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Comment by ajross | Hacker News Reader

This is awful analysis. Almost every one of the bullet points is just wrong, or at least terribly spun. I mean, one of them argues that homes are "heavily taxed" when of course they are the source of the biggest single deduction category in the whole budget, another claims with a straight face that the ability to leverage the investment via a (again, government subsidized!) loan is a bad thing!

Now, obviously not all investments are winners, even if they are "good" investments in principle. And there are all sorts of very good arguments about why homes should not be subsidized in the way they are, and that our government has made them "too good" in a way that harms the public as a whole. But nonetheless homes in almost all of the US are absolutely good investments. They have been for going on three quarters of a century now and certainly don't show signs of stopping.

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This is excellent analysis. Every one of the bullet points is correct, and you've picked one to debate (and misinterpreted the argument): relative to virtually every other investment you can make, homes are heavily taxed. Arguing that you can (possibly) deduct some of those taxes misses the point. I don't have to pay my state and local governments annual taxes on the stocks and bonds that I own.

On average, homes in the US appreciate at about the rate of inflation, and the choice to rent vs. buy is favorable in some markets, unfavorable in many others. It's nowhere near as clear-cut as the comments in this thread would lead you to believe.

I recently sold and bought a house, and as far as I know I paid no taxes on it, and I am still deducting mortgage payments. I could pay off my mortgage tomorrow (it's Sunday here, so I'd have to wait for my bank to open) but my accountant tells me that's a horrible idea.

How long did you hold it? Where was the home located?

I sold my primary residence after buying a new primary residence. California.

Homes are heavily taxes if you don't live in them, to the above poster's point.

Then you face capital gains taxes if your home appreciated over your cost basis.

Property taxes also apply to home ownership.

Yeah, the parent is being willfully obtuse. Property taxes are taxes that you have to pay merely for holding your investment.

Until this year, you could deduct those taxes up to your total federal tax liability (which may be what the parent is saying), but now you're limited to $10,000. Either way, it's a lot more burdensome than most investments.

Capital gains didn’t apply because of the unique rules around primary residences — our new home cost more than the old. In fact it’s better than other investments in this particular way!

Regarding property tax, yes, but dividends are taxed as well and you generally are going to pay capital gains in the specific situation I’m describing if you replace “primary residence” with “stock”. Primary residences with mortgages have better tax treatment, really. If it didn’t I wouldn’t have a mortgage.

I like to think of this as the Government encouraging you to pay more in recurring taxes by waiving a one time tax - you did end up increasing your exposure to the real estate market and your annual property taxes through this transaction.

In the USA, if you live in your home for 2 out of the 5 years prior to selling, you can qualify to pay 0 capital gains tax up to 500k if you're married and filing a joint return (250k if single)

In the USA, you would face capital gains taxes if your sales basis was greater than your cost basis.

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

  up to $250,000 of profit is tax-free

You get that exemption once in a lifetime. (If you are married filing together, that's once for both parties.)

If your profit isn't 6 figures, choose this option carefully.

Under current law, you can take the exclusion every two years: https://www.irs.gov/publications/p523#en_US_2017_publink1000...

Are you referring to the over-55-once-in-a-lifetime exemption that was replaced in 1997 with the introduction of the Taxpayer Relief Act? https://en.wikipedia.org/wiki/Taxpayer_Relief_Act_of_1997

This is incorrect.

Not since the 1980s.

Mortgage is leverage (debt) and that can be bad. When you buy a house you speculate, to some degree, on the price of the house. I am sure a no-arbitrage condition exists in the housing market so your guess regarding housing prices in 10y is as good as anyone's.

Also, the point about diversification is a valid concern. Would you put (50% of your net worth + loaned money) into only FB/AMZN/XYZ stocks, today (tomorrow)? Probably not.

Sorry, no. Leverage by itself does nothing to make an investment good or bad, as you say. Arguing that a leveraged investment is bad inherently is simply wrong. Doing so when the interest rates are regulated at a near-prime level, the interest is untaxed, and the downside loss is capped by foreclosure and bankruptcy laws a much less than the loan amount is flipping insanity.

Like I said, I actually am on your side that the US obsession with homeownership has led to all kinds of bad externalities with poor urban development and income inequality. I'd support all manner of regulation intended to decrease the subsidy we pay out to the middle class in favor of higher density rental environments.

But houses in all but a few markets are and remain "good investments" by any reasonable interpretation. To argue otherwise is to argue in bad faith. Stop it.

> But houses in all but a few markets are and remain "good investments" by any reasonable interpretation. To argue otherwise is to argue in bad faith. Stop it.

What about the interpretation that I don't want to be subject to price fluctuations of a single object that represents a large fraction of my net worth? The argument that I might not wish to manage a property? The argument that I don't want to avail myself of the opportunity to be foreclosed on because I would like to maintain my credit? All those seem reasonable enough to me as factors to consider in defining a good investment (obviously subject to any individual investor's utility function).

Personally I think what should stop is you accusing anyone who disagrees with you of arguing in bad faith.

> What about the interpretation that I don't want to be subject to price fluctuations of a single object that represents a large fraction of my net worth?

That only makes sense if you bought the house in cash or if someone is willing to loan you money at 4-5% to buy stocks. Investments aren't zero sum when the government is effectively underwriting your mortgage.

This article is total woo. Sorry.

Biggest single deduction category relating to federal taxes, yes. But state-to-state varies pretty widely, looks like from 0.27% to 2.40% [1]. Notably, no one in their right mind would invest in, say, a hedge fund that charged 2.40% fees, right? Meanwhile, to get 0.27% "fee" in Hawaii, you're looking at an average minimum investment of half a million dollars. Not great.

[1] https://wallethub.com/edu/states-with-the-highest-and-lowest...

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