Should I be paying tithing on the equity from my home?


Ijustforgotit
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31 minutes ago, Ijustforgotit said:

Looking for advice. I recently received 72000 for the equity in my home. Should I pay tithing on this?  51,000 will need to be reinvested into the down payment of my new home

You are not going to like my answer - it is a personal choice between you and the Lord! (though your bishop may be able to offer some good advice).

I bought my first home for $96,000 and sold it ten years later for $123,000.  I felt good about tithing on the $27,000 in profit that I made on the house, so that is how I think I remember I did it.  I think I got back something like $23,000 in cash after satisfying the old mortgage and putting a down payment towards a new house.

Edited by DoctorLemon
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25 minutes ago, Ijustforgotit said:

Looking for advice. I recently received 72000 for the equity in my home. Should I pay tithing on this?  51,000 will need to be reinvested into the down payment of my new home

This is one of those things that I would say take to the Lord about.  I have thought about this.  The scriptures say 10% of your increase and the Church says this is interpreted as 10% of your income, interest, increase, etc.

So that's pretty cut and dry; the rub (IMO) comes with inflation.  Regardless of inflation states, housing inflation is much, much higher than regular inflation.  Housing inflation is ~5%/year, where as CPI says it's only 2%/year.  Obviously the law of returns says something is out of wack here.  Housing can't go up @5%/year while wages stagnate or go up 2% a year . . .eventually most people get priced out, you have a housing collapse, etc.

So for example, say I bought a brand new house in the mid 1970s and never moved until now.  Say I bought the house for 60k in 1975 and now I'm selling it to live somewhere else and now I sell it for 350k.  If I simply go by the CPI calculator: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=60&year1=1975&year2=2017.  60k in 1975 is worth ~270k in 2017 money. So on an apples to apples at best I have an increase of 70k.  But then what if I had a mortgage for 30 years??  In 1975, the rate was ~10%.  After 30 years I would have paid 130k in interest payments.  So now if I factor that in, did I really have an increase??? But at the same time, I also probably dropped thousand and thousands of dollars into repairs, maintenance, etc.

Okay, so over the long horizon it get more complicated . . .but what if I was simply fortunate to buy before a bubble hit and now I've lived there 3 years.  I've done nothing to the place-I haven't improved, I've just lived in it and after 3 years b/c of a housing bubble now the house is worth twice what I paid for it?  Should I now pay tithing on the increase??  And this gets to another philosophical point, a house an expense not an investment.  Just like renting is an expense or buying a car is an expense.  If you want a house as an investment then you buy a property you can rent out (and that for tithing I think would be a lot more cut and dry).

I guess the bottom line is.  I have no clue.  It is probably up to each individual to determine what they think their increase is and take it to the Lord.

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Tithing is between you and the Lord, you should do what you feel spiritually impressed to do after prayerful consideration.

Now that the obvious is out of the way, please be more specific as to whether this is a loan or if you sold your home for a total of $72,000 or what?

Based on how I interpret your OP, if it were my money I would pay tithing, on the difference between the purchase price of the home and the sale price of the home, but subtracting the cost paid for property taxes, interest, closing costs, PMI and costly maintenance and repairs performed.  All these are non-optional costs factor into the actual cost of your home, and effectively reduce any gain,increase or 'interest' you experience.  Homeowners insurance is an optional cost I pay to protect my home, however, when you have a mortgage that is not paid off it is not optional during the time you have a mortgage (at least for the majority of US lenders), so I might potentially consider subtracting that cost as well.

Using @DoctorLemon's personal example:  If I paid $96,000 for a home and sold it for $123,000 10 years later, but then also paid $700 each year in property taxes, $1000 each year in interest fees, and had closing costs of $1500, all those costs are a big deal and subtract from my earnings.  If I paid the common 6% of my sales price to the realtors I would subtract that fee as well as it reduces my increase.  In this case 6% of $127,000 is $7,620.

