Stocks vs. Real Estate

Both real estate and stocks have had their day, but the question you need answered is this: Which contender is the superior long-term bet today?

Taxes
Round 4
Taxes
Stocks can throw two decent punches in this round: First, if you (or your mutual fund) hold a stock for more than a year before selling, then you owe only a capital-gains tax that tops out at just 15%. Second, you can offset any investment losses you realized against your gains on your income tax return.

Real estate, by contrast, delivers a battery of tax benefits, especially for your home, says Ronald Hegt, a senior tax partner at Hays & Co., a New York City C.P.A. firm. You can deduct mortgage interest and property taxes yearly. And when you sell your house, the first $500,000 in profits are tax-free (for individuals, the first $250,000). You are on the hook for long-term capital gains taxes for any extra profit, but the top federal rate is only 15%.

Rental and commercial property also come with breaks. Expenses to maintain the property are deductible. And you can write off depreciation, a break for the supposed wear and tear on the property. On the flip side, there's no exclusion from taxes when you sell, and you pay 15% in capital-gains taxes on any profit. Worse, the government makes you pay taxes on the depreciation you took.

Performance Leverage Costs Taxes Transparency Effort Volatility Diversification Decision
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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.