Ax may fall on tax break for mortgages

[CA renter]

[quote=SK in CV][quote=CA renter]
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.[/quote]

Changing the rules happens all the time. Near perfect examples are the elimination of the deduction for personal interest, and limitations on deductions for home equity interest. Taxes on cap gains change pretty regularly.

State and local revenues might only drop in CA where property taxes are statutorily tied to values. (I think CA is unique in that regards.) Other states figure out how much they need and set the rates accordingly. I’m not convinced that values would drop significantly even in CA.

You’re opposed to changing the rules mid-game for mortgage interest. But not opposed to changing the rules mid-game for 2nd home interest? And apparently not opposed to changing the rules mid-game for rental property?

Related to the deduction of interest on rental properties, it’s an entirely different issue. Unlikely to happen. It would kill prices way worse than doing away with the home mortgage deduction. Rent control on commercial property? I don’t think either is going to happen, or even be proposed in good faith. (Other than different depreciable lives, I can’t think of any tax differences between residential and commercial rental property. Same tax code sections which determine what is deductible cover both.) Are you going to tell Jerry Jones that he can’t deduct the mortgage interest on his new stadium and someone else is going to tell him how much rent he can charge the cowboys to play there? Nope, that one isn’t going to happen.[/quote]

Agree with you that state/local revenue would probably not change too much.

Good point about my not wanting to change the rules mid-game for primary residences, but not for investments. I should clarify that I differentiate between basic needs/primary residences and wants/investments. IMHO, a primary residence is a basic need; therefore, it should be treated differently than investment RE. While some would make the argument, that people don’t *need* to own, I actually favor responsible ownership of a primary residence for as many people as possible. It’s best for society (IMHO) when people can control their housing costs and control their own property. Ideally, everyone would have a paid-off house before retirement.

For this reason, I believe (primary) home ownership should be encouraged and given preference over RE investment. Prices would fall, ownership rates would rise, and owners’ equity would rise (IMHO).

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.

[Cube]

In reading thus far, I have seen a number of comments about tax revenue implications and about home price implications. What I would see as a consequence, though, is a general reduction in leverage used to purchase housing (regardless of the possible outcomes of the other two). It will be less attractive to be as greatly leveraged and less attractive to carry the debt for so long.

If that reduction in leverage is sufficiently large, it would contract the money supply (probably supporting the outcomes of lower housing prices and lower tax revenue). While I think that less leverage in the housing market is a good thing, the government would certainly be opposed to the deflationary effects that would likely follow. Perhaps this plan is more attractive to them if they can magically lower mortgage interest rates to offset the loss of the MID…

[Cube]

In reading thus far, I have seen a number of comments about tax revenue implications and about home price implications. What I would see as a consequence, though, is a general reduction in leverage used to purchase housing (regardless of the possible outcomes of the other two). It will be less attractive to be as greatly leveraged and less attractive to carry the debt for so long.

If that reduction in leverage is sufficiently large, it would contract the money supply (probably supporting the outcomes of lower housing prices and lower tax revenue). While I think that less leverage in the housing market is a good thing, the government would certainly be opposed to the deflationary effects that would likely follow. Perhaps this plan is more attractive to them if they can magically lower mortgage interest rates to offset the loss of the MID…

[Cube]

In reading thus far, I have seen a number of comments about tax revenue implications and about home price implications. What I would see as a consequence, though, is a general reduction in leverage used to purchase housing (regardless of the possible outcomes of the other two). It will be less attractive to be as greatly leveraged and less attractive to carry the debt for so long.

If that reduction in leverage is sufficiently large, it would contract the money supply (probably supporting the outcomes of lower housing prices and lower tax revenue). While I think that less leverage in the housing market is a good thing, the government would certainly be opposed to the deflationary effects that would likely follow. Perhaps this plan is more attractive to them if they can magically lower mortgage interest rates to offset the loss of the MID…

[Cube]

In reading thus far, I have seen a number of comments about tax revenue implications and about home price implications. What I would see as a consequence, though, is a general reduction in leverage used to purchase housing (regardless of the possible outcomes of the other two). It will be less attractive to be as greatly leveraged and less attractive to carry the debt for so long.

If that reduction in leverage is sufficiently large, it would contract the money supply (probably supporting the outcomes of lower housing prices and lower tax revenue). While I think that less leverage in the housing market is a good thing, the government would certainly be opposed to the deflationary effects that would likely follow. Perhaps this plan is more attractive to them if they can magically lower mortgage interest rates to offset the loss of the MID…

[Cube]

In reading thus far, I have seen a number of comments about tax revenue implications and about home price implications. What I would see as a consequence, though, is a general reduction in leverage used to purchase housing (regardless of the possible outcomes of the other two). It will be less attractive to be as greatly leveraged and less attractive to carry the debt for so long.

If that reduction in leverage is sufficiently large, it would contract the money supply (probably supporting the outcomes of lower housing prices and lower tax revenue). While I think that less leverage in the housing market is a good thing, the government would certainly be opposed to the deflationary effects that would likely follow. Perhaps this plan is more attractive to them if they can magically lower mortgage interest rates to offset the loss of the MID…

[SK in CV]

[quote=CA renter]
Agree with you that state/local revenue would probably not change too much.

