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To Buy Or Not To Buy? Housing, Mortgages And Tax-Deferred Investing

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  • Marcel Marekwica
  • Steffen Sebastian

Abstract

Saving for retirement and the acquisition of a private home are among the most important decisions private investors face in their lives. Tax rules are an important factor influencing household portfolio structure. Both the taxable treatment of housing and assets in tax-deferred retirement accounts are favorable to individuals. Under current US tax-law, interest payments on mortgages are usually deductible from personal income. Profits in tax-deferred accounts are tax-exempt. The tax-deductibility of interest payments on mortgages combined with investments in tax-deferred accounts might offer taxarbitrage opportunities, as already pointed out in Amromin et al. (2007). The portfolio choice literature with housing does not allow for tax-deferred investment opportunities. The portfolio choice literature in the presence of tax-deferred investment opportunities does not focus on housing as an asset class. In our study, we join these two lines of research and combine these widespread investment vehicles in a life cycle model. JEL Classification: G11, H24, R21

Suggested Citation

  • Marcel Marekwica & Steffen Sebastian, 2008. "To Buy Or Not To Buy? Housing, Mortgages And Tax-Deferred Investing," ERES eres2008_204, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2008_204
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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