401k and Mortgage deduction are on the table

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Submitted by AN on November 29, 2012 - 5:42pm

Here we go... mortgage deduction + 401k deduction typically benefits the top 20% and we're in the mood of asking the richer citizens to pay more, so it's not too surprising.

http://business.time.com/2012/11/28/fisc...

Submitted by flu on November 29, 2012 - 6:02pm.

Lol... You didn't think this wasn't going to be considered.. Yeah, Roth accounts are going to be very very interesting in the coming years...

Actually, IF the government really wants to incentivize spending, what they should do is allow people to take a tax free distribution out of their 401k before they reach retirement PROVIDED that it is spent on something like a car, house, boat,etc...

If they gave an incentive to do this, I would take a distribution out immediately and use it to buy property.

Such spending would help the economy...Buying property or such would contribute to the realtor's bottom line, an appraiser's bottom line, escrow company, title company, which in turn would create more income for more americans which would then end up spending $4 for every $1 they nearly earn.

Well that, or maybe a Porsche.

Submitted by flu on November 29, 2012 - 5:56pm.

BTW: fwiw...

http://finance.yahoo.com/news/heres-one-...

And one thing all these tax changes are going to do... Create a lot of opportunities for accountants....

Submitted by scaredyclassic on November 29, 2012 - 5:56pm.

I recall being afraid that the mortgage interest deduction would be yanked as soon as I bought a house. I believe I was told not to worry about that.

Well.

It is always best to expect

Submitted by flu on November 29, 2012 - 5:58pm.

squat250 wrote:
I recall being afraid that the mortgage interest deduction would be yanked as soon as I bought a house. I believe I was told not to worry about that.

Well.

It is always best to expect

I doubt that would happen...That would potentially dampen the RE markets and the lobbying groups for RE wouldn't let that happen.

Locally, be prepared for prop 13 to disappear...But that will translate into higher rent...

Submitted by scaredyclassic on November 29, 2012 - 5:59pm.

I kinda doubt it too. But it should be taken off the table and placed on the couch where it can get lOst under a cushion.

Submitted by flu on November 29, 2012 - 6:00pm.

squat250 wrote:
I kinda doubt it too. But it should be taken off the table and placed on the couch where it can get lOst under a cushion.

Well I think a lot of this is MSM speculating on what one or two crazy politicians might think....Who knows, they might start taxing money that isn't spent from a savings account for all we can think of..

Submitted by SK in CV on November 29, 2012 - 6:01pm.

So far, they're only "on the table" in the same respect that legalizing pot under federal law is on the table. Nobody that's actually involved in the negotiations has publicly mentioned eliminating, capping or even limiting the mortgage or 401K deductions. Remember, eliminating or capping deductions was the preferred Romney method of increasing revenue. It kind of, sort of, sounded like a good idea until he was asked to name specific deductions. He wouldn't. He couldn't. And the reason is that these deductions don't mainly hit the top 1%. They hit mainly those between the top 1% and the top 3%. The 2%ers. Those earning between $250k and $400K. Anything to save the really rich from paying more. If they can't get the poor to pay more, maybe they can get the almost rich to pay more.

I think your deductions are safe.

Submitted by flu on November 29, 2012 - 6:06pm.

SK in CV wrote:
So far, they're only "on the table" in the same respect that legalizing pot under federal law is on the table. Nobody that's actually involved in the negotiations has publicly mentioned eliminating, capping or even limiting the mortgage or 401K deductions. Remember, eliminating or capping deductions was the preferred Romney method of increasing revenue. It kind of, sort of, sounded like a good idea until he was asked to name specific deductions. He wouldn't. He couldn't. And the reason is that these deductions don't mainly hit the top 1%. They hit mainly those between the top 1% and the top 3%. The 2%ers. Those earning between $250k and $400K. Anything to save the really rich from paying more. If they can't get the poor to pay more, maybe they can get the almost rich to pay more.

I think your deductions are safe.

If that's the case, I would say these policy would be consistent with what our government has been trying to do all along. Tax above average W2/1009 salaried slave workers, while leaving the top 1% with their loopholes intact, meanwhile given the of america the impression "job done...see rich are now paying more".....Well it doesn't matter, because given if it was the other party in control, they would do the same thing....

Personally, I'd be more fearful of what CA government can do, versus what the Fed will do at this point.

Submitted by enron_by_the_sea on November 29, 2012 - 6:10pm.

SK in CV wrote:
It kind of, sort of, sounded like a good idea until he was asked to name specific deductions. He wouldn't. He couldn't. And the reason is that these deductions don't mainly hit the top 1%. They hit mainly those between the top 1% and the top 3%. The 2%ers. Those earning between $250k and $400K. Anything to save the really rich from paying more. If they can't get the poor to pay more, maybe they can get the almost rich to pay more.