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.[/quote]

Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.

[SK in CV]

[quote=CA renter]
Agree with you that state/local revenue would probably not change too much.

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.[/quote]

Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.

[SK in CV]

[quote=CA renter]
Agree with you that state/local revenue would probably not change too much.

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.[/quote]

Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.

[SK in CV]

[quote=CA renter]
Agree with you that state/local revenue would probably not change too much.

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.[/quote]

Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.

[SK in CV]

[quote=CA renter]
Agree with you that state/local revenue would probably not change too much.

Commercial RE is another issue entirely, but I would also encourage the ownership of a single commercial/industrial building per person or related entity by giving them Prop 13 protection and also allow the MID on a *single* property (there might be some size limitations). The property should be reassessed any time there is an ownership change. People should not be able to pass on their Prop 13 protection via corporations or LLCs, etc. (which simply increases prices on these properties — the seller gets the benefit, but the taxpayers have to subsidize it).

Additionally, multi-family dwellings (apartment buildings) could retain Prop 13 protection, but I’d like to see a way for tenants to somehow benefit from this as well — a shared benefit of sorts.[/quote]

Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.

[CA renter]

[quote=SK in CV]
Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.[/quote]

Agree with you, but think rents on SFRs are equally affected by supply and demand (not sure if I’m understanding you correctly on that one).

The reason I think Prop 13 would cause housing prices to fall (just going to stay with residential here) *during a bubble* is because the property taxes on a rental would rise along with prices. While landlords would certainly try to pass the extra costs onto the renters, there is a ceiling for rents as tenants need to cover rent with real income (as opposed to “toxic” mortgages). Renters might effectively “mortgage their payments” by putting more of their other expenses on a credit card, but there is a limit to that as well. At some point, they will simply move to a more affordable rental.

My guess is that as prices rise and carrying costs rise along with them, more landlords would be inclined to sell their rental units during housing booms which would help minimize the drastic swings in prices. It would keep more “investors” out of the market during runups as they wouldn’t be getting Prop 13 protection nor would they be getting the MID. I’d also favor requiring no less than 30% down payments on investment properties or second homes.

[CA renter]

[quote=SK in CV]
Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.[/quote]

Agree with you, but think rents on SFRs are equally affected by supply and demand (not sure if I’m understanding you correctly on that one).

The reason I think Prop 13 would cause housing prices to fall (just going to stay with residential here) *during a bubble* is because the property taxes on a rental would rise along with prices. While landlords would certainly try to pass the extra costs onto the renters, there is a ceiling for rents as tenants need to cover rent with real income (as opposed to “toxic” mortgages). Renters might effectively “mortgage their payments” by putting more of their other expenses on a credit card, but there is a limit to that as well. At some point, they will simply move to a more affordable rental.

My guess is that as prices rise and carrying costs rise along with them, more landlords would be inclined to sell their rental units during housing booms which would help minimize the drastic swings in prices. It would keep more “investors” out of the market during runups as they wouldn’t be getting Prop 13 protection nor would they be getting the MID. I’d also favor requiring no less than 30% down payments on investment properties or second homes.

[CA renter]

[quote=SK in CV]
Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.[/quote]

Agree with you, but think rents on SFRs are equally affected by supply and demand (not sure if I’m understanding you correctly on that one).

The reason I think Prop 13 would cause housing prices to fall (just going to stay with residential here) *during a bubble* is because the property taxes on a rental would rise along with prices. While landlords would certainly try to pass the extra costs onto the renters, there is a ceiling for rents as tenants need to cover rent with real income (as opposed to “toxic” mortgages). Renters might effectively “mortgage their payments” by putting more of their other expenses on a credit card, but there is a limit to that as well. At some point, they will simply move to a more affordable rental.

My guess is that as prices rise and carrying costs rise along with them, more landlords would be inclined to sell their rental units during housing booms which would help minimize the drastic swings in prices. It would keep more “investors” out of the market during runups as they wouldn’t be getting Prop 13 protection nor would they be getting the MID. I’d also favor requiring no less than 30% down payments on investment properties or second homes.

[CA renter]

[quote=SK in CV]
Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.[/quote]

Agree with you, but think rents on SFRs are equally affected by supply and demand (not sure if I’m understanding you correctly on that one).

The reason I think Prop 13 would cause housing prices to fall (just going to stay with residential here) *during a bubble* is because the property taxes on a rental would rise along with prices. While landlords would certainly try to pass the extra costs onto the renters, there is a ceiling for rents as tenants need to cover rent with real income (as opposed to “toxic” mortgages). Renters might effectively “mortgage their payments” by putting more of their other expenses on a credit card, but there is a limit to that as well. At some point, they will simply move to a more affordable rental.

My guess is that as prices rise and carrying costs rise along with them, more landlords would be inclined to sell their rental units during housing booms which would help minimize the drastic swings in prices. It would keep more “investors” out of the market during runups as they wouldn’t be getting Prop 13 protection nor would they be getting the MID. I’d also favor requiring no less than 30% down payments on investment properties or second homes.

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