Mortgage Interest Deduction

[fmw]

I believe in equality rather than fairness. I support ending all deductions for personal income tax and lowering the rate. That treats everyone equally.

 

[Nuber]

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.

 

[calamity]

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.

If that happens watch your home-value plummet 30% overnight. People factor in the deduction when they buy houses they would otherwise not be able to afford.

This is the dumbest Trumpian idea yet. And, he has a lot of them.

 

[ttwtt78640]

I believe in equality rather than fairness. I support ending all deductions for personal income tax and lowering the rate. That treats everyone equally.

I agree, it is ridiculous to tax 'income from all sources' based on how and upon who it was later spent. Dropping deductions, credits and exclusion may treat the taxpayers equally but it screws the congress critters out of massive campaign contributions for tweaking the tax code to suit special interests. BTW, what happened to the "cadillac plan" tax included in PPACA?

 

[ttwtt78640]

If that happens watch your home-value plummet 30% overnight. People factor in the deduction when they buy houses they would otherwise not be able to afford.

This is the dumbest Trumpian idea yet. And, he has a lot of them.

If you are in a tax bracket that lets you write off 30% of your mortgage payment then you can certainly afford to buy a home.

 

[Critter7r]

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.

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.

 

[calamity]

If you are in a tax bracket that lets you write off 30% of your mortgage payment then you can certainly afford to buy a home.

I think it works out to about 50% of the interest when we calculate in all the state and local breaks. Also, add in the RE tax deduction, which I believe dickhead pres has also proposed eliminating, and the total deduction comes pretty close to 30% of the mortgage when all is said and done. Remember, most people's total house payment is almost entirely interest and tax...especially in the first few years.

 

[ttwtt78640]

I think it works out to about 50% of the interest when we calculate in all the state and local breaks. Also, add in the RE tax deduction, which I believe dickhead pres has also proposed eliminating, and the total deduction comes pretty close to 30% of the mortgage when all is said and done. Remember, most people's total house payment is almost entirely interest and tax...especially in the first few years.

That mortgage payment is also in lieu of rent which, for the same size home, was often larger than the mortgage payment. Any itemized tax deductions are only valuable to the extent that they exceed the standard deduction - if you want tax "fairness" then simply raise the standard deduction.

Being able to deduct state/local taxes from your federal tax liability makes no sense because they fund entirely different things. Is it not odd that the reverse is not done? Why don't you get a state/local tax break based on federal taxes paid?

 

[calamity]

That mortgage payment is also in lieu of rent which, for the same size home, was often larger than the mortgage payment. Any itemized tax deductions are only valuable to the extent that they exceed the standard deduction - if you want tax "fairness" then simply raise the standard deduction.

Many of us exceed the standard deduct with state and local income taxes alone. Of course, that does not apply to people in Florida, Texas, TN or Nevada. But, they get screwed because they pay high sales taxes which are not deductible.

 

[Moderate Right]

If that happens watch your home-value plummet 30% overnight. People factor in the deduction when they buy houses they would otherwise not be able to afford.

This is the dumbest Trumpian idea yet. And, he has a lot of them.

So, even though this would help fix income inequality, you are against it.

 

[ttwtt78640]

Many of us exceed the standard deduct with state and local income taxes alone. Of course, that does not apply to people in Florida, Texas, TN or Nevada. But, they get screwed because they pay high sales taxes which are not deductible.

That 'many' make quite a bit of money if their state/local income taxes exceed $12K/year.

 

[Critter7r]

That mortgage payment is also in lieu of rent which, for the same size home, was often larger than the mortgage payment. Any itemized tax deductions are only valuable to the extent that they exceed the standard deduction - if you want tax "fairness" then simply raise the standard deduction.

Being able to deduct state/local taxes from your federal tax liability makes no sense because they fund entirely different things. Is it not odd that the reverse is not done? Why don't you get a state/local tax break based on federal taxes paid?

Your state/local taxes paid only reduces your federal taxable income. The amount of your state/local tax liability isn't directly subtracted from your federal tax liability.

 

[ttwtt78640]

Your state/local taxes paid only reduces your federal taxable income. The amount of your state/local tax liability isn't directly subtracted from your federal tax liability.

I know that, which is how all tax deductions work, the point is that taxation of 'income from all sources' should have nothing to do with how, or upon who, that income was later spent.

 

[Critter7r]

I know that, which is how all tax deductions work, the point is that taxation of 'income from all sources' should have nothing to do with how, or upon who, that income was later spent.

Oh, my bad. It wasn't clear to me from your comment. It sounded like you were saying something else.

And it would be easier to do one's taxes if we were to forego the deductions, even the "standard deduction", and lower the rates.

