Rent or Buy? Here is a tool for you

[detourbeach]

I made this tool to evaluate my new home purchase decision. It was a great move, with 2 renters I’m paying about $250/month out of pocket after the tax savings. Here is a screenshot of it.

Quickpost this image to Myspace, Digg, Facebook, and others!

Here is the file download. Only change the numbers at the top in the blue boxes! Feel free to comment and I will improve the tool. Thanks.

[Eugene]

Looks pretty good. My comments:

The correct formula to put into C9 and E9 is:

=$B$3*C6/(1-POWER(1+C6/12,-360))/12-C8

(your way is correct for 6.3% but roughly $30/month off for 6.75%)

If you have renters sharing your primary residence, you *may* have to pay income tax on whatever they’re paying you.

You’re losing some money because you have to make a down payment. You’ll probably have to put 20% down (or else you’ll be hit with higher interest rates). Lost interest income on 20% of a $500,000 house is around $250/month.

The whole thing is built for a single person ($5500 deduction, $7000 state tax) I’d argue that homebuyers are more commonly married than single.

[Eugene]

Looks pretty good. My comments:

The correct formula to put into C9 and E9 is:

=$B$3*C6/(1-POWER(1+C6/12,-360))/12-C8

(your way is correct for 6.3% but roughly $30/month off for 6.75%)

If you have renters sharing your primary residence, you *may* have to pay income tax on whatever they’re paying you.

You’re losing some money because you have to make a down payment. You’ll probably have to put 20% down (or else you’ll be hit with higher interest rates). Lost interest income on 20% of a $500,000 house is around $250/month.

The whole thing is built for a single person ($5500 deduction, $7000 state tax) I’d argue that homebuyers are more commonly married than single.

[Eugene]

Looks pretty good. My comments:

The correct formula to put into C9 and E9 is:

=$B$3*C6/(1-POWER(1+C6/12,-360))/12-C8

(your way is correct for 6.3% but roughly $30/month off for 6.75%)

If you have renters sharing your primary residence, you *may* have to pay income tax on whatever they’re paying you.

You’re losing some money because you have to make a down payment. You’ll probably have to put 20% down (or else you’ll be hit with higher interest rates). Lost interest income on 20% of a $500,000 house is around $250/month.

The whole thing is built for a single person ($5500 deduction, $7000 state tax) I’d argue that homebuyers are more commonly married than single.

[Eugene]

Looks pretty good. My comments:

The correct formula to put into C9 and E9 is:

=$B$3*C6/(1-POWER(1+C6/12,-360))/12-C8

(your way is correct for 6.3% but roughly $30/month off for 6.75%)

If you have renters sharing your primary residence, you *may* have to pay income tax on whatever they’re paying you.

You’re losing some money because you have to make a down payment. You’ll probably have to put 20% down (or else you’ll be hit with higher interest rates). Lost interest income on 20% of a $500,000 house is around $250/month.

The whole thing is built for a single person ($5500 deduction, $7000 state tax) I’d argue that homebuyers are more commonly married than single.

[Eugene]

Looks pretty good. My comments:

The correct formula to put into C9 and E9 is:

=$B$3*C6/(1-POWER(1+C6/12,-360))/12-C8

(your way is correct for 6.3% but roughly $30/month off for 6.75%)

If you have renters sharing your primary residence, you *may* have to pay income tax on whatever they’re paying you.

You’re losing some money because you have to make a down payment. You’ll probably have to put 20% down (or else you’ll be hit with higher interest rates). Lost interest income on 20% of a $500,000 house is around $250/month.

The whole thing is built for a single person ($5500 deduction, $7000 state tax) I’d argue that homebuyers are more commonly married than single.

[surveyor]

tool!

The spreadsheet is ok as a basic tool, but if you are renting portions of your house to renters, you are missing several tax deductions.

1. Depreciation of the portions being rented

(improved value * (2/3) /27.5*0.25/12)

2. Basic utilities (power, water, sewer)

(power + water + sewer + etc)*(2/3)/12

3. Business utilities (telephone, cellphone, internet).

(cellphone + telephone + internet) * (2/3)/12

Using rough numbers, your property is actually costing you about $6/mo.

