Ax may fall on tax break for mortgages

[UCGal]

[quote=SK in CV]3. Discourage the HELOC ATM syndrome. Encourage and reward financial responsibility.
[/quote]
This one especially. I have coworkers who did cash out refi’s to pay off their consumer debt – because it made the interest on that debt tax deductable. Pretty sad to think they were getting tax deductions on interest of debt accrued through vacations and restaurant meals…

[bearishgurl]

[quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.

[bearishgurl]

[quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.

[bearishgurl]

[quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.

[bearishgurl]

[quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.

[bearishgurl]

[quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.

[SK in CV]

[quote=bearishgurl][quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.[/quote]

Nope. Purchase money debt is deductible, up to a $1 million in debt, without regards to the dollar amount of the interest. Million dollar loan at 18% fixed, interest only, you get a deduction of $180,000. There are some limitations on non-purchase money debt, but they’re all related to the debt, not the dollar amount of interest.

The only $25,000 limitation that comes to mind is for passive losses for investments with active participation, most commonly related to rental property losses.

[SK in CV]

[quote=bearishgurl][quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.[/quote]

Nope. Purchase money debt is deductible, up to a $1 million in debt, without regards to the dollar amount of the interest. Million dollar loan at 18% fixed, interest only, you get a deduction of $180,000. There are some limitations on non-purchase money debt, but they’re all related to the debt, not the dollar amount of interest.

The only $25,000 limitation that comes to mind is for passive losses for investments with active participation, most commonly related to rental property losses.

[SK in CV]

[quote=bearishgurl][quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.[/quote]

Nope. Purchase money debt is deductible, up to a $1 million in debt, without regards to the dollar amount of the interest. Million dollar loan at 18% fixed, interest only, you get a deduction of $180,000. There are some limitations on non-purchase money debt, but they’re all related to the debt, not the dollar amount of interest.

The only $25,000 limitation that comes to mind is for passive losses for investments with active participation, most commonly related to rental property losses.

[SK in CV]

[quote=bearishgurl][quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.[/quote]

Nope. Purchase money debt is deductible, up to a $1 million in debt, without regards to the dollar amount of the interest. Million dollar loan at 18% fixed, interest only, you get a deduction of $180,000. There are some limitations on non-purchase money debt, but they’re all related to the debt, not the dollar amount of interest.

The only $25,000 limitation that comes to mind is for passive losses for investments with active participation, most commonly related to rental property losses.

[SK in CV]

[quote=bearishgurl][quote=XBoxBoy]. . . for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

As far as I know XBoxBoy, mortgage interest is only deductible up to $25K per year. Folks who are paying more interest than that can only deduct $25K of it.

Any accountant geek-Piggs out there reading this please correct me if this law has changed.[/quote]

Nope. Purchase money debt is deductible, up to a $1 million in debt, without regards to the dollar amount of the interest. Million dollar loan at 18% fixed, interest only, you get a deduction of $180,000. There are some limitations on non-purchase money debt, but they’re all related to the debt, not the dollar amount of interest.

The only $25,000 limitation that comes to mind is for passive losses for investments with active participation, most commonly related to rental property losses.

[CA renter]

[quote=SK in CV]Insightful comment.

[quote=FormerSanDiegan]What I find interesting about this proposal is that on the surface they expect to get additional revenue, based on people’s mortgages today. However, if this tax law changed, don’t you think those affected would make changes ?

For example, one could choose to rent a similar property, and hold their existing house as a rental. A rental property is taxed as a business and the mortgage interest is a business expense. Getting rid of business expenses will be a much harder sell than limiting primary residence mortgage interest deduction.

If this change is made, people will adapt and there will be other unintended consequences. For example, higher end property values could decline significantly, resulting in lower property taxes and less money in Local/state Government coffers. SO, it’s likely that the long-term net result would be equivalent to the Federal Government taking funds from state/local governments.
It’s even possible that the net effect after taking into account people’s obvious response to lower their tax burden would be fewer dollars net going into government hands.[/quote]

I kind of disagree on your conclusion about higher end property values suffering. They may fall a little, but they will find an equilibrium without anything like the drop of the last few years.

Additionally, I suspect if the change ever does get passed, it will include a phaseout of the interest deduction, not an elimination. Previous discussions described the phaseout only affecting taxpayers in higher tax brackets. We’ve had a few of those discussions on this board. It probably would not include a corresponding drop in overall rates and would be a net revenue increase.

