What should my wife and I do if we make too much???

[Stu949]

This may sound like a conceited posting, but I don’t intend it to be.

My wife and I currently live (rent) in south OC, and we haven’t bought for obvious reasons. We currently make $150,000 a year. Do we get hit with taxes? Yes, but after crunching the numbers, we still end up with more in our pockets if you don’t factor in “possible” property appreciation – which I think has ended. I don’t know how low property will go, but I feel confident that any property we buy will be worth less in two years.

It wasn’t initially that bad; however, my wife is considering changing jobs. She’ll be making almost $100,000 more a year, so we’ll be at $250,000 a year. I’m starting to think that we should buy a rental property in another state (where rents will cover a mortgage) so we can get some tax relief. We’ll be able to depreciate the rental, which should help quite a bit – unless AMT takes it away. I guess I need to figure if AMT will eat away at our tax savings before I look for a rental property.

If anyone has any experience in the rental market, I’d be curious to get some feedback. Where are the best rental markets currently – where buying your first rental (with no equity) would make sense? Is it even worth trying to find ways to save on my taxes? Any tax professionals out there?

Just curious to see if some of you have any advice or suggestions – thanks.

*Oh, and I’ll probably get people telling me that we’re stupid not to buy; however, I’m not going to reward “joe-shmo” homeowner who doesn’t deserve me handing over $200,000 more than the property is worth just because Greenspan didn’t want a recession on his watch. My wife and I work too hard to pay $500,000 for a condo/townhome that is only worth $250,000-$300,000 at best. Who is going to buy it 5 years from now? No-one, all the current college grands are living with their parents or 8 people to a rental. Anyone who thinks the so cal home prices are justifiable is out-of-touch!

[Anonymous]

Even with loss of capital with renting and the lack of tax breaks when not having mortgage interest to deduct, real estate in the best appreciating areas still trail the SP 500 or any index fund. So if you are worried about losing money by renting or not owning, you will still not be as well off as if you plow your money into low cost stock funds. Think property taxes, interest charges maintenance….

[ocrenter]

good questions. I would keep renting and save as much money as humanly possible. Sure, you are taking a big hit tax-wise. We are too, so you are not alone out there. You may be able to pick up quite a bit of rental properties in IE at half off in 3-5 years, making them income generators, not monthly losses.

As for OC, we weren’t sure how long we had to wait. And given the tax issues, we couldn’t afford to keep waiting for OC to drop to the bottom. Another issue with OC is the prices are so high, even a 20-30% fall would still be pricey. So we moved to a place where we felt the prices are actually falling right now in real time so the wait wouldn’t be so long and endless.

[powayseller]

Consult with a tax professional regarding your rental ideas. Michael Gallon, CPA, in El Cajon. His number is 619-440-4780.

A CPA comes up with ideas and knowledge you will never get on this forum.

Personally, I am afraid of RE anywhere in the country. What is a safe place, where you know prices will not go down? I don’t know of any. Even Omaha, NE, a place protected from zany bubbleland is experiencing a slowing housing market, reduced pricing, more foreclosures. How far can prices fall there? Maybe only 5-15%? ARMs were used there, and construction was a major source of hiring.

The 2007 recession will cause prices to fall nationwide, because there is a national housing glut and national exotic loan usage.

[UP IN ARMS]

Give ur cash to me, I’ll hide it for ya 🙂

[synchro]

Do yourself a favor: buy a ladder of Treasury Bills and ntoes maturing anywhere from 3 montsh to 5yrs. They are yielding 5%+, and exempt from California’s state income tax (9%+ if I recall before I escaped).

Cash is not trash anymore. That 5% from Treasuries is getting more competitive vs stocks or real estate considering the risks you have to take in those markets.

In a year, you will be happy to learn that cash is all of a sudden an “asset class” once again.

[powayseller]

Oh, so here we have the advantage of Tbills over higher paying CDs. Tbills are state-tax free. Thanks for the info.

