Is there a tax benefit to owning a home valued more than $2M?

Asked by Pa_home_buyer, 94301 Tue May 5, 2009

In a different thread, people keep alluding to the tax savings of owning a home >$2M. My understanding is that there is no benefit. The mortgage deduction is only applicable to the 1st million financed, which at 28% under the new tax changed comes to about $18,000. Moreover, property tax in not deductible under AMT, which affects virtually every buyer in this segment. Thus, once the property tax is higher than the mortgage deduction the home owner has a higher tax bill overall.

Am I missing something? I'd appreciate links to IRS documentation that state otherwise.

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11
Pa_home_buyer, , 94301
Mon May 11, 2009
matthew,

Another poster summed up your position as follows in the health of houses > $2M:

"Your numerous, unctuos postings truly reveal your character. Take the thread where you simply refuse to acknowledge that it is misleading on your part to advertise a tax benefit for home ownership for luxury homes when it is not reasonable to claim one. You try to defend your position by simply stating that there 'might be one' and that the buyers should look into it.

This is akin to arguing that I should factor in the possibility of finding a pot of gold in the backyard of the house I might purchase. Who knows, according to your logic there very well might be one. Sadly, this actually is more likely to be true than the purported tax advantage you have referenced in this thread numerous times. "

I would have to agree.
0 votes
Pa_home_buyer, , 94301
Thu May 7, 2009
This is silly matthew,

Can you give me a credible example where it would make sense for any buyer in this segment to contact his adviser?

In case you don't understand, is it reasonable at all to expect a tax benefit?
0 votes
Pa_home_buyer, , 94301
Thu May 7, 2009
Good Matthew

So you agree there are no tax benefits to owning a home > $2M that are worth discussing.
0 votes
Pa_home_buyer, , 94301
Thu May 7, 2009
Hi Matthew,

Do you claim that the benefits apply to the majority of buyers of homes > $2M as a primary residence? If so can you quantify them?

My claim is that tax benefits only apply to a small minority of buyers and is unethical for you to tout them as a benefit to home ownership in this segment.
0 votes
Pa_home_buyer, , 94301
Wed May 6, 2009
As I mentioned Matthew, I already know that there is no benefit in my case. The question I raised is motivated to understand whether it is reasonable for realtors to claim there is a tax benefit at all for homes > $2M.

It seems that it is not.

You have claimed in the past there is a benefit.

Care to quantify it?
0 votes
Shawn Furges, Both Buyer And Seller, Dublin, CA
Tue May 5, 2009
Matt,

Grace is absolutely qualified to give tax advice according to your own definition. She is a CPA, and worked as such previous to becoming a RE agent. Futhermore, she has a degree in Accounting. Just read her profile.

"I have worked as a CPA for two years prior to entering the real estate industry. " - Grace H. Moriaka.

Grace - thanks for you advise and comments.
0 votes
Pa_home_buyer, , 94301
Tue May 5, 2009
Thanks Grace and Jster for the comments.

I definitely agree that it is silly to consider buying a home for the tax deduction. This is especially true since there is none for a home >$2M. As you pointed out grace, many buyers don't finance more than a million in this segment. They can't however escape the property tax they incur. After ~$1.8M the property tax is higher than any savings in mortgage interest.

One of the reasons I wanted to ask this was to confirm my initial premise, and to assess the integrity of any realtor that tries to convince me otherwise.
0 votes
Grace Hanamo…, Agent, Cupertino, CA
Tue May 5, 2009
Hello PA and thanks for your question.

You are correct, as is your tax professional, that the mortgage interest deduction is capped and that property tax, in some qualifying cases, is also capped or reduced with alternative minimum tax. But here's the interesting thing I've seen personally, most of the clients with whom I've worked who purchase homes over $2 million are paying a substantial portion of the cost with money, stocks, equity from a previous home or homes; thus, they are not financing more than $900-1million of the fee with a mortgage, so while they may not (by virtue of adjusted gross income) qualify to a mortgage or property tax deduction, they are also not incurring more than the average interest charges either.

Essentially, PA, those who can purchase a $2 million home are seldom doing so for the tax deductions. They do so because they are buying into a community with excellent, if not superior, schools and community.

Thanks again for your post.

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
Tel (408) 426-1616
0 votes
Jster, , Palo Alto, CA
Tue May 5, 2009
In any case, don't listen to anyone who tells you that it's great to have a huge mortgage because then you get a big interest tax deduction. All the tax deduction does is reduce the effective interest rate that you're paying on the mortgage. But by taking on the mortgage, you're incurring interest expense that you wouldn't otherwise have. That interest is essentially a fee for living in your house....kinda like rent.

The only time the argument makes sense is if the cost of renting is equal to your mortgage interest. In that case, since the mortgage interest is tax deductible, it's effectively a cheaper option than renting.

Someone once told me, "My accountant tells me I have to buy a second house so I can get the tax deduction!" I told them to stay away from that accountant!
0 votes
Pa_home_buyer, , 94301
Tue May 5, 2009
Thanks for the answer roland. My tax adviser sees only the increased liability as described in my question.

I am wondering if anyone gets a tax write off that buys an expensive home. With an AMT threshold at $150K , it is unlikely they would be buying such a property in the first place.
0 votes
Roland Barcos, Agent, San Jose, CA
Tue May 5, 2009
Hi Pa_h_b,
That's a great question, but it should actually be directed to your tax advisor. Best case, someone that has experience may post a good answer, but it won't necessarily apply to your own personal situation.

Good luck,
Roland
0 votes
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