Talk:Owning vs renting

Note: One element in the home ownership equation relates to estate valuation and the estate taxation system. The net equity value of the home is an estate valuation asset (as is the value of life insurance death benefits). In combination, both of these estate value assets can greatly increase the taxable estate well beyond what many investors might think of as their invested wealth. As of now, the Congress has not addressed the return of the pre-2000 taxable estate exemptions which are scheduled to revert back into law after 2010. --Blbarnitz 02:47, 31 May 2009 (UTC)
 * Barry, I'm not sure I see your point. If I have a $4 M estate, and my choice is between having $500 K in capital gains in my home at death versus an incremental $500 K in capital gains in mutual funds, there is no difference in treatment for the home is there?  As compared to a sale during my lifetime, when the capital gains treatment difference is night and day. -Dan Kohn 19:37, 31 May 2009 (UTC)
 * The point is that housing (and insurance death benefits) can very easily exceed the personal estate tax exemption (which if memory serves, is $1,000,000 when the reversion to pre-2000 estate tax is set to occur after 2010, although congress is likely to legislate this issue by the end of 2010.) Since estate tax rates quickly reach the maximum rate at 55%, the value of a residence is not a trivial issue. (Throwing away a 1,000,000 exemption results in an approximate $550,000 estate tax due nine months after the surviving spouse dies. Married couples would need to execute A-B revocable living trusts in order to preserve each spouse's estate tax exemption.) This is especially noteworthy for community property states, since community property can be easily allocated to either trust, greatly enhancing the ability of the citizen to fully realize their lifetime exemption. Since our community property states are mostly part of the Continental (Spanish and French) legal systems, they are mostly situated in the Western US (as a function of the Spanish heritage). As you know, property values in California and the West Coast greatly exceed values in the Mid West or South. This of course is an argument for a narrow 1% to 10% of the population, who will deal with residential equity through trust structures (A-B trusts or a Qualified personal residence trust).
 * The remaining 90% are likely to either downsize the residence or go the reverse mortgage route during decumulation cycles. See Changes in U.S. Family Financesfrom 2004 to 2007: Evidence from the Survey of Consumer Finances for the state of the nations families' income, net worth, investment, and debt conditions.


 * Dan, you might want to make a footnote regarding the step up in valuation for residential homes, taking into account the differences between joint ownership (the most popular option for holding the property in common law states) and as community property in community property states.


 * If held as joint property, the first spouse to do die will have a step up in valuation for his/her half of the property. The survivor's half of the property does not step up. When the surviving spouse dies, assuming title to the property passes to him/her, the heirs will receive a step-up of the entire property (although estate tax may be due). If the first decedent's half of the joint property is placed in the credit shelter B trust, it will retain its step up basis and will be exposed to the capital gains tax upon sale, but any appreciation will not be exposed to estate tax.


 * Example: Arthur and Amy Clennam bought a home (in Iowa) as joint owners, for $150,000. Each spouse has a $75,000 basis in the property. When Arther dies, the home is valued at $450,000. Arthur's half interest in the property steps up to $225,000, while Amy retains the $75,000 basis for her interest. Assuming Amy receives title to the home, her $300,000 basis in the property will step up to its market value when she dies.


 * In a community property state, a residential home property titled as community property steps up 100% upon the death of the first marriage partner, and then steps up again (100 percent) when the surviving spouse dies.


 * Example: Lets assume Arthur and Amy Clennam live in California and purchase their home as community property. The home is purchased for $150,000. When Arthur dies, the home is valued at $750,000. As community  property, the home steps up to $750,000. When Amy dies, the home will again step up to its market value.

--Blbarnitz 21:15, 31 May 2009 (UTC)

NYT Calculator
Dan,

This is a good section to have in the Wiki and I appreciate your efforts to get it done. I tried to make some edits but they got lost and I don't know how to add to the index or get the format correct on the heading. I did not want the current forum thread to become a discussion about the NYT calculator so I will mention these items here.

The default ROI in the calculator is 5%, not 5.5%.

I also wanted to add a section "Notes on the NYT Buy/Rent Calculator" and then point out that:

1. The investment return, house price appreciation and rental change variables are nominal values. If house price appreciation is set at 1% and inflation at 2% the house value is not keeping up with inflation.

2. Emphasize again that all investment return is taxed at 15%. This may or may not be the true for an individual case but there is no way to adjust this tax rate.

3. The calculator assumes everyone itemizes deductions when filing their federal income tax return. The yearly cost of purchasing a residence is reduced by applying the variable tax rate to the amount of property taxes for that year. If the amount of mortgage interest paid is small, it may be better to take the standard deduction.

4. There is a significant bias towards buying. The calculator assumes a renter does not have funds to make a down payment and no credit is given for the investment income that the renter would receive from investing that money.

Payback period?
In the main page's Did You Know? box, a statement is made that it's cheaper to rent than own unless you stay for a decade.


 * Renting your home is often less expensive than owning unless you will stay there for a decade.

Is this controversial? Should it be removed from the Did You Know? box? --LadyGeek 01:10, 10 November 2009 (UTC)