Rent vs own

I'll help you move... 1 queen bed, 1 crib, some boxes of diaper, the mobile, a glider, LCD tv,... take me 6 hours... :) good luck w/ pregnancy....

I've made a very recent decision to rent...i did so because of the horrible condition of the apartments I've been seeing and the prices...for me the rent to buy ratio doesn't matter, it's a matter of gut renovations vs renting a clean, renovated apartment. good luck with your decision.

two components to tax deduction:

interest portion of mortgage payment (which assuming you don't get an interest only mortgage) is a number that reduces over time as your mortgage payment begins to be more and more principal rather than interest

and tax deductible portion of co-op maintenance (a percent that they will provide) which will also tend to go down over time as the interest and property tax portion goes down as a percent of the total or

the taxes on a condo.i.e. common charges are not subject to tax deduction.

then you need to multiply the sum of these numbers times your marginal tax rate while also making sure that the total of these and other deductions doesn't lower your marginal tax rate nor throw you into the AMT. and be aware that president obama has made noises about limiting some or all of these deductions to 28% regardless of your actual marginal tax rate.

Hi I think you want to be using the effective rate, not the marginal rate.

I think the original topic was http://www.streeteasy.com/nyc/talk/discussion/10692-cheaper-to-own-than-to-rent

not sure what you mean by effective rate...there is overall rate and marginal rate...where does effective fit in?

No, its DEFINITELY your marginal rate!!!!!!!!!!!!!!!!!

Not this again. You should use your marginal rate. This topic has been beaten to death on multiple prior threads.

No. It's whatever rate you NEED to use to come up with a calculation to support whatever you want to do.

Use your neighbor's marginal rate if you want. Or their effective rate. Or, hell, use their income, too - add it to yours, so you can afford to buy the mansion that you know you deserve to live in!

Even if it is in Long Island City!

Oh great, this again.

If it cost less per month to own instead of renting it, not including the tax deduction, then go for it. If you are doing this only for a tax write off, go talk to someone that just lost their job and they will tell you how they feel about a tax write off.

After a long struggle, I have decided to rent for another year. We understand the benefits of owning particularly the tax benefits. However, based on the current prices it makes no sense to purchase. I can get a very nice 2br/2ba for 4k/month, however the same unit will cost at least 1 million to purchase. And that's one that is not in great condition. No to mention you have to pay the cc or maint. on it, which is included in the price of a rental.

I think the prices have a bit more to fall before a buy to rent ratio of 12x -15x makes sense. And given that rents are falling into the foreseeable future and common charges + interest rates are increasing there is no reason to jump into buying. Right now, it makes more sense to buy a small lake house in NJ and claim that as my primary residence (if I wanted the tax benefit).

"If you are doing this only for a tax write off, go talk to someone that just lost their job and they will tell you how they feel about a tax write off."

STOP BEING SILLY! You get the tax write-off no matter what.

I think, Steve, that the point being made was that a tax deduction against no income is worth nothing
But I think you knew that.

PS Use marginal rate but be careful of how you treat City and State of NY taxes. Best way to test this would be to run "pro formas" on Turbo Tax using your 2008 actual return super imposing expected interest and property tax deductions and see what the combined Fed and State/Local savings are....bit of work but probably the only way to be sure about AMT etc....

"I think, Steve, that the point being made was that a tax deduction against no income is worth nothing
But I think you knew that."

Absolutely not. The whole reason to buy an apartment is because of the tax deduction. And don't forget to forget the other side of the equation - what you might have earned had you put your money elsewhere, or how much you could lose if real estate falls in value.

Oh, wait! Real estate never falls in value. Especially in Manhattan. Land is limited.

You'd think with the amount of blather being spewed, somebody could have at least ANSWERED the OP's question.

obernon -- sorry if this answer is too basic, but I'll assume you're not at all familiar with how this works:

Step 1. You need to know how much mortgage interest you will pay in year 1, year 2, year 3, etc. To Know this, you need to develop an amortization schedule for whatever mortgage you're considering. You can create a simple Excel spreadsheet or google around for one. For example, a basic 30 year fixed for $500,000 principle at 6% provides a monthly payment schedule that looks like this (payment, interest, principle):

Month 1 2,998 498 2500
Month 2 2,998 500 2498
Month 3 2,998 503 2495
etc
etc

Step 2: So, then you just add up the mortgage interest you will pay in year 1. This amount is tax deductible, so as the previous blather noted, you will SAVE this amount multiplied by your marginal tax rate.

Step 3: If you are buying a coop, any underlying building mortgage in your maintenance is tax deductible as well. You can get that from the managment company. Dont believe it when a broker says "maintenance is 50% tax deductible!" as those amounts are often wrong.

correction, reverse the order of my amounts to payment, principle, interest.

Note that in my example, in year one you would pay $29,833 in interest. So at a marginal rate of 25% you would "save" $7,500 per year or $625 per month. Thus you could theoretically change your pay withholding exemptions to take home $625 more.

Now everyone else can argue as to whether or not you actually saved that money.

The whole reason to buy an apartment is NOT because of the tax deduction. The tax deduction is a factor in the math, especially during the early years when you are paying greater percentage of interest.

As for money elsewhere, there are tangible money and lifestyle benefits to owning an apartment. If you can do the rent stabilization thing, you probably get some of the intangible benefits like the guarantee to stay and the guarantee on the amount you'll pay in the future. Otherwise comparing an investment in your place to live to stock markets, which is the area I work in for a living, doesn't make any sense.