Make sure to take full advantage of your home! You can probably maximize it further by using the home office tax deduction and using chattel depreciation. I would give you rough numbers on these tax breaks, but they are hard to generalize and requires a lot of study.

Anyways, point is that I think you are actually overpaying your taxes because you’re not counting everything you’re entitled to (because you are technically a landlord).

[surveyor]

tool!

The spreadsheet is ok as a basic tool, but if you are renting portions of your house to renters, you are missing several tax deductions.

1. Depreciation of the portions being rented

(improved value * (2/3) /27.5*0.25/12)

2. Basic utilities (power, water, sewer)

(power + water + sewer + etc)*(2/3)/12

3. Business utilities (telephone, cellphone, internet).

(cellphone + telephone + internet) * (2/3)/12

Using rough numbers, your property is actually costing you about $6/mo.

Make sure to take full advantage of your home! You can probably maximize it further by using the home office tax deduction and using chattel depreciation. I would give you rough numbers on these tax breaks, but they are hard to generalize and requires a lot of study.

Anyways, point is that I think you are actually overpaying your taxes because you’re not counting everything you’re entitled to (because you are technically a landlord).

[surveyor]

tool!

The spreadsheet is ok as a basic tool, but if you are renting portions of your house to renters, you are missing several tax deductions.

1. Depreciation of the portions being rented

(improved value * (2/3) /27.5*0.25/12)

2. Basic utilities (power, water, sewer)

(power + water + sewer + etc)*(2/3)/12

3. Business utilities (telephone, cellphone, internet).

(cellphone + telephone + internet) * (2/3)/12

Using rough numbers, your property is actually costing you about $6/mo.

Make sure to take full advantage of your home! You can probably maximize it further by using the home office tax deduction and using chattel depreciation. I would give you rough numbers on these tax breaks, but they are hard to generalize and requires a lot of study.

Anyways, point is that I think you are actually overpaying your taxes because you’re not counting everything you’re entitled to (because you are technically a landlord).

[surveyor]

tool!

The spreadsheet is ok as a basic tool, but if you are renting portions of your house to renters, you are missing several tax deductions.

1. Depreciation of the portions being rented

(improved value * (2/3) /27.5*0.25/12)

2. Basic utilities (power, water, sewer)

(power + water + sewer + etc)*(2/3)/12

3. Business utilities (telephone, cellphone, internet).

(cellphone + telephone + internet) * (2/3)/12

Using rough numbers, your property is actually costing you about $6/mo.

Make sure to take full advantage of your home! You can probably maximize it further by using the home office tax deduction and using chattel depreciation. I would give you rough numbers on these tax breaks, but they are hard to generalize and requires a lot of study.

Anyways, point is that I think you are actually overpaying your taxes because you’re not counting everything you’re entitled to (because you are technically a landlord).

[surveyor]

tool!

The spreadsheet is ok as a basic tool, but if you are renting portions of your house to renters, you are missing several tax deductions.

1. Depreciation of the portions being rented

(improved value * (2/3) /27.5*0.25/12)

2. Basic utilities (power, water, sewer)

(power + water + sewer + etc)*(2/3)/12

3. Business utilities (telephone, cellphone, internet).

(cellphone + telephone + internet) * (2/3)/12

Using rough numbers, your property is actually costing you about $6/mo.

Make sure to take full advantage of your home! You can probably maximize it further by using the home office tax deduction and using chattel depreciation. I would give you rough numbers on these tax breaks, but they are hard to generalize and requires a lot of study.

Anyways, point is that I think you are actually overpaying your taxes because you’re not counting everything you’re entitled to (because you are technically a landlord).

[sdcellar]

Seems like there are a lot of little issues with this spreadsheet. Some in your favor, some not.

First off, your including part of your state tax as part of your tax benefit of homeownership even though you’d receive that even if you didn’t have home related deductions (7000 > 5500, you’d get 25% of 1500 as tax benefit regardless). If you don’t believe me, zap rows 23 and 24 and you’ll see.

