For generations, the American dream has been to go to school, get a good job and buy a house.
One by one, those steps have been shot down.
Go to school? Well, that often means a lot of school debt. School debt that you can never get rid of, even in bankruptcy. With increasing interest rates and mounting student loan debt, many graduating students are being hit by the triple whammy of debt repayment, difficulty in finding a job and discovering that if they can find a job at all, they’ll end up being underemployed.
I’m a fan of education, but not necessarily college just for the sake of college. Learn a trade. Learn skills. Best of all, learn what it takes to start your own business and be a success. Just to going to school for the sake of going to school, though? Not so much.
How about “get a good job?” For years, I’ve preached the message that the only way to financial freedom is to have your own business. It could be a side business, a part-time business, a ramped up hobby or something wild and crazy. If you’re not working for yourself, you’re working for someone else. And that means you’re building someone else’s dreams and someone else’s assets. And then when things change, you’ll be out on the street.
The saddest, and most common, messages I get lately are from people in their late 40’s and older who suddenly got downsized. If they’re lucky, they get a severance package. Otherwise, they get a couple of weeks, insurance for a month or two and memories.
And now, they’re starting over. It’s a hard way to go.
But at least you had your house. It was the only asset most people have built in their lifetime and best of all, it was a tax deduction. In fact, who hasn’t been told when they get a raise, ‘Buy a bigger house!”
But now, that’s all changed. With the Tax Cuts and Jobs Act, your tax write-offs may have really been reduced. If you itemize, and that’s a big “if” because your standard deduction just got a lot bigger, but if you still itemize, your property tax and state income tax deduction is limited to $10,000. In some states, that’s not going to be nearly enough. In that case, it won’t matter if you have a property tax deduction, you aren’t getting a write-off.
And then the mortgage interest deduction is limited to interest on $750,000 of mortgage debt. In some areas, it’s going to be hard to buy a house with that low of a mortgage.
Or even if you go in with more cash on the purchase , do you really have enough itemized deductions that it makes sense to itemize at all instead of just using the standard deduction?
How can you get a full deduction for your property tax and mortgage interest? Rent out the property. Real estate investors will still get the deductions.
Maybe the new American Dream plan is to buy rental properties to rent out and then rent where you live.