John M. Hoffman & Associates CPAs

Frequently Asked Tax Questions

Home Ownership 

"I need to buy a home so I can reduce my taxes - my rent is just going down the drain - what do you think?" 

We often get this question. Home ownership can be a wonderful thing in many aspects but not always and not for every one.

As to rent going down the drain, we think that for your entire life there is a cost associated with having a roof over your head. That can be paying rent, that can be paying a mortgage, and that could also be the opportunity cost of having a home with no mortgage and all the money tied up in the home.

When one looks at the folks who bought a home for $400,000 twenty years ago that is now worth $1,000,000 every one thinks of what a wonderful investment that was. Yes it probably was a good investment but that person obviously bought at a reasonably good time with a good location that has appreciated quite nicely. The value of the home has increased 150%. However, lets not lose sight of the fact that during that same 20 years, the stock market (Dow 30 average) has increased roughly 600%, a return 4 times as good.

Now you are not able to live in your stock portfolio like you are able to live in your home, you generally do not need to put a new roof on or a new furnace in a stock portfolio. At the same time you don't often get to buy a $400,000 stock portfolio with $80,000 down and a $320,000 mortgage.