When you say you’re in the 25% bracket, are you combining fed and state? If so, that seems a little low (so your tax benefit would be higher), but I really only know my own tax bracket and it sucks. The tricky thing with brackets is you can’t always treat your first dollar like your last. Some of your basis may fall in a different bracket, so you should at least consider that.

Not sure how you arrived at a property tax basis of less than 1%. Is this in San Diego?

Also, on the last comment, I don’t really know any of the tax implications of renting out part of your home, but isn’t the answer somewhere in the middle? That is, I can claim some of the interest and some of the depreciation? For normal rentals, can I deduct interest expense?

Regardless, you’ve still put together a nice little spreadsheet. Factoring in all the subtleties (amortization, for example) is typically more effort than it’s worth. You just want to make sure you’re not missing anything big.

[sdcellar]

Seems like there are a lot of little issues with this spreadsheet. Some in your favor, some not.

First off, your including part of your state tax as part of your tax benefit of homeownership even though you’d receive that even if you didn’t have home related deductions (7000 > 5500, you’d get 25% of 1500 as tax benefit regardless). If you don’t believe me, zap rows 23 and 24 and you’ll see.

When you say you’re in the 25% bracket, are you combining fed and state? If so, that seems a little low (so your tax benefit would be higher), but I really only know my own tax bracket and it sucks. The tricky thing with brackets is you can’t always treat your first dollar like your last. Some of your basis may fall in a different bracket, so you should at least consider that.

Not sure how you arrived at a property tax basis of less than 1%. Is this in San Diego?

Also, on the last comment, I don’t really know any of the tax implications of renting out part of your home, but isn’t the answer somewhere in the middle? That is, I can claim some of the interest and some of the depreciation? For normal rentals, can I deduct interest expense?

Regardless, you’ve still put together a nice little spreadsheet. Factoring in all the subtleties (amortization, for example) is typically more effort than it’s worth. You just want to make sure you’re not missing anything big.

[sdcellar]

Seems like there are a lot of little issues with this spreadsheet. Some in your favor, some not.

First off, your including part of your state tax as part of your tax benefit of homeownership even though you’d receive that even if you didn’t have home related deductions (7000 > 5500, you’d get 25% of 1500 as tax benefit regardless). If you don’t believe me, zap rows 23 and 24 and you’ll see.

When you say you’re in the 25% bracket, are you combining fed and state? If so, that seems a little low (so your tax benefit would be higher), but I really only know my own tax bracket and it sucks. The tricky thing with brackets is you can’t always treat your first dollar like your last. Some of your basis may fall in a different bracket, so you should at least consider that.

Not sure how you arrived at a property tax basis of less than 1%. Is this in San Diego?

Also, on the last comment, I don’t really know any of the tax implications of renting out part of your home, but isn’t the answer somewhere in the middle? That is, I can claim some of the interest and some of the depreciation? For normal rentals, can I deduct interest expense?

Regardless, you’ve still put together a nice little spreadsheet. Factoring in all the subtleties (amortization, for example) is typically more effort than it’s worth. You just want to make sure you’re not missing anything big.

[sdcellar]

Seems like there are a lot of little issues with this spreadsheet. Some in your favor, some not.

First off, your including part of your state tax as part of your tax benefit of homeownership even though you’d receive that even if you didn’t have home related deductions (7000 > 5500, you’d get 25% of 1500 as tax benefit regardless). If you don’t believe me, zap rows 23 and 24 and you’ll see.

When you say you’re in the 25% bracket, are you combining fed and state? If so, that seems a little low (so your tax benefit would be higher), but I really only know my own tax bracket and it sucks. The tricky thing with brackets is you can’t always treat your first dollar like your last. Some of your basis may fall in a different bracket, so you should at least consider that.

Not sure how you arrived at a property tax basis of less than 1%. Is this in San Diego?

Also, on the last comment, I don’t really know any of the tax implications of renting out part of your home, but isn’t the answer somewhere in the middle? That is, I can claim some of the interest and some of the depreciation? For normal rentals, can I deduct interest expense?

Regardless, you’ve still put together a nice little spreadsheet. Factoring in all the subtleties (amortization, for example) is typically more effort than it’s worth. You just want to make sure you’re not missing anything big.

[Author]

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