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Mortgage Interest Deduction

calamity said:
If people no longer can write off the interest and RE tax on their income taxes every year, they will buy homes that cost proportionally less. That number is roughly 30% less. Hence with fewer people willing to buy your home at $X, the price will drop proportional to the lost tax deduction, roughly 30%.

That is the logic. I doubt you can refute it.
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Housing is overpriced again. So good.
 
fmw said:
It is most likely that an elimination of the mortgage interest deduction would lower the value of real estate and the price of houses overall. They might likely be able to buy the very same house.
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Good point.
 
Critter7r said:
Based on nothing but my own anecdotes, I suspect that people spend WAY more time and money on a home they own than they could ever possibly recoup by selling it. Think about how much time & money is spent on mowing grass, annual landscaping, painting, interior maintenance, new appliances, etc. Renters generally don't have to tackle that stuff themselves, and that's why renting generally has a higher monthly.
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Home ownership ought not be looked at as an investment (as so many do), but as a vehicle for mitigating living costs over the long run.
 
Winchester said:
Home ownership ought not be looked at as an investment (as so many do), but as a vehicle for mitigating living costs over the long run.
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The very long run. As in, after 30 years, you won't have to make that monthly payment. Buy a house by about 30, so that you don't have a mortgage payment in retirement.
 
Critter7r said:
The very long run. As in, after 30 years, you won't have to make that monthly payment. Buy a house by about 30, so that you don't have a mortgage payment in retirement.
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Or buy a house you can afford with a 15yr mortgage. It's kind of scary how many people carry mortgage payments into retirement, nuts. Now that mines paid off I'm socking away what I used to pay and I've got another 16 years before I retire... should turn into a nice nest egg.
 
Moderate Right said:
But it is the left who claim that the deduction increases income inequality. Are you saying that the left is wrong?
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It's both. Sort of.

To the extent that it's available, it benefits those with higher incomes more than those with lower incomes. (Granted, that's not a strong example of "increasing income inequality", but I think that was the jist of it).

Eliminating it to make way for another tax reduction for the wealthy will shift the tax burden toward those with lower incomes, which is the GOP wet dream.
 
I find it difficult to believe, given how many people don't understand how our tax code works or what a tax bracket is, that very many people are making a rational, informed decision when considering if a interest deduction makes a house affordable for them or not. I'm sure in some areas where the floor for home prices is high it can make the difference between buying and not buying, but in most areas it probably only affects how much house one buys.
 
Critter7r said:
He doesn't have more than if he hadn't bought the house, but he has more than if the deduction wasn't available.

However, it's a transfer of wealth from Joe Taxpayer to the banks. A tax reduction for sending money to the bank.
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I get what you're saying. Once you accept it as an initial loss, you can theoretically make the loss smaller.

And as others have alluded to on this thread, it doesn't provide that much of a break anyway for those who exceed their standard deduction once you get beyond the original overall increase in expenses that the generic guy pays.
 
Nuber said:
Housing industry myth - mortgage interest deduction makes owning a home more affordable.

Typical guy buys a home. Before he buys he does not have a mortgage interest deduction. He pays full tax (whatever it is) to the feds. Once he buys a home, he pays full value minus the mortgage deduction.

Where did the money go from the lower tax bill? To the mortgage company! He had to make the interest payment in the first place. Dude doesn't have more money in his pocket because of this transaction.

Scrap the deduction. It is a feel-good myth that doesn't really affect much.
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Yes "the dude" does have more money left in his pocket - rental of the same size home would be more expensive and his taxation would remain higher. Add to that the likely appreciation of the property (plus added equity) and not only did "the dude's" disposable income increase so did "the dude's" net worth.
 
ttwtt78640 said:
Yes "the dude" does have more money left in his pocket - rental of the same size home would be more expensive and his taxation would remain higher. Add to that the likely appreciation of the property (plus added equity) and not only did "the dude's" disposable income increase so did "the dude's" net worth.
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There are multiple benefits to this tax deduction. Even if someone has the cash to buy a house straight up, they often take a low interest loan to finance the home because of the added benefit of a tax deduction. Many take out loans on their home equity because of the deduction benefit.

I financed my house so that I could buy an annuity. I ended up with a 6% annuity by taking out a 3-1/2% loan, which was reduced even further by the tax benefit. It made it worth the risk. My mother in-law refinances every few years, it seems, so that she can buy more trinkets. Others do it to buy cars, finance their kids through college or pay medical bills. All of these efforts are a boost to the economy.

If not for the tax deduction, most people would just let the equity in their homes sit. That benefits no one.
 
calamity said:
There are multiple benefits to this tax deduction. Even if someone has the cash to buy a house straight up, they often take a low interest loan to finance the home because of the added benefit of a tax deduction. Many take out loans on their home equity because of the deduction benefit.

I financed my house so that I could buy an annuity. I ended up with a 6% annuity by taking out a 3-1/2% loan, which was reduced even further by the tax benefit. It made it worth the risk. My mother in-law refinances every few years, it seems, so that she can buy more trinkets. Others do it to buy cars, finance their kids through college or pay medical bills. All of these efforts are a boost to the economy.

If not for the tax deduction, most people would just let the equity in their homes sit. That benefits no one.
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That (bolded above) assertion is used for any and all (including future) tax cuts/deductions.

Hmm... despite all of that magical "added" economic growth from lower federal taxation we still have a huge (and growing) national debt.

