Tenchusatsu,
How does this work again? When you sell real estate, you can deduct the price of the house from your income? Or the appreciation that you pocket isn't subject to income taxes (up to 500K)?
No, you start out by buying a really expensive house, so that the payments will consume every dollar that you would otherwise save and invest elsewhere. Real estate is THE investment. While you own this highly leveraged investment (most people pay only 10% down), just a natural rate of inflation, plus un-natural way of real estate outpacing inflation will make this investment grow. While you hold it, you pay A LOT in interest (you started out with a very expensive house). You deduct the interest from your income, which can significantly lower your tax liability.
Now you hold it for a few years, the whole thing substantially subsidized by tax payers (you get to live there too), at some point you approach $500K of unrealized gains ($250 if single). At that point, you upgrade.
Sell the house, capital gain on the house is tax free, buy a more expensive house. The banks are there, ready to lend you more, Uncle Sam is there ready with more subsidies.
Joe |
