A 2019 update of our House Rent vs Buy IRR Spreadsheet

This post will be a quick update to our original buy vs. rent spreadsheet post, given changes in the economics of housing due to the Tax Cuts and Jobs Act from late 2017. First, a quick review of how the original sheet worked: we had taken the main costs and benefits of home ownership as inputs and calculated what IRR you effectively were earning on your down payment:

Major changes to the spreadsheet include:

1. Mortgage interest is now only deductible for the first $750k. We adjust the formula for the tax benefit of the mortgage interest deduction to include an if statement that checks if the mortgage balance is above $750k. If so, the tax benefit is limited to deducting interest on the $750k.

2. The value of the property tax deduction is likely lower due to the cap on state, local, and property tax deductions at $10k.

3. The standard deduction is much higher: $24k for a married couple for 2019 versus $12,700 in 2017. This makes it more likely people end up just taking the standard deduction, which means the property tax deduction is not used, or could make the part of the mortgage interest that is under the $24k cap not useful.

We’ll work on both of these problems together, with some simplifying assumptions. First, we’ll ask users to input their income, average tax rate, and other federal tax deduction items (charitable giving, etc), and whether they are married. This will give a sense of whether they were already at the $10k SALT cap, and therefore implies the property tax deduction wouldn’t be worth anything to them. Also, only the portion of the mortgage interest that puts the user above the standard deduction is worth anything, so we add that logic in as well:

(36 hours later…)

Okay, we kept running into complicating factors, and the formulas we’re now using for the mortgage and property tax deductions have gotten very convoluted (check out the formula below that calculates what portion of the mortgage interest deduction is not really a marginal benefit because it was needed to put you over the standard deduction). Here’s what we have, rather than try to explain it step by step, try walking through it yourself, or if you have a better solution, let us know!

Check out the spreadsheet here: home buy vs rent complex 2019 update

Who was paying the Alternative Minimum Tax (AMT)? A spreadsheet

As we head into the heart of tax season, people (well, those who haven’t read Will Republican Tax Bill make you pay less taxes?) are taking stock of what the major changes are this year. One of the major differences is that the Tax Cuts and Jobs Act lowered the number of people subject to the AMT from 5.2 million to just 200,000.

But who were these 5.2 million people? Or how much income were they making that they would be subject to this tax?

The goal of our spreadsheet is to calculate taxes owed under the normal tax system, as compared to under the AMT system. Our spreadsheet calculates taxes owed under both systems for a variety of incomes and determines what income levels people owe more under the AMT system. Continue reading “Who was paying the Alternative Minimum Tax (AMT)? A spreadsheet”

Marginal tax rates don’t equal average tax rates, the spreadsheet

A very quick post today (sorry for the long hiatus; life has been pretty hectic). There has recently been a lot of buzz from Alexandria Ocasio-Cortez’ comments on instituting a 70% marginal tax rate on very high incomes.

While this site avoids commenting on rising income equality, populism, and the balance between capitalism’s incentives and growth versus its inequality, a spreadsheet is a great way to highlight the confusion between marginal and average tax rates. Continue reading “Marginal tax rates don’t equal average tax rates, the spreadsheet”

Calculate how much an investment banker makes per hour

“Investment bankers – they make a lot of money, but when you consider how many hours they work, it’s basically minimum wage”  – Quora user

This will be a simple spreadsheet to either prove or disprove that statement. The only logic we’ll employ here is the power of division. Continue reading “Calculate how much an investment banker makes per hour”

How much “should” house prices be down in California?

An application of our IRR based Buy vs Rent spreadsheet

Based on a casual look at the economy, things are going pretty well –  unemployment is down and GDP growth is strong. So it would seem to make sense that U.S. home prices are up about 3.5% so far this year, right?

But if we rewind the clock by a year, many of the economic factors involved in owning a home in the U.S. have gone the wrong way:

Let’s use a spreadsheet to compare the values of three hypothetical houses in California – today versus from one year ago – based on changes in mortgage rates, marginal tax rates, and mortgage interest deductibility requirements.  Continue reading “How much “should” house prices be down in California?”

Build a Classroom Stock Market Game in Google Spreadsheet

There seems to be a recent push to teach personal finance concepts in high school. That makes perfect sense to us – a little less trigonometry and a little more compound interest is probably more useful in the long run. I was in 7th grade when I was first exposed to the Stock Market Game. Basically, everyone picked one stock, and we occasionally checked to see who was doing the “best” based on price appreciation.

