by Calculated Risk on 12/20/2008 11:24:00 PM

How come so many people write about real estate as a tax advantaged investment, and they never mention the tax disadvantage?

Take this article in the NY Times: Tax Break May Have Helped Cause Housing Bubble

Luckily the title contained the word "may" because it is pretty easy to demonstrate that the '97 tax change was a minor factor (at most) in the real estate bubble. But I have a question about this section:

Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate.
...
Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”

Yes, there is a mortgage interest deduction, and a capital gains exclusion for a primary residence - but there is also a property tax for real estate. This is a tax disadvantage compared to stocks and bonds.

If you own a $500 thousand home, you probably pay $5 to $10 thousand per year in property taxes. If you own $500 thousand in stocks and bonds, how much do you pay per year in property taxes (just for owning them - not selling them)?

I'm not arguing for or against any particular tax treatment here, I just think when comparing the tax treatment of various assets, maybe we should consider all taxes.