your own post above. You cannot subtract the deduction both from your payment (which is how I understand you arrive at the $2466 figure) and also subtract that same amount from your taxes.
You will be paying $2712, plus principal, insurance, and other homeowner expenses as your monthly payment out of pocket, which will be about $3000 leaving your pocket every single month, not the $2466 figure you've cited above. That will result in the tax savings you've accounted for using your 1040 software.
The above "Guest" post is mine, BTW.
Again, please let me know if I've misunderstood. |
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Looker Guest
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Posted: Fri Feb 16, 2007 1:43 pm GMT Post subject: JCK I think you ae right |
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Yes, I see what you are saying and I think I messed up. Thanks very much for the catch.
I WAS counting the deduction twice!
The breakeven for me is actually around $350K where I have ~2459/month before deductions and $1900/month payment after deductions.
I doubled-up becasue I am paying a huge tax bill this year and I was trying to calculate how much house I could buy to send it to zero. I conflated yearly/monthly tax savings. Never do spreadsheets after 1AM! |
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john p
Joined: 10 Mar 2006 Posts: 1820
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Posted: Fri Feb 16, 2007 6:54 pm GMT Post subject: now that you've got us all curious |
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Now that you've got our attention and curiosity, what is the break even for a 1800 a month renter in the 28% bracket?
BTW- nice teamwork... |
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john p
Joined: 10 Mar 2006 Posts: 1820
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Posted: Fri Feb 16, 2007 9:11 pm GMT Post subject: |
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I'm sorry, I may have read your post wrong. Are you saying that without considering premiums to heating, fixing stuff, and other typical homeowner expenses, a household that is used to paying a $1800 a month rent (with or without utilities) can walk into a $350k property? Are you assessed at $350k and property tax at an average $10 per thousand?
So stipulate that the $1800 a month renter can on paper transfer to a $350k house doing the 80, 15, 5-down loan strategy. For a factor of safety for this poster what do people think someone should be comfortably saving above the rent and a renter's living expense and retirement savings to one cover the premium of home ownership and two to maintain a liquid emergency fund? I would say that you should try to stay within 26-29 percent of your gross household income for mortgage, property tax, pmi (if any) and home insurance. After your down payment and closing costs you should try to have $15-20k cash or very liquid investment on hand. If you have an older home and you have a home inspection, target the items that the inspector flagged and have some dough set aside somewhere to cover any of the potential cash outlays... If you're cash rich but monthly hurdle poor, a fixer-upper may be the way to go, but don't extend to the hilt on a fixer-upper, you'll have nothing to cover the expenses. That is also part of the reason why nothing is moving right now, a lot of Boston's housing stock is tired and is a big wildcard for those who are cash strapped... |
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waiting Guest
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Posted: Wed Feb 21, 2007 8:55 pm GMT Post subject: corroboration |
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I've recently run the same numbers discussed by looker using the Motley Fool rent/buy calculator. As far as I can tell, a 5-year breakeven comes at $360k, assuming basically NO depreciation - a dangerous assumption to say the least. |
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Jake Guest
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Posted: Sat Feb 24, 2007 6:07 pm GMT Post subject: Dilemma |
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How about if you rent a Townhouse in a decent development until this thing shakes out? |
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