Let's keep all deductions and cut federal income tax rates some more to increase revenue from the ensuing economic growth. ;)
 
ttwtt78640 said:
That (bolded above) assertion is used for any and all (including future) tax cuts/deductions.

Hmm... despite all of that magical "added" economic growth from lower federal taxation we still have a huge (and growing) national debt.

Let's keep all deductions and cut federal income tax rates some more to increase revenue from the ensuing economic growth. ;)
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Middleclass tax cuts? Yes. Those dollars would be pumped directly into the US economy. Tax cuts for people who already have millions of dollars in disposable income? Not so much.

HSA's are a great example of how people will spend more if they can derive a tax benefit by doing so.
 
calamity said:
Middleclass tax cuts? Yes. Those dollars would be pumped directly into the US economy. Tax cuts for people who already have millions of dollars in disposable income? Not so much.

HSA's are a great example of how people will spend more if they can derive a tax benefit by doing so.
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Hmm... those without HSAs (the majority?) do not get treated for their medical conditions?
 
ttwtt78640 said:
Yes "the dude" does have more money left in his pocket - rental of the same size home would be more expensive and his taxation would remain higher. Add to that the likely appreciation of the property (plus added equity) and not only did "the dude's" disposable income increase so did "the dude's" net worth.
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That's not quite how it goes.

Typically, a mortgage payment coupled with insurance and taxes will be more expensive than renting... until inflation comes into the picture. Once a payment structure is locked in, you will be paying the same amount for 15 - 30 years, which cannot be said of leasing. So in year 1, you go from having 1/4 of your income to mortgage/insurance/taxes to year 10 where it becomes something like 1/8. I remember in 1991, my dad paid something like 1/8 of his income, and by 2011 something like 1/15. Boomers... gotta love'em.

But in our modern labor market... is it reasonable or preferable for a person to live in one location for 15 - 30 years?
 
calamity said:
There are multiple benefits to this tax deduction. Even if someone has the cash to buy a house straight up, they often take a low interest loan to finance the home because of the added benefit of a tax deduction. Many take out loans on their home equity because of the deduction benefit.
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Which would indicate that is an unnecessary incentive to foster home ownership, it's original stated cause.

I financed my house so that I could buy an annuity. I ended up with a 6% annuity by taking out a 3-1/2% loan, which was reduced even further by the tax benefit. It made it worth the risk. My mother in-law refinances every few years, it seems, so that she can buy more trinkets. Others do it to buy cars, finance their kids through college or pay medical bills. All of these efforts are a boost to the economy.

If not for the tax deduction, most people would just let the equity in their homes sit. That benefits no one.
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Newsflash : Most people already do just let the equity in their homes just sit there benefitting no one.

Most people don't have enough cash sitting around to buy a house and say, "you know what, **** it, I'm just going to take this money and buy an annuity and take out a loan for the house." 75% of homeowners don't - and never did - have anywhere near that kind of cash lying around.
 
Critter7r said:
Which would indicate that is an unnecessary incentive to foster home ownership, it's original stated cause.



Newsflash : Most people already do just let the equity in their homes just sit there benefitting no one.

Most people don't have enough cash sitting around to buy a house and say, "you know what, **** it, I'm just going to take this money and buy an annuity and take out a loan for the house." 75% of homeowners don't - and never did - have anywhere near that kind of cash lying around.
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Too bad. Maybe they should be more frugal, then they would.

Hint: remortgaging the house is also a good way to force savings.
 
calamity said:
Too bad. Maybe they should be more frugal, then they would.

Hint: remortgaging the house is also a good way to force savings.
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How does one save up enough money to buy - outright - even a $100k house while earning say, $40k per year? Save up for 20 years?
 
Critter7r said:
How does one save up enough money to buy - outright - even a $100k house while earning say, $40k per year? Save up for 20 years?
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Making more than $40K per year would be a good start. And then, spending about $1K less per month will geet you there quick.
 
Moderate Right said:
I was reading something the other day where Trump was *considering the possibility* of eliminating the mortgage interest deduction while working on a tax cut package. Apparently many who rail against income inequality claim that the mortgage interest deduction increases income inequality because it favors the wealthy over the poor so eliminating this would be a way to kind of reverse this. I can see that viewpoint from their perspective. Now I don't really want to make this thread about tax cuts at all but about a debate over the mortgage interest deduction as to whether it should be kept or not or reworked in some fashion. I personally think people should be encouraged to buy homes but I wouldn't be against phasing out the deduction at rising income levels. In most cases I would also be against mortgage interest deductions for second homes except in very specific situations, oddly enough lawmakers who need a second home in DC as well as their home in their home states, comes to mind.
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The mortgage interest deduction is so ingrained into our system that it would take years to work it's way through the process. Trump could start it, but I don't think he'd finish it, even if he does serve two full terms.

I advocate eventual elimination, but I know that many people are vehemently opposed.
 
cpwill said:
No. Making debt (and housing debt) tax free has not worked out well for us. It helped fuel a bubble, and benefits special interests with nothing in return to the general welfare.


If you cannot afford a house without a tax deduction on the interest you pay in your mortgage payment, then you cannot afford the house, and shouldn't be buying one. Buying one in that scenario because you are teased in with "oh but deduction on the interest" is penny wise and pound foolish, and you will regret it.
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It encouraged home ownership and provided stability. But, like so many other government things, its purpose has been accomplished and is now just an entitlement of sorts.

I do know people that buy bigger houses because of the deduction, and I have had people tell me they'd never be able to afford the house they have without it when the subject comes up in conversation, which speaks to you point in the present day.
 
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