nytimes buy vs rent calc does not consider new tax law

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gurusw
Posts: 90
Joined: Sun May 11, 2008 9:37 am

nytimes buy vs rent calc does not consider new tax law

Post by gurusw » Sun Aug 12, 2018 5:18 pm

Hi,

The below calculator is famous for rent vs buy decisions:
https://www.nytimes.com/interactive/201 ... lator.html

But I think it has not kept up to date with the new tax laws, and it is giving wrong forecast to the homebuyers who are taking more than $750K of mortgage, and/or who potentially have more than $10K in property taxes.

e.g. I kept all the default numbers the same except I changed property taxes to be 1.06%. I then ran the calculator for $937K home price.
That comes out to be $9932 in property taxes. Also at 20% down-payment, the mortgage would be $749.6K. This is the optimum mortgage & property taxes from tax deductibility perspective.
The calculator says renting is better if rent is less than $2859.

Similarly, for $737K house, the break-even rent is $2270
It has $7812 property taxes & $589.6K mortgage.

And for $1137K house, the break-even rent is $3449
It has $12,052 property taxes & $909.6K mortgage.

So between 737K & 937K house, the break-even rent increases by $589
And between 937K & 1137K house, the break-even rent increases by $590

I think this is ridiculous. Given the new tax reform, the break-even rent cannot increase linearly, it should have more steep increase.

Secondly,the calculator does not consider whether there are any state taxes. Since the limit of $10K is on SALT, even less than $10K in the property taxes may not be advantageous for offsetting the income.

This post is meant to be buyer-aware post. Please point out if I missed anything. Thanks.

PFInterest
Posts: 2252
Joined: Sun Jan 08, 2017 12:25 pm

Re: nytimes buy vs rent calc does not consider new tax law

Post by PFInterest » Sun Aug 12, 2018 5:33 pm

yea its not updated. you can see the initial article came out in 2014.

Walkitoff
Posts: 8
Joined: Tue Dec 05, 2017 7:44 pm

Re: nytimes buy vs rent calc does not consider new tax law

Post by Walkitoff » Sun Aug 12, 2018 7:29 pm

Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.

randomguy
Posts: 6294
Joined: Wed Sep 17, 2014 9:00 am

Re: nytimes buy vs rent calc does not consider new tax law

Post by randomguy » Sun Aug 12, 2018 7:51 pm

Walkitoff wrote:
Sun Aug 12, 2018 7:29 pm
Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.
Your higher take home income doesn't change the rent versus buy math. Imagine your income goes up by 100 bucks, rent stays constant and the house cost goes up 50 bucks. The house is now more affordable. Renting though is now a better deal as it is now worth 50 bucks more than buying than it was before.

It might be worth writing the new york times and see if they will put a banner up on the site mentioning that the math is out of date.

gmaynardkrebs
Posts: 887
Joined: Sun Feb 10, 2008 11:48 am

Re: nytimes buy vs rent calc does not consider new tax law

Post by gmaynardkrebs » Sun Aug 12, 2018 10:35 pm

randomguy wrote:
Sun Aug 12, 2018 7:51 pm
Walkitoff wrote:
Sun Aug 12, 2018 7:29 pm
Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.
Your higher take home income doesn't change the rent versus buy math. Imagine your income goes up by 100 bucks, rent stays constant and the house cost goes up 50 bucks. The house is now more affordable. Renting though is now a better deal as it is now worth 50 bucks more than buying than it was before.

It might be worth writing the new york times and see if they will put a banner up on the site mentioning that the math is out of date.
I think part of their problem is NY and several other states are challenging the the new law in court. They are also discussing tactics to avoid SALT by creating new loopholes in state law. It is not yer settled yet in their eyes.

Walkitoff
Posts: 8
Joined: Tue Dec 05, 2017 7:44 pm

Re: nytimes buy vs rent calc does not consider new tax law

Post by Walkitoff » Mon Aug 13, 2018 5:01 pm

randomguy wrote:
Sun Aug 12, 2018 7:51 pm
Walkitoff wrote:
Sun Aug 12, 2018 7:29 pm
Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.
Your higher take home income doesn't change the rent versus buy math. Imagine your income goes up by 100 bucks, rent stays constant and the house cost goes up 50 bucks. The house is now more affordable. Renting though is now a better deal as it is now worth 50 bucks more than buying than it was before.

It might be worth writing the new york times and see if they will put a banner up on the site mentioning that the math is out of date.
Since tax rates went down for all, presumably the value of the interest deduction decreased only for a few making the rent proposition better for those few. At the end of the day it's one part of a calculation very much unique to an individual's circumstances.

gmaynardkrebs
Posts: 887
Joined: Sun Feb 10, 2008 11:48 am

Re: nytimes buy vs rent calc does not consider new tax law

Post by gmaynardkrebs » Mon Aug 13, 2018 6:15 pm

Walkitoff wrote:
Mon Aug 13, 2018 5:01 pm
randomguy wrote:
Sun Aug 12, 2018 7:51 pm
Walkitoff wrote:
Sun Aug 12, 2018 7:29 pm
Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.
Your higher take home income doesn't change the rent versus buy math. Imagine your income goes up by 100 bucks, rent stays constant and the house cost goes up 50 bucks. The house is now more affordable. Renting though is now a better deal as it is now worth 50 bucks more than buying than it was before.

It might be worth writing the new york times and see if they will put a banner up on the site mentioning that the math is out of date.
Since tax rates went down for all, presumably the value of the interest deduction decreased only for a few making the rent proposition better for those few. At the end of the day it's one part of a calculation very much unique to an individual's circumstances.
The impact may be modest in lower income areas where people do not itemize, but in the urban areas with high priced housing and high incomes it will be. I'm not in favor of the deduction, but its elimination will not be good overall for the real estate business in these areas, which through some strange coincidence just happen to vote blue.

Tanelorn
Posts: 1539
Joined: Thu May 01, 2014 9:35 pm

Re: nytimes buy vs rent calc does not consider new tax law

Post by Tanelorn » Tue Aug 14, 2018 3:58 am

gmaynardkrebs wrote:
Sun Aug 12, 2018 10:35 pm
I think part of their problem is NY and several other states are challenging the the new law in court. They are also discussing tactics to avoid SALT by creating new loopholes in state law. It is not yer settled yet in their eyes.
They seem like they're still in denial, and not just about this.

BogleMelon
Posts: 1440
Joined: Mon Feb 01, 2016 11:49 am

Re: nytimes buy vs rent calc does not consider new tax law

Post by BogleMelon » Tue Aug 14, 2018 9:15 am

I always find this one more reliable: https://www.realtor.com/mortgage/tools/ ... alculator/
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

gurusw
Posts: 90
Joined: Sun May 11, 2008 9:37 am

Re: nytimes buy vs rent calc does not consider new tax law

Post by gurusw » Sun Aug 26, 2018 1:00 pm

Walkitoff wrote:
Sun Aug 12, 2018 7:29 pm
Presumably the calculator was not also updated for the majority of the population for whom these limits do not impact, but received a significant income tax reduction due to an increase in the standard deduction and a reduction in income tax rates. These items would allow more after tax income to be available to purchase a home, and/or pay a higher rent.
The calculator asks for marginal tax rate, so the increase in the standard deduction is automatically factored in.
BogleMelon wrote:
Tue Aug 14, 2018 9:15 am
I always find this one more reliable: https://www.realtor.com/mortgage/tools/ ... alculator/
This calculator has fewer parameters to enter. Also to me , it seems it is giving the similar numbers as NYtimes calc.

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