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All numbers are in USD and my tax situation pertains to US taxes.

I am at a crossroads and am seeking help. I am a single man who has always made a good living and generally enjoy my life as I please. I work hard and this year has brought me a nice promotion at work. I've always had a good salary and, because of the promotion, this year my salary will climb by about 25%. If it helps, lets say my salary will be in the range of $200k for 2021

Because I've made a good living, my concern in life has usually been taxes. I don't own a home, not married, don't have kids so I'm basically in the worst possible tax situation with no write-offs.

I know the next step most people would suggest is to buy a home. And while that would help my tax situation, it also brings on more headaches and fees. For example, my current housing expense is an insanely low $725/month and any home purchase would significantly increase that. A home that I have considered is beautiful and I would love to live there but the mortgage (after all fees and stuff) would be about $3,000/month - a 4x increase of my current number!

I should also add that I like being out doing things, taking trips or playing golf, etc. I don't see myself as the kind of person spending the weekend "working on the house" or things like that. Plus, as I said, I'm single. The house I mentioned above is 1800 sq. feet, which is too much space for a single person and that applies to most nice homes out there.

EDIT: I forgot to mention that because of rules at my work, I am limited in my investing options. I would like to try my hand at day trading or something like that, but it's prohibited for someone in my position. I make 401k contributions for the IRS max amount every year, but that's the extent of my investing activities.

EDIT 2: I have already looked into Roth IRAs but I am above the income where that presents any tax benefits.

EDIT 3: I have little to no interest in being a landlord and really don't want to consider investment properties.

So, what are the alternatives to home ownership? How can I create a better tax situation for myself? Is the answer to start a business? Or should I really be buying a home?

PropositionJoe
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  • You can slice and dice this any number of ways. Keeping it very simple, $725 a month is rather attractive versus $3,000 a month mortgage and it provides a wonderful opportunity to save and invest, likely enabling you to retire young, if so inclined, unless you piss it away on the good life NOW. A wife and children in the future might change this dramatically but I'll leave those explanations to the domesticateds. – Bob Baerker Dec 19 '20 at 14:14
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    @BobBaerker I said I was high income, not young :) I don't see a wife and kids in the picture in the future. – PropositionJoe Dec 19 '20 at 14:20
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    That detail sharply reduces the probability that you're living in mommy's basement ;->) – Bob Baerker Dec 19 '20 at 14:27
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    @RonJohn Yes, I realize that but there's tax benefits for home ownership. That's a big part of my question. – PropositionJoe Dec 19 '20 at 14:46
  • It's part of your question, yes, but IMO an invalid primary reason for buying a home. (Besides, the standard deduction is $12K. Will you really pay so much in mortgage interest that your deductions will breach $12K?) – RonJohn Dec 19 '20 at 14:53
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    "because of rules at my work, I am limited in my investing options." Do they prevent you from investing in something like VTI (the Vanguard Whole Stock Market ETF)? – RonJohn Dec 19 '20 at 15:06
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    @RonJohn I could probably file for an exception to invest in something like that but I already do a lot of index funds in my 401k. – PropositionJoe Dec 19 '20 at 15:26
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    The title "case against homeownership" doesn't really match the bulk of the question, how to cut your tax bill. No argument about being single, but living in a house far bigger that what you say will bring you happiness with the implication it will cut your tax bill, is silly. You have no house question, you have a tax/ long term investing question. – JTP - Apologise to Monica Dec 19 '20 at 18:42
  • @JTP-ApologisetoMonica But owning a home does cut your tax bill. – PropositionJoe Dec 19 '20 at 18:47
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    "I realize that but there's tax benefits for home ownership" again, in the US, in general there are NO tax benefits at all for home ownership, due to the min. deduction – Fattie Dec 19 '20 at 20:29
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    @fattie add in 10k SALT, any nontrivial amount of donations (both common for a high earner), and the mortgage interest deduction becomes relevant quickly for a single. Still against buying a house in general though. – obscurans Dec 19 '20 at 22:46
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    @PropositionJoe - owning a home does not cut your tax bill at all. you have to pay to get the "tax saving" - !! its kind of a "break" IF you "happened to want to buy the house anyway". if you buy a chevy volt, they give you $7000. its not correct to look it as a "saving". Going back to your fundamental question, *there is, absolutely, no way whatsoever to reduce taxes.* the ONLY way to really "lower" your taxes is, if your company has you work in eg. saudia arabia for a year, you get a small break from the US. that's it. – Fattie Dec 20 '20 at 00:00
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    What is a "better tax situation"? My parent's neighbours were surprised they bought a house outright without a mortgage, arguing that they should get a mortgage anyway so they could pay less taxes. That's how some people reason. Others have the view they rather pay their money to taxes than to banks (or tax advisors). – gerrit Dec 20 '20 at 09:09
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    Out of curiosity - what kind of job can prevent you for investing into anything in the US? Isn't this something you do on your own free time? (I am putting aside insider trading, investing in a competitor etc. but I fail to understand how you can be denied such a righ) – WoJ Dec 20 '20 at 12:03
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    @WoJ I work in the financial world and there are some positions that can forbid you from trading and also monitor your trading when you apply for an exemption. – PropositionJoe Dec 20 '20 at 13:45
  • @Fattie More precisely, it cuts your tax bill, but by less than other spending increases. – chepner Dec 20 '20 at 13:50
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    I don't know enough about the US to give specific advice but I think nobody should ever worry about taxes. I have heard too many people suggesting downright stupid things because they would reduce their taxes. Instead, you should worry about take-home pay and disposable income (edit: I see @gerrit made a related point). – Relaxed Dec 20 '20 at 22:54
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    For simplicity, let's assume you have enough deductions to itemize, your home interest for the year is $10,000, and your tax rate averages to 25%. So you have paid the bank $10,000 in interest, which reduces your effective income by that much, which reduces your tax bill by 25% of $10,000, which is $2500. Now if you are already buying a house, that reduction is nice, but you still spent $10,000 to "save" $2500. Similarly, if you can pay off your house, do it. Saving $2500 on your tax bill by sending the bank $10,000 is losing you $7500 a year; not saving you money. – Michael Richardson Dec 21 '20 at 16:57
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    Consider this: you already (literally!) have more money than you know what to do with, suck it up and don't worry about paying a bit more in tax. You're not getting screwed, you're just paying your part to the system that's gotten you where you are now – llama Dec 21 '20 at 17:07
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    I don't understand why you're happy renting and living in a $725/mo home, but would be unhappy owning and living in anything less than $3000/mo. That you can rent for $725 but there's nothing comparable on the market at that price is fishy - why isn't your rent double that or whatever market rate would be?

