It’s that time of year. Many of us are playing beat the clock – sorting through stacks, totaling-up mileage, rounding-up receipts, collecting 1099s and W-2s – in order to file. Or at least get it to the accountant. Moaning all the while about the expense and the indignity of it all.
But I’ll take a different angle …
About 50 years ago, I had a conversation with an older member of my extended family. Recently widowed, she had had to pay a tax on the estate of her very successful late husband. She was so furious that her voice quavered, her lips were white, her face flushed. She mentioned an amount that in today’s money would be close to $200,000.
That’s a lot of money, I’ll admit. But at the time, my thought was that I wished I had an estate large enough to be taxed by such a whopping amount. I never said this to my relative (too timid back then – how times change!) and she retired to a plush beachfront condo on Longboat Key and lived another 30 years, still furious, no doubt, at the IRS.
I have replayed this scene in my mind countless times since – especially at tax time. I try to focus on the fact that the more I pay, the more I’ve made – and I like to make money! In my years in real estate, I’ve paid as much at $100,000 in income tax, and as little as $15,000. I consider it a privilege, no matter the amount.
With that in mind, let’s review a few ways home ownership and taxes interact. It’s not all bad!
Mortgage interest deduction
If you are paying a mortgage, there’s a substantial deduction available to you. Mortgage interest is the single biggest deduction most people who itemize can take. And it can reduce the taxes you owe – significantly!
Property tax deduction
Right behind mortgage interest is property tax. And another good way to reduce your liability.
Lesson: If you feel your tax burden is too high, buy a house!
Capital Gains
Here’s one that many people moan about. And sometimes it amazes me. I know at least two people right now who are staying put in properties that are less than ideal because they don’t want to pay capital gains tax on their increased equity. And given real estate price inflation over the past six years, that increase could be quite substantial.
I’d advise you to look at it from my angle. The more you pay, the more money you made – while having a roof over your head and shelter from the storm. If you have a large capital gains tax bill, it’s a given that you had a whopping increase in equity. Why moan about the tax when you could open a bottle of good champagne and celebrate the money you made?
Lesson: Focus on the upside and enjoy your life!