Exactly. Paul Krugman wrote - and I agree with the sentiment - that GOP is prepared to throw moderately wealthy under the bus to protect the super rich !!!

This fight really shows whose side GOP is truly on. Until this moment it was easy for them to hide it.

To their credit, Dems proposal at least make super rich pay more than moderately wealthy ( who in turn pay more than middle class who pay more than poor ... )

Submitted by enron_by_the_sea on November 29, 2012 - 6:17pm.

squat250 wrote:
I recall being afraid that the mortgage interest deduction would be yanked as soon as I bought a house. I believe I was told not to worry about that.

Well.

It is always best to expect

There is another mortgage interest deduction. It is in schedule-E. All you have to do is rent out the house you own to someone else and start renting identical house nearby. You can not only deduct mortgage interest but also HOA, insurance and everything else. No one is proposing to take that away :)

The above is precisely why removal of mortgage interest deduction will not result into meaningful increase in tax revenue in the very long term. People's preferences will just shift to renting because that will become the most tax efficient arrangement in the society.

Submitted by flu on November 29, 2012 - 6:18pm.

enron_by_the_sea wrote:
SK in CV wrote:
It kind of, sort of, sounded like a good idea until he was asked to name specific deductions. He wouldn't. He couldn't. And the reason is that these deductions don't mainly hit the top 1%. They hit mainly those between the top 1% and the top 3%. The 2%ers. Those earning between $250k and $400K. Anything to save the really rich from paying more. If they can't get the poor to pay more, maybe they can get the almost rich to pay more.

Exactly. Paul Krugman wrote - and I agree with the sentiment - that GOP is prepared to throw moderately wealthy under the bus to protect the super rich !!!

This fight really shows whose side GOP is truly on. Until this moment it was easy for them to hide it.

Enron, it doesn't matter .Both parties always throw the moderate wealthy under the bus..They just call it differently.

GOP calls moderate wealthy "middle class".
Democrats calls moderate wealthy "rich class".

Whenever government needs to tax more, they just love to hit this group...

And while "wealthy means $200k for someone single", it also means $250k for a couple....I don't know why, but I guess maybe some people think women shouldn't have a meaningful career after they are married but just be a stay at home mom..(and no I don't think that way)...But regardless, it also means a LOT of you slightly above middle class families are gonna get shafted... Like I've been saying all along..Really rich people...Not gonna get hit by this at all..

Submitted by flu on November 29, 2012 - 6:23pm.

enron_by_the_sea wrote:
squat250 wrote:
I recall being afraid that the mortgage interest deduction would be yanked as soon as I bought a house. I believe I was told not to worry about that.

Well.

It is always best to expect

There is another mortgage interest deduction. It is in schedule-E. All you have to do is rent out the house you own to someone else and start renting identical house nearby. You can not only deduct mortgage interest but also HOA, insurance and everything else. No one is proposing to take that away :)

The above is precisely why removal of mortgage interest deduction will not result into meaningful increase in tax revenue in the very long term. People's preferences will just shift to renting because that will become the most tax efficient arrangement in the society.

I don't know but it's getting pretty hard for me to talk to an accountant that I almost never talk to...He's pretty busy these days.

It doesn't quite work that way enron...When you rent out a house to someone else, you can deduct the mortgage as an expense but you also have to report the rental income.

However, if you rent someone else's house, you can't deduct your rental cost (unless your poor..And in that case, you probably can't qualify to buy a home)...

So I'm not sure how this would be beneficial for you...Seems like a lot of paperwork to report a $0 gain.

Submitted by SD Realtor on November 29, 2012 - 6:29pm.

It wouldn't surprise me if some of the expenses on your schedule E are proposed for the chopping block. You know how rich all those evil landlords are.

Submitted by AN on November 29, 2012 - 6:37pm.

flu wrote:
Enron, it doesn't matter .Both parties always throw the moderate wealthy under the bus..They just call it differently.

GOP calls moderate wealthy "middle class".
Democrats calls moderate wealthy "rich class".

Whenever government needs to tax more, they just love to hit this group...

And while "wealthy means $200k for someone single", it also means $250k for a couple....I don't know why, but I guess maybe some people think women shouldn't have a meaningful career after they are married but just be a stay at home mom..(and no I don't think that way)...But regardless, it also means a LOT of you slightly above middle class families are gonna get shafted... Like I've been saying all along..Really rich people...Not gonna get hit by this at all..


Ding ding ding. The tallest grass will get cut. The truly rich are not in the same lawn.