    Anyway, given your situation of living somewhere you seem to like at significantly below value, you've pretty much conquered most of the reasons for home ownership - so don't bother. But, if you landlord reads this, you may be put in a position to reconsider.

     – iheanyi Dec 21 '20 at 20:49
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    @iheanyi Yes, I recognize that I am in a unique situation. Quite frankly if my rent was anything higher then I may not have even posted the question, I would be buying a house. There is nothing fishy about my rent. One of the reasons I don't want to be a landlord is because my landlord tells me the horrors stories he goes through. Every bad tenant out there makes me (quiet, no kids, pays on time, doesn't cause trouble) look good and he doesn't want to lose me. – PropositionJoe Dec 22 '20 at 03:13
  • @PropositionJoe Think about it another way: your unique relationship with your landlord has provided you with a discount to $725 from whatever it should have been, say 1200 or so. That 400+ dollars/mo is something irreplaceable and a direct recurring cost of moving anywhere else, regardless of whether it's a rental or bought. Your landlord appreciates the arrangement, so they're also happy with this trade. At best I'd say buy an investment property, but you have all the reasons to not do so. – obscurans Dec 22 '20 at 04:44
  • What do you actually want? I mean, the question just sounds open-ended; you mention a lot of individual feelings, but it seems unclear what the overall goal is, making it difficult to recommend a strategy to get toward that goal. – Nat Dec 22 '20 at 16:51
  • Possible duplicate of https://money.stackexchange.com/questions/117562/how-to-pay-less-tax-on-a-high-salary/ – stannius Dec 22 '20 at 19:58

11 Answers11

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The answer is really simple: if you don't want to own a house, don't buy one. (Especially if you're the sort of person who thinks 1800 sq ft (167 m²) is too much for one person.) Unless you have a lot of other itemizable deductions, the small tax savings is not worth the cost in lack of pleasure. Not to mention that, since you say you aren't interested in doing maintenance & repairs yourself, the cost of hiring people will likely be greater than any tax savings.

With regard to investing options, just put your money in index funds or the like, and go out and do stuff without worrying about it.

gerrit
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jamesqf
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    To add to this good answer, this blogger provides a lot of good reasons to not buy a house: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ – minou Dec 20 '20 at 13:05
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    @gaefan - That was an amazing article. I'd invite you to post an answer, with the link, but summarizing the content. – JTP - Apologise to Monica Dec 20 '20 at 14:42
  • @gaefan thanks, I enjoyed that. The author certainly makes a compelling case for his views. – PropositionJoe Dec 20 '20 at 17:07
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    @gaefan: Well, no. He provides reasons (not all of them factual, IMHO) not to buy a house AS AN INVESTMENT. But (unless you're a professional real estate investor) investment is the wrong reason to buy a house. You buy a house because you want to live in it, and all the OP's negatives are things you actually enjoy. – jamesqf Dec 20 '20 at 17:17
  • It's not an article, it's a humorous ad for a guy selling newsletters about ... stock picking. Regarding actual numerical facts, simply see my answer. – Fattie Dec 21 '20 at 16:36
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Since your primary obsession seems to be "paying less taxes" as opposed to having more spendable income. You could do one of the following.

