How to lose $620,000 in 5 years

It’s really simple, just buy this place in the middle of a massive cheap money binge:

10085 Lesterford Ave Downey, CA 90240

Date Event Price Source
Oct 27, 2010 Listed $350,000 MRMLS #M10113549
Aug 27, 2010 Sold (Public Records) 
This home was foreclosed and bank-owned.
$847,667 Public Records
Sep 15, 2005 Sold (Public Records) $970,000 Public Records
Aug 06, 2004 Sold (Public Records) $715,000 Public Records

Someone was actually able to get close to a $1,000,000 loan for this place. That’s about a $4500 a month payment before property taxes and PMI. Who wants to bet that this mortgage got bundled into a security now owned by Fannie and Freddie. The banks, brokers and Realtors© were able to push all the risk off to the taxpayer while reaping big commissions. This was done at the direction of Congress to loosen lending restrictions in the name of “affordable housing”.

Hey the upside is you can get this place with graffiti included for cheap now.

Just a few thoughts on itemizing and deductions

I know, another boring post about money and taxes, but stick around you might learn something.

The answer to the “should I itemize?” question is actually pretty simple: if you don’t have enough deductions to surpass the standard deduction then you don’t itemize. You take the larger of the two and be done with it because that’s what benefits you the most. Note for the married folks, if you file separately and one of you itemizes then the other has to too.

The standard deduction is great for people with very little to deduct and itemizing is great for people with lots to deduct. Once you get in the situation where your total itemized deductions are close to your standard deduction then things like the mortgage interest deduction aren’t really that valuable. The mortgage interest deduction is touted as one of the benefits of home ownership, but people like me wouldn’t benefit at all from it.

In our situation, if we owned a home we’d have to hand the bank around $6,000 in interest every year and pay $3,000 in property tax to simply break even with the standard deduction. It’s only after the $10,700 threshold that each additional $1 deduction would benefit from itemizing. Even then I’d only be getting about 20% of that back, so what is the benefit of giving away $9,000 a year and then spending $1 to get back $0.20 after that. In the future, the standard deduction will increase with inflation and we’d gradually pay less interest over the life of a mortgage making it less likely that we’d be over the standard deduction. So whenever I hear someone talk about the tax benefits of owning a home, I take it with a big grain of salt.

Most Americans Don’t Itemize on Their Tax Returns gives a pretty good break down of who itemizes. Those individuals with higher incomes have a greater incentive to itemize because the deductions are more valuable as you move up the tax bracket ladder and this is certainly reflected in the itemizing rates.

I did hear about a proposal to add an additional $1,000 to the standard deduction for people with mortgage interest that don’t itemize. Can’t find anything through Google right now so post a link if you know what I’m talking about.