[EconProf]

I must agree with CAR that much of your perception comes from your living in an upper-middle class suburb with busy families anxious to put their kids on the fast track. That is just not a demographic you can connect with. San Diego has lots of other, generally older, neighborhoods where you’d feel more at home.
A bit about France, now vs. those good old days you pine for…the French economy is barely growing, taxes are driving the high achievers in your age group to live in London, social and racial problems abound, and there is little prospect for improvement. Your memories are from the years when Europe was booming and everybody was happier.
Much as I credit our market capitalism for delivering our high standard of living, its downside is how it bombards us with advertising that relentlessly urges us to consume. As a result our values are shaped into being materialistic and equating money with happiness. We work more hours than people in most other countries as a result of this. We can’t defer gratification and we go into debt instead of saving up for our purchases. Being in debt is depressing in the long run, but it makes the marketers happy. The French, like most Europeans, are far better at taming their appetites and living within their means. Your dissatisfaction with our frantic lifestyle is a healthy and understandable impulse.

[EconProf]

What’s the latest? Have these new neighbors caused you any problems yet? Have they placated you by inviting you to their parties?

[EconProf]

Amen Blogstar. Another reason the owner next door is a fool.
Maybe one of the girls is a relative, and he is doing them a favor. Come to think of it, that would be another reason he is a fool…never rent to relatives.

[EconProf]

Chances are, they will be gone soon. 20-year olds make lousy tenants because their lives are in such flux that they seldom stay long in their first rental. Plus, they typically know nothing about the legalities of renting and make many mistakes regarding damages, nuisances, and the joint and several liability they have just signed on to, etc. Which also means the homeowner is not too smart to have rented to them and will soon have bigger regrets than you.
Meantime, be reasonably friendly with them, tell them you are experienced and well-acquainted with landlord-tenant laws, and would be happy to answer any questions they might have on the subject. You can then tilt the answers in your favor when any problems arise. It is only a matter of time.

[EconProf]

Happs, you have just identified the intractable problem with all HOA boards. You don’t have the time to serve on the HOA, even though you would be a valuable asset on the board.
But it is an unpaid, thankless job, and you would take slings and arrows from often ignorant and angry homeowners. So naturally the board attracts people with time on their hands who may or may not be reasonable. And naturally, they develop a bunker mentality–you call it cliquish–after taking criticism for a while. Keep up your reasonable-sounding campaign, do your research, and prove your case if the numbers are on your side. They cannot postpone and ignore you forever. As a last resort, detailed flyers on every door in the complex may be necessary.

[EconProf]

UCGal, you bring up another subject, one’s total taxes, of all types, relative to one’s income. To add up all taxes paid in a year in order to compare to that year’s income is kind of scary. It includes a lot of hidden taxes we often ignore and shows the full burden of government. If you do this exercise, include sales taxes paid (an estimate), property taxes (tenants need to estimate their share of the landlord’s taxes, since it is reflected in rent), corporate income taxes (reflected in prices paid, so incidence is largely on consumers), those pesky little items on your phone, el, and water bills, etc.

[EconProf]

In discussing one’s “tax rate”, it is important to first define terms.
If you mean your income tax paid in one year relative to income for that year, that is called your average tax rate. I believe that is what most of the posters are referring to here.
But if you mean your tax bracket–the tax you paid on your last dollar earned–that is the marginal tax rate. It is far more important in decision-making…whether to take on extra income or not, whether to invest in tax-free municipal bonds or not, etc.
In a progressive tax system like ours, where your rate goes up as income increases, marginal rates will always exceed average rates.

[EconProf]

Ask your property manager why he did not notice no HOA monthly bills came to him for the past year. But also ask the HOA why they did not contact you, the owner of record. Pay all the accumulated monthly fees, but push back on the other costs.
However, you may also be somewhat at fault for not noticing.

[EconProf]

The second YouTube video was great–I suggest skipping the first.
I have read elsewhere about the Douglas County, Colorado education reform movement, and it is truely radical. First they totally threw out the union, which was not mentioned in the video. Then they decided to hire and pay teachers totally on merit, unlike the military-style time-in-grade approach favored by unions. The latter method increases pay every year (step increases), for x number of years, whether the teacher is good or bad. The union-dictated approach also also calls for more pay for additional silly degrees, whether they make for a better teacher or not (research suggests not). I suspect Douglas County also eliminated tenure.
The County also uses supply and demand to determine teacher pay among the different disciplines. Why should a science or math teacher get the same pay as a PhyEd (read ex-jock) teacher?
The result…48,000 applicants to be teachers in Douglas County. I bet only the best candidates in the nation applied–people who wanted to escape their union-dominated school district and be free to excel and be paid accordingly.
If these new policies are in place for a while, it will be interesting to see the student outcomes. It should be a good empirical test of the two approaches.

[EconProf]

[quote=dumbrenter][quote=EconProf][quote=AN][quote=EconProf][quote=skerzz]The majority of W-2 workers that own rental property in California generally will not benefit from depreciation deductions (losses on rental properties). I won’t go into all the specifics, but unless you are a full time real estate professional you won’t be able to offset ordinary income with passive rental losses. There is an exception to this rule based on income limitations — however, those that own rentals in SoCal or the Bay Area are likely making too much money to realize the benefit.[/quote]
Please explain yourself here. A W-2 worker is exactly the taxpayer who can most use the depreciation “expense” that goes with owning rental real estate. While he may have a positive cash flow from rents minus cash expenses, he also gets to deduct depreciation “expense” every year. This lowers the property’s taxable income, maybe even making it negative for tax purposes. The result is lower total taxable income. In fact, the higher his W-2 taxable income, the greater the tax benefit from owning rental properties.[/quote]skerzz is partially correct. You can benefit from depreciation deduction, just like everyone else, but the amount you can deduct decreases when you make >$150k. After $150k AGI, you can no longer apply passive loss from rental property toward your active W-2 income. So, if you make $145k and have $50k “loss” in investment property, your new AGI would be $95k. However, if you make $155k, you cannot apply the $50k “loss” toward your active W-2 income. Unless you’re a real estate professional.