  • Earn less by working less/part_time.

  • Give to charity.

  • Invest in a money-losing business.

  • Have non-insurance-covered but tax-deductible medical procedures performed on you.

Or you could just take pride that with all the tax you pay you contribute heavily to important things in society. Like for example police, millitary, doctors, nurses, teachers, firemen, roads, social security, scientific research.

yoozer8
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thieupepijn
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    "Like for example police, millitary, doctors, nurses, teachers, firemen, roads, social security, scientific research." => usually people are upset because of expenses they see as waste, not police/hospitals. I.e. the massive waste of money in Afghanistan/Iraq and other foreign military bases. – JonathanReez Dec 21 '20 at 06:05
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    @JonathanReez you'd be surprised – user253751 Dec 21 '20 at 13:37
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    Best answer. OP literally has more money than they know what to do with, this obsession with minimising taxes seems pathological to me – llama Dec 21 '20 at 17:12
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    Investing in a money-losing business could be a useful thing to do with your money, if it helps the business become profitable. Your last option is more hilarious though. – user253751 Dec 21 '20 at 17:48
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Home ownership doesn't necessarily improve your tax situation. Many homeowners no longer itemize deductions because of the increase to the standard deduction. You'd have to figure how close you are to itemizing without owning a home to calculate the net tax advantage of owning. There's also a capital gains exemption when selling your primary residence that can be pretty significant, you'd have to forecast property value appreciation and assess the rent vs buy numbers to get an estimate of benefit.

In your situation it doesn't sound like there's any good reason to buy and spend 4x your current rent. It's worth re-evaluating renting vs buying in your area from time to time. I like owning a home because it is a fairly well protected asset and I'd rather do things myself than pay others when possible. Having a paid off house in retirement sounds pretty nice to me too, less concern about increasing rents and whatnot, but many retirees don't stay in their own homes anyway. Many people don't want to bother with owning a home and that's fine, it's not a necessity.

If you're only considering buying because that's what you perceive to be the "next step" then you might benefit from visiting with a financial planner to see if you're missing anything and establish a plan that puts you at ease. On that note, you mention 401k but not IRA. While your income is too high to contribute directly to a Roth IRA, you should likely be making backdoor Roth IRA contributions.

I'm not a big fan of financial planners who benefit from having you invest through their affiliates, but if you can't find a planner who charges for their time directly then just note that likely they benefit if you invest in whatever they sell. Even if that's their profit model they should disclose it and they do have a responsibility to give sound financial advice in either case.

Hart CO
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  • I will edit my post - I have considered Roth IRA but I am above the income where there is a tax benefit. – PropositionJoe Dec 19 '20 at 15:35
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    @PropositionJoe You can't directly contribute to a Roth IRA, and you can't get a deduction contributing to a traditional IRA, that's why I mention backdoor Roth IRA contributions, I've added a link to my answer. – Hart CO Dec 19 '20 at 15:39
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    Thanks, that link was an interesting read. I hadn't heard of those before and I should probably look into that. I can see that a Roth IRA has a 6k contribution limit - I assume the same would apply with these? – PropositionJoe Dec 19 '20 at 18:22
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    @PropositionJoe You can look into the backdoor roth and the mega backdoor roth. The IRS has issued guidance on the backdoor roth, but not the mega backdoor; you can use both of those strategies at your income level. – jdeyrup Dec 20 '20 at 00:18
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    Very true about the possible/probable lack of tax benefits. Even at my old interest rate, after the first few years I was paying less in interest & taxes than the standard deduction. With today's rates, I wouldn't be able to deduct anything starting at year one. Of course this varies with the price of houses and your local taxes, but figure a $500K house with 20% down... – jamesqf Dec 20 '20 at 03:17
  • @HartCO note that due to 2018 changes to the dodd-frank act, it may no longer be true that a financial advisor has a fiduciary duty to their client – BeB00 Dec 21 '20 at 19:39
  • @BeB00 Bleh, that makes commission-only advisors even less appealing. – Hart CO Dec 21 '20 at 22:29
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You earn in the order of $200k per year yet spend $725/month on rent.

