Pothole SM

Taxes are paid so that government can pool monies that enable it to embark on projects that enrich society as a whole. When government is underfunded, education and infrastructure suffer. Anyone who jumped for joy at their measly property tax reduction this year also abdicated their right to complain about DISD, potholes, or Fair Park.  The 37 cents a day I saved was invisible to me and certainly wouldn’t pay for much municipally on its own.  But when joined with the savings of every other household in Texas, it equates to $3.8 billion statewide in 2015-2016.

Without taxes, there would be no public libraries, police, fire, ambulance, public schools, roadways, etc. Without taxes, every single road would be a nightmare of privately-owned thoroughfares, collecting tolls with each change in ownership.  We’ve all read stories in recent years about homes that were allowed to burn because the homeowner hadn’t paid their subscription fee for fire protection.  It’s estimated there are 1,200 such subscription-based municipalities in the USA.

The Texas Transportation Commission acknowledges an annual underfunding of $5 billion in transportation infrastructure improvements.  In the 16-county area covered by the North Central Texas Council of Governments, this equates to roughly $2 billion a year in underspending.

Tie those two numbers together.  The entire state gave back barely enough money to properly fund Metroplex roads.  Still feeling good about that piddly tax reduction?

Now before you get all uproarious in the comments, I’m not a fan of Texas’ high property taxes.

I hear you saying, “First he says government is underfunded, then he says taxes, which fund government are too high.”  That appears contradictory, doesn’t it? Not really.

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God, I wish I could say yes, but more likely, just maybe. Or how about, fat chance?

I checked with my wonderful CPA firm, Judd, Thomas Smith & Company, who says you may still deduct mortgage interest on a second home and also property taxes but watch it: that alternative minimum tax, a complicated Congressional invention to snag the rich that ends up now screwing the middle class, sometimes puts the brakes on mortgage interest or property tax deductions of any abode.

Which is why I die laughing at all this posturing going on in Washington — hec, many people aren’t even getting the benefit of this so called deduction. Take it away? How about you fix the stupid ATM!

If you sell the second house and make a gain, which is another fat chance in this market, any gain is not eligible for a Section 121 (capital gains) exclusion. You will pay taxes. Hey, that’s one bright side of this market, right? If you sell your primary residence $500,000 in capital gains is excluded (married couple, filing jointly) but over that, you pay the capital gains tax rate.

Just wait till they start whining about that in Washington, too.

There’s always a 1031 Exchange, which my CPA says he has not done many of, and I’d actually like to know why. I love 1031 Exchanges!

Most people get enough write-offs from their primary residences, but a second home can provide write offs, particularly if you lease it out. (The IRS only allows you a few days each year, about 10% of the time, to visit your home and maintain it. That’s precisely why you need multiple homes!) Then you pay off the home through rental payments, borrow against it, and build what I call “stealth wealth” this way.

I asked about fractional ownership, particularly because I want a fractional at Watercolor or Alys Beach sooo badly, and he said the same rules apply, but do you really want to have to deal with all those partners in ownership?¬† I don’t know, mulling.

Meantime, this is my year to button down the financial s, do another 1031 Exchange, start another blog, and take you all with me all the way. I think real estate is a great way to diversify investments because it gives you total control.