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Keeping Taxes in the Right Perspective

by | Apr 12, 2018 | Blog, Buyers, Real Estate

Are rising property taxes and the cap on the ability to deduct property taxes on our federal tax returns going to hurt real estate sales?

Unfortunately, the changes in the federal tax laws may already be impacting our housing market – the higher end market, most impacted by the $10,000 cap on the deductibility of taxes, has shown noticeable slowing over last year.  Rising tax millage rates are only going to exacerbate the problem, but rising costs have long been a reality of the world we live in and are to be expected.

What we need is a mindset shift, which will be slow in coming.  We all need to step back and look at our tax package as a whole.  Pennsylvania is a comparatively low taxing state when it comes to income tax. Our state income tax rate is only 3.07% — this is impressively low when compared to many other states (note our neighbors in New York at 8.82%, West Virginia at 6.5% and Ohio at 4.997%, and the top taxing state of CA at 13.3%).   What we are saving in income tax, we are paying in part in property taxes and this needs to be kept in perspective before making bold statements about how much property tax one will or will not pay.  Additionally, the $10,000 cap on deductibility of taxes as a cap on the combined sum of property and income taxes, so those in higher income tax states will be hit much harder by this.  We really do still have it pretty good in PA!

When considering property taxes, rather than focusing on what one is not getting, buyers would be well advised to think about what you are getting.  On a $500,000 assessment, the taxes in Sewickley borough would be approximately $41/day.  On a million dollar assessment, they would be approximately $82/day.  Compare this to the cost of hotels that you stay in on vacation! If you enjoy coming home everyday to a home that feels inviting and relaxing to you, if it is a home that your family thrives in and that provides shelter and sanctuary that you love, that seems like a small price to pay, even without the tax breaks. There is a cost to living – the food we eat (a dinner out can cost more than the daily property tax rate), the gas we burn to heat our homes in these unseasonable chilly Aprils, the cell phone bills to stay in touch with family and friends.  Property taxes are just another one of those costs of living.   I think it will be a long time (if ever) before we see that tax break return.  Reframing our thinking about property taxes, keeping in mind the otherwise low taxing state we live in and the intangible benefits that you and your family receive from living in a home that you love, is my recommended course of action!

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I’m ready to answer any questions you have regarding your real estate needs.
Kathe Barge, CRS, ABR, CNE
Associate Broker
HOWARD HANNA
REAL ESTATE SERVICES
401 Broad Street
Sewickley, PA 15143
Cell: 412-779-6060
Office: 412-741-2200 x238
kbarge@howardhanna.com

Should I Rent or Should I Buy?

by | Jan 30, 2015 | Blog, Buyers, Mortgage, Pittsburgh, Real Estate, Sewickley, Sewickley Herald

Dear Kathe:

 My wife and I are new doctors and ready to get our own place. We were thinking about renting for a while – how long should we rent for before buying a home?

 

The rent versus buy decision most often comes down to how much money you have saved. If you have a lucrative job, qualifying for a mortgage at today’s low interest rates is rarely the issue. But coming up with a down payment might be.

If you make $200,000 per year, at current interest rates, and assuming you are not carrying any debt, you could qualify to buy a home for approximately $850,000. That is probably much higher than you imagined. The monthly payment would be approximately $3500/month (principal & interest) with 10% down. But you might find the 10% (or $85,000) down to be the stumbling block and feel renting is your only option.

Renting a nice apartment or small home/townhome would typically cost you $1800 – $2000 each month. That adds up fast – not only don’t you get the opportunity to deduct the mortgage interest that you pay on your tax return each year (thereby lowering the amount of taxes that you owe) but rental payments are all cash lost to you – you are not building any equity that you can recoup someday when you buy. And if you are willing to spend this much each month on rent, you could pay the same amount each month for a mortgage on a $450,000 home if you have the 10% down (which is a much lower $45,000)!

Lenders do typically require 10% down however, unless you use a specialty product like an FHA loan. So if you have no savings, the chances are that unless you can get a “gift” from a family member or incredibly generous friend, you will need to rent until you can amass some savings. However, it is a wise decision to get into homeownership as soon as you can. Even if you buy significantly below what your income qualifies you to buy, just getting in the housing game will save you tax dollars and help you build equity for another home in the future when your savings more closely matches your income. Why pay rent for your landlord to increase his equity in the home you are renting.? With low interest rates, now is the ideal time to explore exactly what it will take to get you in a home of your own!