 

[Winchester]

If that happens watch your home-value plummet 30% overnight. People factor in the deduction when they buy houses they would otherwise not be able to afford.

This is the dumbest Trumpian idea yet. And, he has a lot of them.

I've never seen much evidence of this. They either can afford the monthly payment or not. Getting the tax break is secondary.

 

[Winchester]

That mortgage payment is also in lieu of rent which, for the same size home, was often larger than the mortgage payment. Any itemized tax deductions are only valuable to the extent that they exceed the standard deduction - if you want tax "fairness" then simply raise the standard deduction.

Being able to deduct state/local taxes from your federal tax liability makes no sense because they fund entirely different things. Is it not odd that the reverse is not done? Why don't you get a state/local tax break based on federal taxes paid?

The reverse is done in some states, though we are capped at $5,000/$10,000 in our state.

 

[calamity]

I've never seen much evidence of this. They either can afford the monthly payment or not. Getting the tax break is secondary.

Ridiculous. People are often priced out of buying a home by a 1/4 point increase on the interest rate. So, of course, the tax deduction is important.

And, we all know that ups and downs of interest rates correlate proportionally to housing prices. So, it makes perfect sense that housing prices are also dependent on the tax deduction being available.

 

[Winchester]

Many of us exceed the standard deduct with state and local income taxes alone. Of course, that does not apply to people in Florida, Texas, TN or Nevada. But, they get screwed because they pay high sales taxes which are not deductible.

There is a formula that gives residents of those states a "sales tax" deduction. A couple also needs a fairly substantial income to exceed the standard deduction in state/local taxes. Singles are a little more screwed in this regard.

 

[Winchester]

Ridiculous. People are often priced out of buying a home by a 1/4 point increase on the interest rate. So, of course, the tax deduction is important.

And, we all know that ups and downs of interest rates correlate proportionally to housing prices. So, it makes perfect sense that housing prices are also dependent on the tax deduction being available.

Like I said they buy them based upon the monthly payment they can afford and an interest rate change affects the payment. I have never, ever seen someone buy a house so close to the edge financially that they actually pushed it to the limit where the tax deduction was the deciding factor in whether they could afford the house or no.

Edit to add:

Of course we all know interest rates correlate proportionally to housing prices, interest rates go up, housing prices go down and vice versa... because people buy houses on what they can afford as a monthly payment. Running under the assumption that the mortgage deduction is critical for homebuyers and affects what they are willing to pay for a home, what do you think will happen to home prices if they do away with the deduction?

 

[ttwtt78640]

Oh, my bad. It wasn't clear to me from your comment. It sounded like you were saying something else.

And it would be easier to do one's taxes if we were to forego the deductions, even the "standard deduction", and lower the rates.

The standard deduction serves a very important purpose - it allows a fixed (flat?) tax rate to become progressive.

 

[sangha]

Many of us exceed the standard deduct with state and local income taxes alone. Of course, that does not apply to people in Florida, Texas, TN or Nevada. But, they get screwed because they pay high sales taxes which are not deductible.

Sales taxes are deductible.

 

[calamity]

Sales taxes are deductible.

Ah, I see that. IRS gives you a sales tax deduction option if you can't claim a state income tax deduction. Thanks.

 

[calamity]

Like I said they buy them based upon the monthly payment they can afford and an interest rate change affects the payment. I have never, ever seen someone buy a house so close to the edge financially that they actually pushed it to the limit where the tax deduction was the deciding factor in whether they could afford the house or no.

Edit to add:

Of course we all know interest rates correlate proportionally to housing prices, interest rates go up, housing prices go down and vice versa... because people buy houses on what they can afford as a monthly payment. Running under the assumption that the mortgage deduction is critical for homebuyers and affects what they are willing to pay for a home, what do you think will happen to home prices if they do away with the deduction?

If your annual mortgage payment is, say, $12K, with $10K being interest and RE tax, that would give you a $3K break on tax, at a min. Are you saying people do not calculate that into their decision making? Come on. Think that through.

 

[Gaius46]

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.

So now the middle class are "wealthy"? I understand you're not stating that but buy framing this as "poor" vs "wealthy" vast majority of homeowners - the middle class - are being lumped in with people who actually are rich.

 

[Winchester]

If your annual mortgage payment is, say, $12K, with $10K being interest and RE tax, that would give you a $3K break on tax, at a min. Are you saying people do not calculate that into their decision making? Come on. Think that through.

I am absolutely saying most people do not calculate that into their decision making when it comes to whether they can afford a home or no. Also they are almost assuredly not getting the entire benefit of the deduction as they have to surmount the standard deduction before they start seeing any additional tax savings.