Recently I answered a question about the value of the home-mortgage tax deduction. Basically, I said that while you should absolutely take it into account in calculating the true cost of home ownership (along with lots of other costs, like repairs and repairs and repairs), there is nothing magic about the mortgage deduction. You’re not a sap for not having one — because you can only get one if you borrow a lot of money. Sometimes that’s smart; sometimes it’s not.

It’s quite true that if you’re now paying $1,000 a month rent and could own a place for the same $1,000 — after figuring in all likely costs — then you should probably grab the house (and the mortgage deduction that helps to make the after-tax cost of homeownership just $1,000 a month). But only if you expect to occupy it for quite some time, because selling it a year or two from now, apart from being a huge hassle and source of potential anxiety, can easily eat up the first 10% of any appreciation you might be sitting on.

How long you’ll live there is just one of the imponderables that makes the decision to buy or not buy more art than science. You can calculate to the penny the “cost” in lost interest of withdrawing $20,000 from your savings account for the downpayment. But what if you were taking that $20,000 out of the stock market instead? You can compare the after-tax cost of owning the home with your rent today — but what would your rent be in five years? And how do you value the ability to complain to someone else when there’s a problem rather than having to fix it yourself?

Anyhow, what got me thinking about all this was a message from one of you: “If your correspondent wants to get a truer picture of his contemplated tax situation when buying a home, he should also deduct the standard (no hassle, no records) deduction he enjoys from any tax reduction he might enjoy after buying a home.”

This is a good point, especially for someone who may have a tax-deduction envy. To take an extreme (but not entirely unlikely) example, say you have no tax-deductible items today. You give nothing to charity, pay no state or local income tax, and so on. Yet you yearn for that tax-deductible mortgage. Well hold on, pardner! Right now you’re getting about a $4,000 standard deduction if you’re single, better than $6,500 if you file jointly — so the first $4,000 or $6,500 in mortgage interest and property taxes would be “wasted” as a deduction. That much you’re getting to deduct anyway. Say you file jointly, property taxes would be $2,000 and mortgage interest would be $6,000. You have $8,000 in tax deductions you didn’t have before. But you could have taken the $6,500 standard anyway, so all this really gets you is $1,500 more in deductions. In your bracket, maybe that saves you $400 in taxes. Something, to be sure, but not reason enough to buy a house.

So I repeat: there are lots of good reasons to buy your own home, and the tax deduction certainly helps you to afford it. But don’t feel you’re a sap for not taking advantage of it. Especially to those of modest means, it may be even less than meets the eye. Think of it this way. Right now, you get a $6,500 tax deduction without having to shell out $100,000 for a house.



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