[rankandfile]

Here’s a good article on cash and T-Bills.
href=”http://www.newsmax.com/money/archives/articles/2006/4/13/152237.cfm

It mentions that another benefit to investing in cash is its liquidity…you can get it back in a hurry if need be. It also mentioned that interest-bearing cash accounts actually outperformed the Dow for 20 years (1966-1986).

[rankandfile]

I am not an expert, but similar to other advice given, it might be in your best interest to spend some money on a tax specialist. If you plan on buying something out of state, you might want to look into a local tax specialist/CPA as well. I don’t know if this is imperitive, but it might be worth looking into.

[Stu949]

Just wanted to say thanks to everyone for the feedback!

My initial thought was that it isn’t worth buying a rental property just for the tax break, and I think I will stick with that line of thinking.

At this point, who is worse? The government or Mr. and Mrs. homeowner who don’t deserve the profit on their house? I’d almost say that I would rather give the government more money.

I can’t justify handing over a huge profit to these unreasonable homeowners! Besides, I think we will run out of bigger fools – I’ll be stuck with anything I buy!

[Stu949]

Just wanted to say thanks to everyone for the feedback!

My initial thought was that it isn’t worth buying a rental property just for the tax break, and I think I will stick with that line of thinking.

At this point, who is worse? The government or Mr. and Mrs. homeowner who don’t deserve the profit on their house? I’d almost say that I would rather give the government more money.

I can’t justify handing over a huge profit to these unreasonable homeowners! Besides, I think we will run out of bigger fools – I’ll be stuck with anything I buy!

[powayseller]

I hope that anyone with income over $80K has the advice of a tax advisor. I can’t tell you how many things this guy comes up with, that I missed, at tax time, and how much good advice he gives me.

I took my sister, to him, after she and my mom had spent days filing her tax return. Both ladies are very intelligent. My mom is a math wiz and my sister a surgeon. The CPA found omissions on her federal return, and tripled her federal refund, plus found more she could deduct for the state. He also gave her some good advice. Cost: under $200 for everything.

I am surprised by how reluctant people are to consult with a laywer or tax advisor. If you haven’t seen a good tax advisor, you have a chance of overpaying on your taxes. Enough said.

[burger007]

Poway seller:

Do you have the info on the CPA that you recommend?? I am still looking for a good CPA(not a shaddy CPA, had one of those and felt very uncomfortable) I have tried 3 the past 3 years and so far none of them has found anything that i have missed(I am not a CPA, just read a lot of the tax laws). I did my own taxes and then sent over my info to the CPA’s(1 different one per year, not 3 CPA’s in one year) and when they all have come back each year, they come out with the same numbers as I have, but then I had to pay 400 bucks (yah I probably got ripped off , but then again I had a house and also a rental which may have added to the cost)each year, so that is why this coming tax year I may just do it myself( no more rental house, just a house and regular stock stuff that is pretty straight forward). I am open to finding help.

[powayseller]

I don’t know if this CPA is better than yours. I posted his name in this thread, so look on page 1 of this thread, the 3rd post. I like him because he’s smart, nice, and has low overhead (small office in a low-rent building next to the courthouse in El Cajon, no personal secretary), so his prices are good.

I am more surprised at the person who started this thread, who is considering a rental property, doesn’t know if he’ll save money on taxes or gets hit with the AMT tax, and is not interested in conferring with a CPA. There was a guy on another thread facing eviction because his rental home was being foreclosed, and he didn’t want to spend $200 on an attorney. I am surprised at the strong avoidance of professional help.

[ocrenter]

poway, don’t take it the wrong way, but just because I didn’t respond doesn’t mean I didn’t meet up with him. That law firm is currently assisting me with a small claims issue. as for the eviction issue, he’s not going to be able to help me until the actual NOD gets filed. What was briefly stated was the offer to fight the eviction if the bank actually takes over the property. what was NOT said was an eviction filing of the said address may damage my credit report significantly. right now the owner (who is in default but has not had the NOD officially filed) is trying to obtain refinancing for the property. all the power to him and I hope he is successful in delaying the inevitable, at least for a year.

[Author]

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