There is another option which I personally prefer. And that would be a phase-out of the home mortgage interest deduction entirely, similar to the elimination of the credit card interest deduction 20 some years ago. That was phased out over 4 years if I recall correctly. 1st year, only 75% of credit card interest was deductible, next year 50%, 3rd year 25%, 4th year zero.

Because home mortgage interest deductions tend to be pretty significant, the phase-out would probably have to more like 8 to 10 years, and could be made net revenue-neutral by lowering tax rates accordingly. Those with average mortgage interest would not be dramatically affected. Those with minimal mortgage interest would have a tax savings, those with very large mortgage interest would have a tax increase.

While even 10 years is much shorter than most people have a mortgage, it is a long enough period for taxpayers to plan for an earlier payoff.

It would serve a number of purposes.

1. Help to stabalize home prices. Prices would no longer suffer the volatility they currently do based on interest rates. Rates would still be a factor, but not near as significant as they are currently.

2. Reduce private debt. Homeowners would have a tax incentive to pay off their mortgages.

3. Discourage the HELOC ATM syndrome. Encourage and reward financial responsibility.

4. Put renters and homeowners on an even playing field tax wise. There will still be the exact same non-tax reasons to buy a home, stability, permanence, control.

I’m sure there are plenty of other good reasons for it. Other than it being a significant change, I can think of no reasons it’s a bad idea for the economy as a whole.[/quote]

Perhaps it’s because I don’t believe in changing the rules after the game has started, but I think the elimination of the MID should not affect existing mortgages; they should be grandfathered in.

This would probably cause housing prices to fall and local/state governments to see lower revenues, but that’s not really a bad thing, IMHO (I don’t think it would be a drastic change).
——————

As far as the MID on second homes and rentals, I think that should be eliminated entirely.

If you think about it, the mortgage interest is an expense that the LL **chooses to add** to the legitimate expenses of owning and maintaining rental properties (repairs, maintenance, advertising, management fees, etc.). A leveraged landlord should not be entitled to more deductions than a LL who owns a property outright. This means that taxpayers are subsidizing a LL’s use of leverage. Leverage is their problem, not ours.

The only way I would allow the MID on rentals would be if the LL agreed to some form of rent control. This should also apply to Prop 13 protection — the benefit of the lower property taxes does not usually go to the renter (more affordable housing), it goes to the landlord.

There is no reason for taxpayers to subsidize a landlord’s profits or use of leverage.

[CA renter]

[quote=SK in CV]Insightful comment.

[quote=FormerSanDiegan]What I find interesting about this proposal is that on the surface they expect to get additional revenue, based on people’s mortgages today. However, if this tax law changed, don’t you think those affected would make changes ?

For example, one could choose to rent a similar property, and hold their existing house as a rental. A rental property is taxed as a business and the mortgage interest is a business expense. Getting rid of business expenses will be a much harder sell than limiting primary residence mortgage interest deduction.

If this change is made, people will adapt and there will be other unintended consequences. For example, higher end property values could decline significantly, resulting in lower property taxes and less money in Local/state Government coffers. SO, it’s likely that the long-term net result would be equivalent to the Federal Government taking funds from state/local governments.
It’s even possible that the net effect after taking into account people’s obvious response to lower their tax burden would be fewer dollars net going into government hands.[/quote]

I kind of disagree on your conclusion about higher end property values suffering. They may fall a little, but they will find an equilibrium without anything like the drop of the last few years.

Additionally, I suspect if the change ever does get passed, it will include a phaseout of the interest deduction, not an elimination. Previous discussions described the phaseout only affecting taxpayers in higher tax brackets. We’ve had a few of those discussions on this board. It probably would not include a corresponding drop in overall rates and would be a net revenue increase.

There is another option which I personally prefer. And that would be a phase-out of the home mortgage interest deduction entirely, similar to the elimination of the credit card interest deduction 20 some years ago. That was phased out over 4 years if I recall correctly. 1st year, only 75% of credit card interest was deductible, next year 50%, 3rd year 25%, 4th year zero.

Because home mortgage interest deductions tend to be pretty significant, the phase-out would probably have to more like 8 to 10 years, and could be made net revenue-neutral by lowering tax rates accordingly. Those with average mortgage interest would not be dramatically affected. Those with minimal mortgage interest would have a tax savings, those with very large mortgage interest would have a tax increase.

While even 10 years is much shorter than most people have a mortgage, it is a long enough period for taxpayers to plan for an earlier payoff.

It would serve a number of purposes.