In this scenario rather than paying on the $27,000 (while noble :)) I would pay tithing on $27,000 - (1500 + 10*(700+1000)), which would be $27,000 - $18,500 = $8,500.  If I had to pay realtors fees when selling that came to $7620, I would subtract that as well:  $8,500 - $7,620 = $880.  So in this made up scenario I would pay $88 in tithing, because through the entire process $880 was my actual increase in the process of buying and selling my home.  This was assuming there were no major repairs such as roof, etc, that you can't take with you.

It is rare that you purchase a home and come out making a significant profit over time once all factors are considered.

EDIT:  It looks like @yjacket and I have pretty much the same idea here.

Edited by person0
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3 minutes ago, person0 said:

It is rare that you purchase a home and come out making a significant profit over time once all factors are considered.

EDIT:  It looks like @yjacket and I have pretty much the same idea here.

And that is where tithing gets interesting-especially running a personal business.  You expense everything.  The easiest way if you have a personal business is to pay tithing on the AGI . . .but when you expense everything your AGI can be really low-even if you had a good year.  So now you have to calculate two things, AGI for the government and then what you think your actual income is???  I guess my point is that for many business if you paid 10% on any income that you had come in, you could easily go broke.  Many business live on tiny margins but make up for it on value. So you really have to factor in all your costs before you can pay tithing.

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1 hour ago, Ijustforgotit said:

Looking for advice. I recently received 72000 for the equity in my home. Should I pay tithing on this?

First, yes, the others are correct.  It is between you and the Lord.

Second, you've got to consider what tithing is supposed to be based on -- your INCREASE or INCOME.

I'm not really sure what you mean by:

1 hour ago, Ijustforgotit said:

I recently received 72000 for the equity in my home.

Does that mean through the sale of your home?  Was it profit?  Or was it reimbursement for the amount you had paid down your first loan amount?

Here's the math that I would do:

I paid $100,000 for my first home.  $20,000 in a downpayment;$80,000 with a mortgage.

Over the time I lived in the home I paid it down to $50,000.  But when I went to sell it, I sold it for $130,000.  $8,000 went to title fees, real estate agents, etc.  So, I got a net of $72,000.  

But think about this, your net sale was $122,000.  Your purchase price was $100,000.  So, your profit was only $22,000.  The other $50,000 was payback for what you put into it via downpayment and mortgage payments.

At this point, I make a decision, am I going to count this across my profits and losses over multiple homes?  Or am I going to take each home as I buy and sell -- profit and loss for each home in the year that I buy/sell?

Because of how often I move, I push it forward.  I have found that through all my purchases and sales, I've lost over the years.  But I've never claimed a loss on my tithing.

If you don't move around as much as I do, then you might want to take it on a sale-by-sale basis.  But even then, you've got to get to a point where you've been making a lot of profit and you just keep re-investing it in such a way that it is an "increase" to you.  This is where things get foggy and you need to consider your personal profit/loss and how you use it.

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Yes, I firmly agree this is a personal decision between you and God.

That said, I would advise against paying tithing on all of the equity. You see, when you were making house payments, I assume you were paying tithing on that money. So if we apply the terms "pre-tax" and "after-tax" to the tithing situation, you have "pre-tithing" and "after-tithing". By way of example, if you are running a business, then it makes sense to pay for your business expenses on a "pre-tithing" basis since by definition anything supporting your business is *not* part of your "increase". 

Now back to the equity... assuming that you were making payments on your house on an "after-tithing" basis, I wouldn't necessarily pay tithing on *all* of the equity, since a lot of it was already paid for using after-tithing monies. Therefore if you were to pay tithing on all of the equity, you'd be "double-tithing" yourself in a way of speaking. Since we are asked to pay tithing on our "increase" then maybe it makes sense to only pay tithing on equity that you've gained due to market appreciation, and not equity that you've already paid for yourself.

Note: I am not an accountant, nor a bishop. I have no authority whatsoever to help you with this decision. Seek the advice of a CLA (Certified LDS Accountant) ... that's a joke right there.  

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