First, it's the 1%, then 2%, then 5%, then 20%. After all, top 20% is still only 20%. 80% of the population won't be affected. The top 20% can afford to pay a little more.

Submitted by enron_by_the_sea on November 29, 2012 - 6:35pm.

flu wrote:

It doesn't quite work that way enron...When you rent out a house to someone else, you can deduct the mortgage as an expense but you also have to report the rental income.

However, if you rent someone else's house, you can't deduct your rental cost (unless your poor..And in that case, you probably can't qualify to buy a home)...

So I'm not sure how this would be beneficial for you...Seems like a lot of paperwork to report a $0 gain.

Oops. That is probably why this does not work. Nevermind.

Submitted by SK in CV on November 29, 2012 - 6:46pm.

SD Realtor wrote:
It wouldn't surprise me if some of the expenses on your schedule E are proposed for the chopping block. You know how rich all those evil landlords are.

Because of the way the code is written, it would seem unlikely. The same code sections that allow little landlords to deduct their repairs and supplies and property taxes, are the same code sections that allows General Electric to deduct its expenses. Over the last few decades, the only deductions that have been messed with at all are depreciation and the deductibility of business meals. I don't expect it to happen now.

Submitted by Hobie on November 29, 2012 - 6:57pm.

The higher income as well as the self employed write their own checks to pay their taxes. They see every dollar going out. The average W-2 worker just tends to look at the net so the full impact of how much tax is withheld is 'lost in the numbers' meaning not many study their pay stub, especially with direct deposit.

When politicians want to raise a tax they like to use the sales technique showing the lowest unit cost to you. ie. "this will only cost you $60/yr, or a penny a day, etc. Hey, you can afford that" Most simply grin and bear it as they never really write a total annual check for tax liability. This makes it easier to slide new/modified tax laws on the middle class.

I hope this makes sense as I'm out the door. I getting my hard hat as SK is gonna want to take me to the woodshed. :)

Submitted by SD Realtor on November 29, 2012 - 7:03pm.

I hope that is the case SK.

I have no problem with the top 1% paying more however it is a drop in the bucket with regards to the real problem.

We have a spending problem not a revenue problem.

Submitted by SK in CV on November 29, 2012 - 7:32pm.

SD Realtor wrote:
I hope that is the case SK.

I have no problem with the top 1% paying more however it is a drop in the bucket with regards to the real problem.

We have a spending problem not a revenue problem.

It's an attactive narrative, but it's hardly true. It's only a drop in the bucket if 10 drops fill the bucket. Restoring the economy to 2004 growth levels adds another 3 or 4 drops. Eliminating war spending is another couple drops. Another few drops and we have a balanced budget.

Submitted by moneymaker on November 29, 2012 - 7:40pm.

flu... Didn't i make that recommendation a while back about getting access to one's 401K without penalty. Wouldn't cost the government a dime and would definitely spur the economy on. Did I just end a sentence with a run on?

Submitted by SD Realtor on November 29, 2012 - 7:49pm.

No I don't think it is a narrative at all. Given the cost to service our debt if we even see a modest rise in the interest rates we are in big trouble. I agree with you about war spending. We may or may not see an economy to 2004 growth levels but I doubt we will see sub 5% employment levels. Seems to me we are also seeing substantial increases in general welfare spending, food stamps, etc. While reduction in defense spending is needed, the resulting rise in unemployed white collars will not be consumed by the private sector.

So, I guess while your post makes sense about a few drops here and there, physical evidence especially over the past 4 years are absolutely contrary to it. I guess we will see how things go this year.

So yes to me it is a spending issue and that is not just narrative. It was under Bush and it has been perpetuated by Obama.

Submitted by SK in CV on November 29, 2012 - 8:14pm.

SD Realtor wrote:
No I don't think it is a narrative at all. Given the cost to service our debt if we even see a modest rise in the interest rates we are in big trouble. I agree with you about war spending. We may or may not see an economy to 2004 growth levels but I doubt we will see sub 5% employment levels. Seems to me we are also seeing substantial increases in general welfare spending, food stamps, etc. While reduction in defense spending is needed, the resulting rise in unemployed white collars will not be consumed by the private sector.

So, I guess while your post makes sense about a few drops here and there, physical evidence especially over the past 4 years are absolutely contrary to it. I guess we will see how things go this year.

So yes to me it is a spending issue and that is not just narrative. It was under Bush and it has been perpetuated by Obama.