If you're happy there, the only reason you might move is a moral one. Some people can't afford more than $725/month rent and you can, so there is a moral argument to be made that you should move on to a more expensive place to make place for those who don't have the luxury of such choice (if your income is $200k/year and you pay 50% in taxes and fees, that still puts $8000+ in your pocket every month; maybe finding a home where you pay $1200/month is fair, that's still only 15% of your take-home income). We call this phenomenon scheefwonen in The Netherlands, where there has been a political debate on using financial instruments to nudge people who are "too rich" for their home to pricier places, but that instrument would be limited to homes under rent control, not to free market rents.

Of course, whether you wish to consider such a reasoning is entirely up to you.

gerrit
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    That's really interesting, thank you. I realize that my situation is unique. I have a fantastic relationship with the people that own my place and that has led to the pricing. I am grateful for my stroke of luck. – PropositionJoe Dec 20 '20 at 13:56
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    @PropositionJoe Well, yes. If you move to an equally attractive home paying $1200 and your current landlord would ask their next tenant $1200 as well then nobody is helped (except your current landlord). The discussion on scheefwonen assumes the next tenant would pay pretty much the same rent as the current tenant, which should be the most common situation. – gerrit Dec 20 '20 at 17:44
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    @gerrit Well, unfortunately that wont be the case. My landlord has actively told me that he realizes that he's giving me a good deal. I have been a tenant of his for 10+ years and he appreciates the loyalty. I'm sure the moment I move out, the price will rise. – PropositionJoe Dec 20 '20 at 20:12
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    "spend more money because you have it" - as someone from a more FIRE background, I find this a morally repulsive level of consumerism. It's the market's problem that they don't have more housing in the range I want, not my job to subsidize "luxury" housing that has collapsing demand (good riddance). – obscurans Dec 21 '20 at 02:19
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    @obscurans The argument is not spend more money because you have it, but spend more money because other people don't have that choice. It's not so much the market's problem, but a problem for people who can't afford higher rent. IMHO it's delusional to believe the free market can ever solve the housing crisis. I don't think spending 15% of income on housing costs, on something that is by no means a mansion in an expensive area, is morally repulsive. – gerrit Dec 21 '20 at 08:03
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    If we want to minimize living costs for the poorest of society, the optimal approach is to donate to a YIMBY political party or NGO so that more high rise apartment buildings could be constructed all around the country. In the US and Europe NIMBY regulations are currently the primary driver for high real estate costs. – JonathanReez Dec 21 '20 at 08:20
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    @JonathanReez I don't want to get into a debate on housing politics or economy here. My answer posts one argument that can be made why some believe rich people shouldn't live in cheap homes, but clearly there are many other arguments that can be made. Although it sounds plausible, I am not entirely convinced that increasing the housing supply necessarily decreases housing prices, because it's the large concentration of people and services that make urban areas attractive in the first place. It might — but maybe not always. It's complicated. – gerrit Dec 21 '20 at 10:14
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    Your moral argument might not even work. If you start renting a more expensive house, demand for expensive houses goes up by 1; to meet the demand, someone somewhere demolishes a cheap house and builds an expensive one in its place. In a free market, the way for consumers to make prices go down is to refuse to pay expensive prices, until the suppliers reduce prices because they get desperate to make the trade. – user253751 Dec 21 '20 at 13:39
  • What? so there is a moral argument to be made that you should move on to a more expensive place to make place for those who don't have the luxury of such choice. Wait, it doesn't work like that. People are not waiting in queue to rent that 725 house. That is not the last house on earth. Who guarantees it wouldn't be taken by another person who earns 200k? This sounds like some kind of extreme blind altruism. – ACV Dec 21 '20 at 14:10
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    @ACV People are not waiting in queue to rent that 725 house — they most definitely are in most cities in wealthy countries. I've never lived anywhere where they weren't (nor have I lived anywhere where you could actually rent a house for $725 — if one could, they would be queueing even more). It's true that the argument implies there is a housing shortage. I've never lived anywhere without a housing shortage. – gerrit Dec 21 '20 at 14:31
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    @user253751 The market has no morality, but housing is a basic need. Therefore, free market housing (which I more or less excluded from the question) is inherently immoral. Providing quality housing to the poor is simply unprofitable in many cities in the world. You seem to suggest that homelessness brings housing prices down, but I don't think it works that way (except perhaps because rough sleepers reduce the attractiveness of a neighbourhood, but your argument is based on a market theory with little connection to the real wolrd) – gerrit Dec 21 '20 at 14:32
  • @gerrit well, we have free market housing. – user253751 Dec 21 '20 at 14:40
  • @user253751: I don't know where you live, but for 99% of the wealthy world what exists in practice is a mostly unregulated market on the demand side, and a strictly regulated market on the supply side. This creates the illusion for participants that housing is a "free market", but in many ways it functions nothing like a free market. (Leaving the moral arguments to the side.) – abeboparebop Dec 21 '20 at 15:24
  • @user253751 In much of the world, there exists either some form of rent subsidies (for the tenant), an option for (publicly owned) housing with below-market rent, or a similar construct, because we have democratically decided poor people need OK homes too. This is the situation in The Netherlands, and the context in which the discussion there on scheefwonen usually occurs: people rent publicly owned below-market-rent properties when they were poor and eligible, and remain there when they become moderately wealthy and would be no longer eligible. – gerrit Dec 21 '20 at 15:58
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    @abeboparebop How I understand it is that minimum quality standards for housing (at the very least for reasons such as fire safety or public hygiene) mean that there is no profitable way to house the poorest in many urban areas, but society still relies on those poorest to work in urban areas, so additional market interventions are introduced to provide such housing. Maybe there would be no or less of a shortage for such housing with less regulations. I suppose there would be 3rd-world style slums/bidonvilles instead? Should I be allowed to remain in a pauper's home when no longer poor? – gerrit Dec 21 '20 at 16:04
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    @gerrit: that discussion is probably too big for these comments! My views: construction costs in European countries mean that for a new 70 sq m apartment, the rent floor for market rate housing is somewhere around €1000-1300/month, substantially less for older buildings. Rental costs above that floor in many locations are mostly driven by long histories of regulations limiting supply. For people that can't afford that floor, subsidy (or slums) will indeed be required. Subsidies should follow the people (based on their current circumstances), not the houses. – abeboparebop Dec 21 '20 at 17:18
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If you're looking for more tax-advantaged space with all of your restrictions, see if your employer allows the mega-backdoor Roth. The mechanism is to use after-tax 401(k) contributions (up to the overall 58k limit), then instantly pull it out to a Roth IRA or Roth 401(k).

