Tuesday, July 17, 2012

Those who own their houses with equity also get a tax break.

Matthew Yglesias, who wrote a terrific piece on the benefits of off-shoring yesterday, also wrote a piece on why Mark Zuckerberg has a mortgage:
Bloomberg writes that "wealthy individuals often choose to finance a home purchase rather than pay cash because of the overall low cost of mortgage debt and the additional access to liquidity," which is true but I think only scratches the surface. Another important issue is that interest payments are tax deductible, which is a very big deal if you have a very high income and live in a high-tax state like California.
But owning with equity gives the same tax break as owning with debt--the return one earns on her house (the rent she pays herself) go untaxed. Consider the following experiment: suppose you and your neighbor own your houses free-and-clear. Now you swap houses and charge each other market rent--you are now responsible for paying income taxes on that rent. The value of the tax break by staying in your own home is your marginal tax rate multiplied your return on equity. The return on equity is generally called net imputed rent.

The mortgage interest deduction places debt and equity on a level playing field when it comes to homeownership. Thus the many countries without a mortgage interest deduction, such as the UK, Canada, and Australia, still subsidize owner housing--they simply encourage people to own with equity instead of debt. This may be a very good idea.


Unknown said...
This comment has been removed by the author.
turesta, said...

It can be described more roughly by the number of rooms. A studio apartment has a single bedroom with no living room (possibly a separate kitchen istanbul real estate).
A one-bedroom apartment has a living or dining room istanbul property separate from the bedroom. Two bedroom, three bedroom, and larger units are common.
(A bedroom is defined istanbul properties as a room with a closet for clothes storage.)

The size of an apartment or house can be istanbul property described in square feet or meters. In the United States, this istanbul real estate includes the area of "living space",
excluding the garage and other non-living spaces. The "square meters" figure of a house in Europe istanbul properties may report the total area of the walls enclosing the home,
thus including any attached garage and non-living spaces, which makes it important to inquire what kind of surface definition has been used.

In recent years, istanbul real estate many economists have recognized that the lack of
effective real estate laws can be a significant istanbul properties barrier to investment in
many developing countries. In most societies, rich and poor, a significant fraction of the total wealth is in the form of istanbul property land and buildings.

In most advanced economies, the main source of capital istanbul real estate used by
individuals and small companies to purchase and improve land and buildings is mortgage loans (or other instruments). These are loans for which the real property
itself constitutes collateral. Banks are willing to make such loans at favorable rates in large part because,
istanbul property if the borrower does not make payments, the lender can foreclose by
filing a court action which allows them to take back the property and sell it to get their money back. For investors, profitability can be enhanced by using an off
plan or pre-construction strategy to purchase at a lower price which is often the case in the pre-construction istanbul properties phase of development.