Author Topic: Buying a house to lower income tax requirements  (Read 1839 times)

mcampbell

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Buying a house to lower income tax requirements
« on: November 04, 2015, 11:22:52 PM »
So what I never hear anyone talk about is if you buy a house outright instead of investing the money, you need less cashflow. Meaning you could take part or lower paying jobs that have lower tax implications, since your wasting 30% of your income on taxes, the money you could be investing with the house doesn't seem as great. This of course implies you have the ability to lower the amount of work you do. In a lot of careers either your going full force or nothing.

andyp2010

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Re: Buying a house to lower income tax requirements
« Reply #1 on: November 04, 2015, 11:30:46 PM »
Your idea is sound in so far as you can lower your standard of living so as you don't need as high an income but I'm not sure why you want to pay less tax.

If you're paying more tax, it means you're earning more which can't be a bad thing. Tax is something to be streamlined but not eliminated.

ShoulderThingThatGoesUp

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Re: Buying a house to lower income tax requirements
« Reply #2 on: November 05, 2015, 08:53:48 AM »
This is why paying off a house is in many people's FI plans. It can also make it easier to max out retirement accounts because you don't have the drain on your monthly cash flow.

But in general if I've followed the tax-deferral rules and I have more tax to pay, it's because I earned more money than I expected. Not a big problem. What they do with the money, on the other hand...

zephyr911

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Re: Buying a house to lower income tax requirements
« Reply #3 on: November 05, 2015, 09:14:31 AM »
So what I never hear anyone talk about is if you buy a house outright instead of investing the money, you need less cashflow.
Actually, that comes up fairly often. It has the greatest impact post-FIRE when minimizing costs is key.
[/quote]
Meaning you could take part or lower paying jobs that have lower tax implications, since your wasting 30% of your income on taxes, the money you could be investing with the house doesn't seem as great. This of course implies you have the ability to lower the amount of work you do. In a lot of careers either your going full force or nothing.
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I already have a ridiculously low tax burden even with six figures in household income. After 401k, IRA, tax-advantaged rental investments, etc - neither the mortgage deduction nor the small amount of income that goes toward the mortgage are of high concern. Unless and until we pull the plug on employment entirely, ROI matters far more than the 4% of income that pays the mortgage. IOW, I gain more in the long run by dumping the money into stocks earning 8% than in paying off this loan at 3.3% (and tax-deductible 3%, even).
When we're ready to FIRE, we'll want to gradually draw down the balance ahead of time, but it's more about risk mitigation than total return.

mcampbell

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Re: Buying a house to lower income tax requirements
« Reply #4 on: November 05, 2015, 10:07:55 AM »
Your idea is sound in so far as you can lower your standard of living so as you don't need as high an income but I'm not sure why you want to pay less tax.

If you're paying more tax, it means you're earning more which can't be a bad thing. Tax is something to be streamlined but not eliminated.

I want to work less, so if I require half the income I can work half as much and save a higher amount being at a lower tax bracket. This assumes I can linearly scale my salary when I work less

arebelspy

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Re: Buying a house to lower income tax requirements
« Reply #5 on: November 05, 2015, 11:27:48 AM »
Since taxes should be near 0 in ER, if you've done it right (see GCC posts having 94k in income and paying $0 in taxes for their 2014 return, which they posted), this is mostly a non-factor.
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