This is another 30+k in Roth space (depending on employer pretax matching); remember to also do the regular backdoor Roth (the same thing, using nondeductible IRA contributions) for 6k. At this point it takes ~100k pretax income just to cap everything out.

With your likely broker-dealer restrictions, note that your employer can issue a Rule 3210 letter and you can still hold an outside brokerage account. Trades need to be pre-cleared though.

obscurans
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  • Yes, there is a mechanism where I can trade with pre-clearance but it's generally considered a hassle by my co-workers that do it and it gives the company too much visibility into my personal financial dealings. – PropositionJoe Dec 20 '20 at 03:25
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    If you're literally not going to have an account otherwise, and just buy-and-hold in that account, it's not too bad (I went through the same process). Having to preclear a trade 3 days in advance is still vastly better than the 5-10% transaction fees on a house, if all you're looking for is something to make your money work for you. I'd buy a REIT long before an undiversified investment property. – obscurans Dec 21 '20 at 02:12
  • Yes, I suppose I could do it if all I'm going to do is buy broad index ETFs a couple times/year. – PropositionJoe Dec 21 '20 at 14:27
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Home ownership isn't that great of a deal in some cases; there are calculators that can indicate if owning or renting is a better deal, but I think I know what they would tell you. And, as you noted, being on the hook to maintain a house isn't a great use of your time either. I think you already realize that home ownership isn't a great fit. (As a side note, many people would want a good house if they're owning, but are alright with a somewhat poor quality apartment if they're renting; consider if, say, a lower-price condo would be a better fit for you.)

So, where does that leave you? At that income, most tax-advantaged investments are not available, (maybe some kind of health savings account, but I suspect you're ineligible for those) and I don't think there's any good way to improve your tax situation. So, just dump money into a regular index fund or the like.

user3757614
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  • Yes, that is true. A few years back I looked into a Roth IRA and I am way beyond the income where that is beneficial for me. – PropositionJoe Dec 19 '20 at 15:28
  • this answer only deals with the rental cost of a house - which is all but irrelevant. it's like worrying about stock broker fees. look at the increase in price of houses in San Francisco, Sydney or London the last 40 years – Fattie Dec 19 '20 at 20:27
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    The increase in price of houses in San Francisco applies to San Francisco. There are cities where the cost of housing has skyrocketed, and there are cities where the cost of housing is reasonable. While the cost of renting has increased, this is a factor in rent or buy calculators, which I recommended. – user3757614 Dec 19 '20 at 22:21
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    And the increase in price of houses in San Francisco over the last 40 years applies to San Francisco over the last 40 years. Past performance is no guarantee of future results. – abeboparebop Dec 20 '20 at 14:14
  • @abeboparebop in fact I'd say it's a weak indication of the opposite of future results - higher prices put more pressure on the people to put pressure on the city to reduce prices – user253751 Dec 21 '20 at 13:45
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HELOC Investments

If you browse around this SE, you will see people asking about taking out a HELOC to invest. Obviously, they think that the market is a better place to park money than real estate. That's because over most of the history of the US stock market, that has been true. So if owning a home is not a big priority for you, growing your nest egg should be. And as many answers point out, taking out a loan against your house to invest in the market is a very...cost-inefficient way to go about things. A much better way to invest is to not tie up money in real estate in the first place. Then you don't have to pay a banker to grow your wealth.