I'm sure you understand that the increase in welfare and similar spending (including direct payments, SNAP, EITC, federal unemployment, medicaid, etc.) are all a function of the economy. None of these programs have undergone any signficant expansion in eligibility or benefits in years. If the economy expands, the costs of these programs drop proportionally. If the economy improves, we've cut spending. That was the entire basis of the republican candidate's plan to move towards a balanced budget. His path just couldn't possibly get us there.

Submitted by SD Realtor on November 29, 2012 - 8:58pm.

Your entire premise appears to be based on a belief that we will return to the way things were. I don't think that is true at all. Your argument about a return to 2004 levels to me is not solid. I think it is safe to say that the 2004 economy was robust but for the wrong reasons, (see a housing boom fueled by unrealistic pricing and artificially low rates). This is not about any republican candidate at all. It is about the current level of spending and the lack of economic growth, not about increased revenues.

Submitted by SK in CV on November 29, 2012 - 9:25pm.

SD Realtor wrote:
Your entire premise appears to be based on a belief that we will return to the way things were. I don't think that is true at all. Your argument about a return to 2004 levels to me is not solid. I think it is safe to say that the 2004 economy was robust but for the wrong reasons, (see a housing boom fueled by unrealistic pricing and artificially low rates). This is not about any republican candidate at all. It is about the current level of spending and the lack of economic growth, not about increased revenues.

No, my premise is drops. And how a few drops can go a long ways.

Submitted by FormerSanDiegan on November 29, 2012 - 10:31pm.

enron_by_the_sea wrote:
flu wrote:

It doesn't quite work that way enron...When you rent out a house to someone else, you can deduct the mortgage as an expense but you also have to report the rental income.

However, if you rent someone else's house, you can't deduct your rental cost (unless your poor..And in that case, you probably can't qualify to buy a home)...

So I'm not sure how this would be beneficial for you...Seems like a lot of paperwork to report a $0 gain.

Oops. That is probably why this does not work. Nevermind.

Don't give up so easily.
I think it can work

If your goals of owning are:
1. To lock in monthly housing costs long term
2. To participate in future capital appreciation of property
this strategy works.
The rent you pay will track the rent you charge… so the amount you pay will remain fixed. At some point.in the future the interest and other costs will.be less than the standard deduction and you might actually come out ahead.

Submitted by mike92104 on November 29, 2012 - 10:38pm.

Federal Spending:

2004 - 2.29 Trillion
2012 - 3.80 Trillion

65.9% increase.

I'd love to go back to the spending levels of 2004!

Submitted by FormerSanDiegan on November 29, 2012 - 10:48pm.

On a related note, why is nobody talking about raising taxes on the 100%?

Food for thought: much revenue would be generated with a 1% across the board tax increase in all tax brackets, plus a 1% increase on capital gains and dividends?
Same for corporate tax rates.

12 trillion in personal income (2010) yields 120 billion.

Make it apply to all income ( no deductions) and name it the Patriot Tax Act.

Submitted by FormerSanDiegan on November 29, 2012 - 10:58pm.

mike92104 wrote:
Federal Spending:

2004 - 2.29 Trillion
2012 - 3.80 Trillion

65.9% increase.

I'd love to go back to the spending levels of 2004!

How about a compromise? Go back to 2004 spending + inflation AND implement the 1% Patriot tax act. Problem solved.

Submitted by AN on November 30, 2012 - 1:03am.

FormerSanDiegan wrote:
The rent you pay will track the rent you charge… so the amount you pay will remain fixed. At some point.in the future the interest and other costs will.be less than the standard deduction and you might actually come out ahead.

I don't think it always work out that way. If you have a good tenant, you definitely don't want to raise their rent while they're in there, at least while rent are rising slowly. It'll cost you more to clean up and find another tenant and lost rent during the time in between. While on the other end, you're at the mercy of your landlord. If you have a landlord who want to raise your rent, you have no choice but to obey, or you can move and still pay market rent. If your landlord doesn't do proper repairs and you end up moving, you'd have to pay market rent as well.

Submitted by Huckleberry on November 30, 2012 - 8:20am.

SK in CV wrote:
SD Realtor wrote:
Your entire premise appears to be based on a belief that we will return to the way things were. I don't think that is true at all. Your argument about a return to 2004 levels to me is not solid. I think it is safe to say that the 2004 economy was robust but for the wrong reasons, (see a housing boom fueled by unrealistic pricing and artificially low rates). This is not about any republican candidate at all. It is about the current level of spending and the lack of economic growth, not about increased revenues.

No, my premise is drops. And how a few drops can go a long ways.

Excellent points SDR. The 2004 economy was smoke and mirrors consumer debt/lending driven, not a solid industrial driven economy.

Drops may make some difference but not enough to get us out of the new hole that has been dug, especially if/when interest rates rise...

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