1. Help to stabalize home prices. Prices would no longer suffer the volatility they currently do based on interest rates. Rates would still be a factor, but not near as significant as they are currently.

2. Reduce private debt. Homeowners would have a tax incentive to pay off their mortgages.

3. Discourage the HELOC ATM syndrome. Encourage and reward financial responsibility.

4. Put renters and homeowners on an even playing field tax wise. There will still be the exact same non-tax reasons to buy a home, stability, permanence, control.

I’m sure there are plenty of other good reasons for it. Other than it being a significant change, I can think of no reasons it’s a bad idea for the economy as a whole.[/quote]

Perhaps it’s because I don’t believe in changing the rules after the game has started, but I think the elimination of the MID should not affect existing mortgages; they should be grandfathered in.

This would probably cause housing prices to fall and local/state governments to see lower revenues, but that’s not really a bad thing, IMHO (I don’t think it would be a drastic change).
——————

As far as the MID on second homes and rentals, I think that should be eliminated entirely.

If you think about it, the mortgage interest is an expense that the LL **chooses to add** to the legitimate expenses of owning and maintaining rental properties (repairs, maintenance, advertising, management fees, etc.). A leveraged landlord should not be entitled to more deductions than a LL who owns a property outright. This means that taxpayers are subsidizing a LL’s use of leverage. Leverage is their problem, not ours.

The only way I would allow the MID on rentals would be if the LL agreed to some form of rent control. This should also apply to Prop 13 protection — the benefit of the lower property taxes does not usually go to the renter (more affordable housing), it goes to the landlord.

There is no reason for taxpayers to subsidize a landlord’s profits or use of leverage.

[CA renter]

[quote=SK in CV]Insightful comment.

[quote=FormerSanDiegan]What I find interesting about this proposal is that on the surface they expect to get additional revenue, based on people’s mortgages today. However, if this tax law changed, don’t you think those affected would make changes ?

For example, one could choose to rent a similar property, and hold their existing house as a rental. A rental property is taxed as a business and the mortgage interest is a business expense. Getting rid of business expenses will be a much harder sell than limiting primary residence mortgage interest deduction.

If this change is made, people will adapt and there will be other unintended consequences. For example, higher end property values could decline significantly, resulting in lower property taxes and less money in Local/state Government coffers. SO, it’s likely that the long-term net result would be equivalent to the Federal Government taking funds from state/local governments.
It’s even possible that the net effect after taking into account people’s obvious response to lower their tax burden would be fewer dollars net going into government hands.[/quote]

I kind of disagree on your conclusion about higher end property values suffering. They may fall a little, but they will find an equilibrium without anything like the drop of the last few years.

Additionally, I suspect if the change ever does get passed, it will include a phaseout of the interest deduction, not an elimination. Previous discussions described the phaseout only affecting taxpayers in higher tax brackets. We’ve had a few of those discussions on this board. It probably would not include a corresponding drop in overall rates and would be a net revenue increase.

There is another option which I personally prefer. And that would be a phase-out of the home mortgage interest deduction entirely, similar to the elimination of the credit card interest deduction 20 some years ago. That was phased out over 4 years if I recall correctly. 1st year, only 75% of credit card interest was deductible, next year 50%, 3rd year 25%, 4th year zero.

Because home mortgage interest deductions tend to be pretty significant, the phase-out would probably have to more like 8 to 10 years, and could be made net revenue-neutral by lowering tax rates accordingly. Those with average mortgage interest would not be dramatically affected. Those with minimal mortgage interest would have a tax savings, those with very large mortgage interest would have a tax increase.

While even 10 years is much shorter than most people have a mortgage, it is a long enough period for taxpayers to plan for an earlier payoff.

It would serve a number of purposes.

1. Help to stabalize home prices. Prices would no longer suffer the volatility they currently do based on interest rates. Rates would still be a factor, but not near as significant as they are currently.

2. Reduce private debt. Homeowners would have a tax incentive to pay off their mortgages.

3. Discourage the HELOC ATM syndrome. Encourage and reward financial responsibility.

4. Put renters and homeowners on an even playing field tax wise. There will still be the exact same non-tax reasons to buy a home, stability, permanence, control.

I’m sure there are plenty of other good reasons for it. Other than it being a significant change, I can think of no reasons it’s a bad idea for the economy as a whole.[/quote]

Perhaps it’s because I don’t believe in changing the rules after the game has started, but I think the elimination of the MID should not affect existing mortgages; they should be grandfathered in.