ETFs

While you may have limitations on buying the stock of your employer, many financial advisers would advise against that in the first place. Your portfolio will survive the most downturns by being diversified, and putting all your eggs in the same basket as your job is the opposite of diversification. Day trading is a very profitable exercise...for the small number of traders betting against you and winning. Unless you know something that a lot of other folks don't, it's a really good way to burn money...almost as efficient as making fireplace logs out of Benjamins. And if you do know something that a lot of other folks don't, and trade on it, you are asking for a long jail term.

Let's look at the Dow over the last year:

enter image description here

If you were an active trader who was invested in DJIA at the beginning of the year, you would be very tempted to liquidate your position near the end of Feb, as the market started to take a nose dive. If you had a crystal ball, you could have bought back in on March 23 and made a killing. The problem is, we are looking at the graph with the benefit of hindsight. ON March 23, you would probably be looking at the price chart thinking: "How much lower can it go? Probably a lot." and sitting on the sidelines. If, instead, you waited, then by April, you'd see that it regained a decent chunk of its value. Maybe you'd get back in at that point, or maybe you'd say: "Well, I don't trust this recovery. It's a dead cat bounce. It's going back down." And if you did that, you'd still be sitting on the sidelines by November, when it actually reached new highs.

On the other hand, if you just bought a bunch of DJIA last year and sat on it all year, you would get a big lump in your throat in March as your position loses a third of its value, but then you would be saying: "Well, that was a wild ride, but I'm ok today, given that somehow, I am actually up for the year, despite a pandemic. Who could have called that?" And the answer is: nobody.

Conclusion

If you want to own a house, then buy a house. If you don't care to own a house, then park your money in an appropriately risk-adjusted investment. Broad-based ETFs are a pretty good place to start. Buy and hold. Be patient, and most likely, you will eventually profit.