While I’m not sure I really learned that much from that experience of watching some random number fluctuate around, maybe it did plant some subconscious seed of interest as I ended up pursuing a career in finance. I think the Stock Market Game would be better if supplemented with a lesson on exactly what a share of ownership in a corporation means (see What Makes a Good Business?). But anyways, I digress… Continue reading “Build a Classroom Stock Market Game in Google Spreadsheet”

Calculate a Diversity Index for NYC District 3

We recently posted How to Calculate a Diversity Index and suggested this could be used to look at how well mixed schools within a school district were, among other uses. Somewhat on cue, there was a major controversy in New York City’s Upper West Side, as parents debated a plan to allocate middle school seats to lower income students.  https://twitter.com/DOEChancellor/status/989728932772499457

Continue reading “Calculate a Diversity Index for NYC District 3”

How well mixed is your melting pot? Calculate a Diversity Index with a Spreadsheet

“If you can’t measure it, you can’t manage it” – supposedly Peter Drucker

A unique feature of the United States is its diverse population, tied together by shared values. Generally a commonly-embraced aspiration, diversity is promoted as a healthy feature of groups within society (usually, although the trend might appear otherwise). But can diversity be measured?

What if we could come up with an index that measures how well “mixed” a set of groups is, a so-called Diversity Score?  For instance, can we create an index such that a prison and its subset gangs falls on the less diverse/less well-mixed end and a Benetton commercial on the other? Once we have a method, we can apply it to other places like school districts, college fraternities and sororities, social groupings within a company, and many more. That’s the beauty of spreadsheets! Continue reading “How well mixed is your melting pot? Calculate a Diversity Index with a Spreadsheet”

Prom Draft: NO. Prom Match: YES! (Residency Match Algorithm Spreadsheet)

Back in 2014, a group of male students had the creative but misguided idea of holding a prom draft to select dates for prom, a formal dance typically held at the end of high school. The very obvious problems involved having payments for high draft picks and taking the girls’ preferences out of the process.

With that in mind, we thought instead of a Prom draft, why not organize a Prom match? The matching system for medical residency has been in place since 1952, and even led to a Nobel Prize. In the residency match system, each applicant ranks his or her acceptable choices, and each school ranks its acceptable residents. Then the algorithm attempts to make the best or most optimal matches, among all parties.

So, let’s dive into how we can create a spreadsheet that optimizes students’ date preferences for prom. Continue reading “Prom Draft: NO. Prom Match: YES! (Residency Match Algorithm Spreadsheet)”

Marriage Tax Penalty Spreadsheet Update – Republicans improve the economics of getting married!

We’ve updated our original Marriage Tax Penalty Spreadsheet using the new brackets from the Republican Tax Plan. Having done the original in a spreadsheet, all we had to do was copy the whole sheet over, and then adjust the numbers in columns A to C according to the new tax brackets, and update the data table. Easiest post ever!

Somewhat surprisingly, the new Republican tax brackets are quite beneficial for higher income married working couples, as it mostly eliminates the marriage tax penalty for those earning less than $600k combined (previously they kicked in when both people were making around $75-100k). The married brackets now are just generally double the individual brackets, except for a kink around the $500k-600k range. Continue reading “Marriage Tax Penalty Spreadsheet Update – Republicans improve the economics of getting married!”

Make a Group Brainstorming and Idea Ranking Google Spreadsheet

Often, we find ourselves in a group meeting where we have to come up with new ideas and then choose the best one. For example…

1) A speaker is coming to talk to a group, but only has time for the best 5 questions from the group.

2) A team of journalists gives story ideas for next week’s magazine. Or a team of comedy writers throws out sketch ideas for next week’s show.

3) A group of friends comes up with ideas for their next business venture.

We’ll use #3 as our example. We use Google Spreadsheets for this project, because Google Spreadsheets easily allows multiple people to edit the same spreadsheet at the same time.  Continue reading “Make a Group Brainstorming and Idea Ranking Google Spreadsheet”

Will the Tax Cuts and Jobs Act make you pay more or less in taxes?

House and Senate Republicans have passed a major tax bill. It makes big changes to how the government taxes its citizens. Most notably, corporations and some individuals will pay less tax (corporate rate lowered to 21%, lower individual brackets, higher standard deduction), but many deductions like the state and local deduction and personal exemption will be limited to pay for it and the deficit will likely go up.

How would this affect you? Is the backlash against certain Republican lawmakers in high tax states like California fair? Do I sense a spreadsheet in the making? After 3 prior tax posts including How to Estimate Taxes, a Marriage Tax Penalty Calculator, and an analysis of the Trump Tax Plan, you would think we had suffered enough…but here we go!

Sneak Peak – Our results indicate that married Californian homeowners making under about $700k are better off under the new plan, while those making over $700k are worse off. Disclaimer – this is really complicated, we might have made some errors (please let us know if you see any), and your mileage may definitely vary:

Continue reading “Will the Tax Cuts and Jobs Act make you pay more or less in taxes?”