This is another prime example of social engineering. If you’re a couple and one of you make close to $150k, there’s very little reason for the other person to go back to work, especially if you have a few investment properties that net a huge “loss”. It would only make sense for the other spouse to go back to work if the other spouse becomes a real estate agent/broker.[/quote]
Good clarification AN. For the really higher income taxpayer, a whole lot of benefits and deductions start to be phased out as one’s income rises. My post above applies more to middle and upper middle income class taxpayers.[/quote]

Isn’t that exactly what skerzz wrote? Also don’t forget the part where you need to be a full time real estate professional….[/quote]
Actually, no. I just agreed with him that for really higher income folks–above $250k or so–some tax benefits start to phase out. Also, some additional taxes start to apply…part of Obamacare, I believe. In recent years at the CA and Fed level, higher effective marginal tax rates for the rich have been going into effect via slight-of-hand. Some of these new rules will apply to rental property owners, but only very high income taxpayers.
But for the vast majority of Piggs reading this, rental “losses” are used to offset W-2 income, thus lessening the tax liability.

[EconProf]

[quote=AN][quote=EconProf][quote=skerzz]The majority of W-2 workers that own rental property in California generally will not benefit from depreciation deductions (losses on rental properties). I won’t go into all the specifics, but unless you are a full time real estate professional you won’t be able to offset ordinary income with passive rental losses. There is an exception to this rule based on income limitations — however, those that own rentals in SoCal or the Bay Area are likely making too much money to realize the benefit.[/quote]
Please explain yourself here. A W-2 worker is exactly the taxpayer who can most use the depreciation “expense” that goes with owning rental real estate. While he may have a positive cash flow from rents minus cash expenses, he also gets to deduct depreciation “expense” every year. This lowers the property’s taxable income, maybe even making it negative for tax purposes. The result is lower total taxable income. In fact, the higher his W-2 taxable income, the greater the tax benefit from owning rental properties.[/quote]skerzz is partially correct. You can benefit from depreciation deduction, just like everyone else, but the amount you can deduct decreases when you make >$150k. After $150k AGI, you can no longer apply passive loss from rental property toward your active W-2 income. So, if you make $145k and have $50k “loss” in investment property, your new AGI would be $95k. However, if you make $155k, you cannot apply the $50k “loss” toward your active W-2 income. Unless you’re a real estate professional.

This is another prime example of social engineering. If you’re a couple and one of you make close to $150k, there’s very little reason for the other person to go back to work, especially if you have a few investment properties that net a huge “loss”. It would only make sense for the other spouse to go back to work if the other spouse becomes a real estate agent/broker.[/quote]
Good clarification AN. For the really higher income taxpayer, a whole lot of benefits and deductions start to be phased out as one’s income rises. My post above applies more to middle and upper middle income class taxpayers.

[EconProf]

[quote=skerzz]The majority of W-2 workers that own rental property in California generally will not benefit from depreciation deductions (losses on rental properties). I won’t go into all the specifics, but unless you are a full time real estate professional you won’t be able to offset ordinary income with passive rental losses. There is an exception to this rule based on income limitations — however, those that own rentals in SoCal or the Bay Area are likely making too much money to realize the benefit.[/quote]
Please explain yourself here. A W-2 worker is exactly the taxpayer who can most use the depreciation “expense” that goes with owning rental real estate. While he may have a positive cash flow from rents minus cash expenses, he also gets to deduct depreciation “expense” every year. This lowers the property’s taxable income, maybe even making it negative for tax purposes. The result is lower total taxable income. In fact, the higher his W-2 taxable income, the greater the tax benefit from owning rental properties.

[EconProf]

Right, Joec. I believe the (legal) tax dodge you describe involves buying a house needing serious rehab, living in it while fixing it up, then selling it for a big tax-free gain (since you lived in it for the necessary period of time). Rinse, repeat. This lets you avoid any tax on the “profit” ordinary house flippers have to pay.

[EconProf]

Here is a shameless plug for owning real estate as a means of planning for retirement. Whether a SFR or two, condos, or, for ease of management, commercial properties, the multitude of advantages are just about unbeatable.
We all know about the tax advantages: depreciation allowances permit you to lower your tax bracket from your regular income. Inflation allows you to use the lower capital gains tax rate when you decide to sell, which you can conveniently time to happen in your retirement years.
Your equity buildup over the years of ownership can be profound–both from paying down the loan and the (presumed) appreciation in property values. Together they may enable you to sell a free and clear property upon retiring or during retirement.
Yes, there are hassles to being a landlord. In the early years there is little cash flow and it is sometimes negative. There is a learning curve to both maintenance headaches and minimizing tenant hassles. But as you learn more the cash flow gets better. Most of all, beneath the surface, forced saving is occurring on your personal balance sheet. You learn to be frugal because your job income and property income demand it. Meanwhile you are quietly getting rich.

[EconProf]

Actually CA property taxes come in at the national average, in dollar terms. Prop 13 currently limits them to 1% of market value (actually, about 1.2% with bonded debt). In other states they run about 2% of market value. But because our market values are so much higher, the dollars paid are about the same.
All our other major tax sources–personal income, corporate income, sales taxes, etc. are the highest in the nation or close to it. And the protections of Prop 13 are under assault by Sacramento politicians and will likely be eliminated soon.

[Author]

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