Lawnmower Man
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  • Let me clarify - and some of the answers have caught onto this already - it's not that I can't buy my company stock. It's that I can't buy any stock or any other form of investment (options, commodities, etc) without my employer's express approval. – PropositionJoe Dec 20 '20 at 04:17
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    @PropositionJoe can I presume that means you work for a brokerage/trading floor/investment bank? Even if you need their approval, I can't see buying broad-based ETFs as being too controversial. – Lawnmower Man Dec 20 '20 at 04:19
  • Yes, it's something like that. I can look into the exceptions but overall I hear its a big hassle to do. – PropositionJoe Dec 20 '20 at 04:20
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    In that case, you should perhaps consider buying real estate as rental properties, and perhaps paying a management company. But this can be much more hassle than buying some equities. Also, you should see if REITs are also restricted...another way to buy into the real estate market without having to work directly with renters. – Lawnmower Man Dec 20 '20 at 04:24
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    Thanks - you reminded me of another edit. I have little to no interest in being a landlord. Some of my friends have tried that and I have heard nothing but horror stories from that. Being a landlord might one of the worst "american dreams' you hear about out there IMO. – PropositionJoe Dec 20 '20 at 04:27
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    this answer could be said to be basically "wrong" because it ignores the enormous overwhelming elephant in the room, the entire central fact of life-duration investing: real estate is the only investment available to civilian investors on (massive) margin. if anyone knows a way to buy ETFs on 10:1 (or even higher) margin, then do that immediately (and please tell me how! otherwise, glance at the example in my answer of turning 1.8 units in to five hundred units – Fattie Dec 20 '20 at 12:16
  • @PropositionJoe: I am in a similar situation with regard to trading. My plan is to simply aim for long-term investment (not day-trading) in diversified ETFs, and re-balance about every 6 months. It keeps "maintenance" overhead low. – Matthieu M. Dec 20 '20 at 12:31
  • @PropositionJoe - a final thought, you are really over-complicating things / blending unrelated issues. (1) Completely forget about the "tax" idea, which is simply completely wrong. (2) Completely forget about being a landlord. (3) Regarding owning your own house, you are wildly overestimating the "difficulties". Once a year you may have to make a 30 second phone call to have someone replace the dishwasher. It's nothing. (4) consider the result of these two calculations: $100,000 compounded at 10% for 40 years. Versus $2m compounded at 10% for 40 years. Best of luck! – Fattie Dec 20 '20 at 12:36
  • @Fattie Yes, I've had another friend present me with the same leverage argument and it's one of the few that I do give weight to. If I buy a house for 3% down and I sell it for $100k profit, that is quite a bit of leverage on the 3%. So, I do see your point on this one, it does make me reconsider my position somewhat. – PropositionJoe Dec 20 '20 at 13:50
  • @PropositionJoe - of course, I'm just some guy on the internet. but yes (A) the "leverage thing" is an utterly overwhelming elephant in the room. incredibly, it's not a "factor of two!" elephant; it's not a "factor of TEN!" elephant ... incredibly, it's a factor of fifty or a hundred elephant. (WTF!) the second paradigm: (B) while it is absolutely true that not all R/E markets grow tremendously over 50 years, *most or many* do. it is literally not possible to make stock picks, but it is *very normal and reasonable* to pick high-growth R/E. – Fattie Dec 20 '20 at 14:48
  • (do note that if a R/E market "merely does ok" you will "merely" make BUCKETS of money in 40 years, rather than TORRENTS. and, a final note from "some guy on the internet", for Gods sake, never ever ever buy a condo or any sort of shared structure. Buy land. if there's a house on it, whatever, that's nice. never ever buy a condo! cheers!!) – Fattie Dec 20 '20 at 14:50
  • @Fattie dude, you need smoke like a whole bag of weed. Nothing is as certain as you say it is. You are like one wild claim away from selling an MLM. – Lawnmower Man Dec 20 '20 at 21:40
  • @PropositionJoe leverage is a 2-way street. If your house goes underwater, you are still on hook for the mortgage, unless you are willing to wreck your credit. Doesn't seem any better than trading on margin. Any wise investor will tell you: "Don't gamble more than you can afford to lose." And even a professional gambler will tell you: "Compute your risk of ruin before placing your first bet." If you buy a house in cash, you get to keep all revenue generated from it. If you buy with debt, you are promising a fixed cut to the bank, regardless of your (possibly negative) returns. – Lawnmower Man Dec 20 '20 at 21:44
  • @LawnmowerMan point taken. I appreciate you posting that. – PropositionJoe Dec 20 '20 at 22:19
  • "If your house goes underwater, you are still on hook for the mortgage". Right. If your house is worth less in 40 years than it is now - you'll have to pay the mortgage. – Fattie Dec 20 '20 at 22:23
  • @Fattie I get the impression that you are ignoring inflation, which tends to suck a lot of the capital gains out of real estate. – Lawnmower Man Dec 20 '20 at 23:11
  • LM - hmm, inflation identically reduces any gain whatsoever (winning a lottery, anything). – Fattie Dec 20 '20 at 23:31
  • {note that, of course the fact that inflation and increasing wages evaporates mortgages, is another key "thing" about real estate. after 10 or 30 years many/most mortgages are a happy joke they are so low.} (I wish that happened with cars! :) ) – Fattie Dec 20 '20 at 23:32
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Buying a house is a personal preference. The only real financial incentive for buying property that way is all of much of the mortgage interest and some taxes are deductible, so you are getting a little bit of a tax advantage from spending money on a mortgage payment.

But here is an option I didn't see mentioned. You could create a business, typically an LLC, to purchase a house and its real estate as an investment. This offers some legal protections and more deductions than a personal mortgage. Have the business rent or lease the property to you for a fair price. Management an maintenance fees can offer additional tax breaks, so your business revenue and expenses benefits you more.

Disclaimer: I don't have anywhere near your income, so I haven't implemented these ideas myself. I do own a business and - while its holdings and their management are managed by the business - I get the benefit of using those holdings. The business profits and, as importantly, its expenses, flow back to me as the business owner, so those expenses are netting a discount on what I would spend anyway. That difference is in my tax savings. As long as the business is managed as a real business, it's a legal and tax-advantaged operation.

TL;DR: Current tax laws tend to favor businesses. In short, own nothing, control everything.

Suncat2000
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Instead of house, you can buy a condo which is bigger enough even in future, after you get married.

The advantages of condo are :

  • HOA will take care of maintenance outside the house
  • You have to just take care of maintenance inside the house
  • some condominium associations also support repairs inside the house

You can pay off the condo home loan as soon as possible. Once you pay it off, you don't have the monthly rent charges of $725 also. You will have more cash flow.

As others suggested, you can think of options like ROTH IRA and other common tax saving options.