This would probably cause housing prices to fall and local/state governments to see lower revenues, but that’s not really a bad thing, IMHO (I don’t think it would be a drastic change).
——————

As far as the MID on second homes and rentals, I think that should be eliminated entirely.

If you think about it, the mortgage interest is an expense that the LL **chooses to add** to the legitimate expenses of owning and maintaining rental properties (repairs, maintenance, advertising, management fees, etc.). A leveraged landlord should not be entitled to more deductions than a LL who owns a property outright. This means that taxpayers are subsidizing a LL’s use of leverage. Leverage is their problem, not ours.

The only way I would allow the MID on rentals would be if the LL agreed to some form of rent control. This should also apply to Prop 13 protection — the benefit of the lower property taxes does not usually go to the renter (more affordable housing), it goes to the landlord.

There is no reason for taxpayers to subsidize a landlord’s profits or use of leverage.

[CA renter]

[quote=SK in CV]Insightful comment.

[quote=FormerSanDiegan]What I find interesting about this proposal is that on the surface they expect to get additional revenue, based on people’s mortgages today. However, if this tax law changed, don’t you think those affected would make changes ?

For example, one could choose to rent a similar property, and hold their existing house as a rental. A rental property is taxed as a business and the mortgage interest is a business expense. Getting rid of business expenses will be a much harder sell than limiting primary residence mortgage interest deduction.

If this change is made, people will adapt and there will be other unintended consequences. For example, higher end property values could decline significantly, resulting in lower property taxes and less money in Local/state Government coffers. SO, it’s likely that the long-term net result would be equivalent to the Federal Government taking funds from state/local governments.
It’s even possible that the net effect after taking into account people’s obvious response to lower their tax burden would be fewer dollars net going into government hands.[/quote]

I kind of disagree on your conclusion about higher end property values suffering. They may fall a little, but they will find an equilibrium without anything like the drop of the last few years.

Additionally, I suspect if the change ever does get passed, it will include a phaseout of the interest deduction, not an elimination. Previous discussions described the phaseout only affecting taxpayers in higher tax brackets. We’ve had a few of those discussions on this board. It probably would not include a corresponding drop in overall rates and would be a net revenue increase.

There is another option which I personally prefer. And that would be a phase-out of the home mortgage interest deduction entirely, similar to the elimination of the credit card interest deduction 20 some years ago. That was phased out over 4 years if I recall correctly. 1st year, only 75% of credit card interest was deductible, next year 50%, 3rd year 25%, 4th year zero.

Because home mortgage interest deductions tend to be pretty significant, the phase-out would probably have to more like 8 to 10 years, and could be made net revenue-neutral by lowering tax rates accordingly. Those with average mortgage interest would not be dramatically affected. Those with minimal mortgage interest would have a tax savings, those with very large mortgage interest would have a tax increase.

While even 10 years is much shorter than most people have a mortgage, it is a long enough period for taxpayers to plan for an earlier payoff.

It would serve a number of purposes.

1. Help to stabalize home prices. Prices would no longer suffer the volatility they currently do based on interest rates. Rates would still be a factor, but not near as significant as they are currently.

2. Reduce private debt. Homeowners would have a tax incentive to pay off their mortgages.

3. Discourage the HELOC ATM syndrome. Encourage and reward financial responsibility.

4. Put renters and homeowners on an even playing field tax wise. There will still be the exact same non-tax reasons to buy a home, stability, permanence, control.

I’m sure there are plenty of other good reasons for it. Other than it being a significant change, I can think of no reasons it’s a bad idea for the economy as a whole.[/quote]

Perhaps it’s because I don’t believe in changing the rules after the game has started, but I think the elimination of the MID should not affect existing mortgages; they should be grandfathered in.

This would probably cause housing prices to fall and local/state governments to see lower revenues, but that’s not really a bad thing, IMHO (I don’t think it would be a drastic change).
——————

As far as the MID on second homes and rentals, I think that should be eliminated entirely.

If you think about it, the mortgage interest is an expense that the LL **chooses to add** to the legitimate expenses of owning and maintaining rental properties (repairs, maintenance, advertising, management fees, etc.). A leveraged landlord should not be entitled to more deductions than a LL who owns a property outright. This means that taxpayers are subsidizing a LL’s use of leverage. Leverage is their problem, not ours.

The only way I would allow the MID on rentals would be if the LL agreed to some form of rent control. This should also apply to Prop 13 protection — the benefit of the lower property taxes does not usually go to the renter (more affordable housing), it goes to the landlord.

There is no reason for taxpayers to subsidize a landlord’s profits or use of leverage.

[Author]

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