Venkataraman R
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    Yes, I'm in a condo now for $725 in rent. The only difference is that I don't gain any equity. I would most likely not leave my place because I am in a great neighborhood in a very safe part of my city. The only move that really makes sense (if any) is into a home. – PropositionJoe Dec 20 '20 at 03:27
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    if possible, buy the same condo or buy similar condo in neighbourhood. condos are generally cheaper compared to home – Venkataraman R Dec 20 '20 at 03:38
  • never, ever, ever buy a condo - ever for any reason. it is the antithesis of investing. in real estate the land is the value. a "house" has no more value than a car or a boat, it's of no consequence. – Fattie Dec 20 '20 at 12:22
  • @Fattie, I get your point. In USA, condos appreciate well in the good neighbourhoods. I have lived in Seattle, USA, where my condo owner tried to sell his condo to me, which he bought for around $50k to around $180k. It appreciates. Also, in the case of OP, he is not investing. he is going to live in the condo. So, it is basic need and not to be considered as an investment. For his less maintenance need, condos are good fit. – Venkataraman R Dec 21 '20 at 03:11
  • the maintenance fees and legal problems are the killer and take them out of consideration for investment. Also note that long-term, condos have incredibly high structural expenses. yes, in some extreme markets they can be a (super-risky) short term "flip" - for sure. (indeed, I made a substantial amount of $ doing that once.) they have absolutely no place in the long-term investment under discussion - not relevant to this question!!! do not buy a condo! – Fattie Dec 21 '20 at 14:02
  • @Fattie, thanks for taking time to explain. I was talking on condo for living, as shelter is one of the basic needs. In long term, if condo goes for complete rebuilt, he will still have a house to live. I get your point that condos are not good for long term real estate investment. – Venkataraman R Dec 21 '20 at 16:25
  • Right. This entire page / QA is about one thing only. Long term investment strategies. Never, ever, ever buy a condo in relation to investment. – Fattie Dec 21 '20 at 16:32
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Others have contributed deeply into the economical aspects, so let me offer a more emotional viewpoint;

How strongly do you feel about losses and gains in your "investment"?

If you are at the level of income where reasonable gains don't affect your happiness significantly, your emotional perceptions of economic investments may become more important than their actual value. (After all, ultimately you earn money for happiness - and if you can already provide for everything you want with your wealth, there isn't much reason to try and make more if you do not find the process itself enjoyable.)

I am also single with a comfortable income, and will have an inheritance large enough to the point where investing in something that doesn't literally exponentially increase my wealth won't make much of a difference.

While investment gains thus don't derive me much pleasure, for some reason I tend to overly fret and stress over any losses (I know this is illogical, but such tendencies aren't easily logicked away). Thus, I generally stay with much safer investments than recommended for my age group, as I know the occasional losses will negatively effect my mental health much more than the (probable) eventual gains will positively effect it, even in the long term.

I imagine the same can be applied for a house - while any property value fluctuation is unlikely to effect your wealth meaningfully, you may feel that the stress due to any perceived "downturns" (or even the mere possibility of it!) in your wealth due to decreasing property values or other costs, especially for such a big investment, may outweigh the happiness gained by increasing values or lower taxes.

Of course, it also may be that your may find yourself 30 years in the future kicking yourself for not buying that property a mere 5-minute walk from the newly discovered Fountain of Youth - but plenty of people are already doing that for Bitcoin, and only hindsight is 20/20.

mantra
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buy a home ... would help my tax situation

This is completely wrong. It wouldn't help your tax situation in any way.

Or should I really be buying a home?

Go buy a home for $1m.

This requires (about) $100,000 margin.

Tell how much you think the house will be worth in that city in 40 years.

(Lookup prices in that city 40 years ago as a thought experiment.)

https://fred.stlouisfed.org/series/ATNHPIUS41884Q

enter image description here

1975 1.8 margin

2020 500

Fattie
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  • OK, then what would help? – PropositionJoe Dec 19 '20 at 18:15
  • There is no mechanism, whatsoever, to reduce taxes. – Fattie Dec 19 '20 at 18:19
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    @Fattie - he can become a philanthropist, and give up to half his gross income away. That would certainly reduce his taxes. – JTP - Apologise to Monica Dec 19 '20 at 18:35
  • Unfortunately that does not increase your spendable money one cent. – Fattie Dec 19 '20 at 23:53
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    Nor does spending money on interest in order to deduct the interest from income on one's tax return. – JTP - Apologise to Monica Dec 20 '20 at 02:59
  • absolutely correct - government "breaks" (for interest or donations or having children) are misconstrued as "reducing" taxes. As I mention above, if I'm not mistaken literally the only way to reduce taxes in the US is, the govt gives you a (small) genuine small tax reduction if you happen to work overseas (perhaps in a tax free area) for a full year. other than that the idea of "reducing" taxes is, simply, a common myth – Fattie Dec 20 '20 at 12:12