Ax may fall on tax break for mortgages

[briansd1]

FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.

[(former)FormerSanDiegan]

[quote=briansd1]FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.[/quote]

briansd1 –
I never calculated what my threshold for ownership premium, but I do know this:
If the interest on my Jumbo mortgage is no longer deductible, I will turn my primary into a rental property and rent somewhere else.

I suspect there would be similar activity by others with similar means and similar math skills.

[(former)FormerSanDiegan]

[quote=briansd1]FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.[/quote]

briansd1 –
I never calculated what my threshold for ownership premium, but I do know this:
If the interest on my Jumbo mortgage is no longer deductible, I will turn my primary into a rental property and rent somewhere else.

I suspect there would be similar activity by others with similar means and similar math skills.

[(former)FormerSanDiegan]

[quote=briansd1]FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.[/quote]

briansd1 –
I never calculated what my threshold for ownership premium, but I do know this:
If the interest on my Jumbo mortgage is no longer deductible, I will turn my primary into a rental property and rent somewhere else.

I suspect there would be similar activity by others with similar means and similar math skills.

[(former)FormerSanDiegan]

[quote=briansd1]FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.[/quote]

briansd1 –
I never calculated what my threshold for ownership premium, but I do know this:
If the interest on my Jumbo mortgage is no longer deductible, I will turn my primary into a rental property and rent somewhere else.

I suspect there would be similar activity by others with similar means and similar math skills.

[(former)FormerSanDiegan]

[quote=briansd1]FormerSanDiegan, you make an interesting observation.

But I also disagree on your assessment of the higher end.

Essentially, you’re saying that the “ownership premium” will increase and people will turn to renting.

We know that higher end is biased toward ownership and there are fewer rental substitutes at the higher end.

During the peak people were not deterred from buying higher end properties as residences, despite the huge ownership premiums.

Getting rid of the mortgage interest deduction (or lowering the threshold) would encourage people to save rather than consume on housing.[/quote]

briansd1 –
I never calculated what my threshold for ownership premium, but I do know this:
If the interest on my Jumbo mortgage is no longer deductible, I will turn my primary into a rental property and rent somewhere else.

I suspect there would be similar activity by others with similar means and similar math skills.

[(former)FormerSanDiegan]

[quote=SK in CV]

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.

[/quote]

The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.

I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.

Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.

[(former)FormerSanDiegan]

[quote=SK in CV]

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.

[/quote]

The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.

I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.

Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.

[(former)FormerSanDiegan]

[quote=SK in CV]

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.

[/quote]

The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.

I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.

Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.

[(former)FormerSanDiegan]

[quote=SK in CV]

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.

[/quote]

The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.

I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.

Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.

[(former)FormerSanDiegan]

[quote=SK in CV]

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.

[/quote]

The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.

I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.

Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.

[(former)FormerSanDiegan]

[quote=flu][quote=FormerSanDiegan][quote=flu][quote=mike92104]I could support losing the tax credits for second homes. It amazes that that no one ever thinks about spending less money.[/quote]

What tax credits on second homes? I thought the mortgage interest rate deductions only apply the the first. At least, when it comes to AMT calculations.

Maybe I’m wrong. Enlighten me please.[/quote]

The regular tax code allows deduction of mortgage interest on both a primary residence and a second (e.g. vacation) home used for personal use (as opposed to rental property).

http://www.irs.gov/publications/p936/ar02.html

Not sure how a mortgage on a second home is treated for AMT. But, I suppose the majority of second home owners are subject to AMT.[/quote]

So I’m enlightened. Actually, I think AMT allows for deduction on the second too. My bad.[/quote]

You are right that AMT allows for deduction on the second home (but there are limits on second mortgages); unless the second “home” is a boat or trailer (which actually count as second homes under regular tax code and certain limitations, e.g. the boat has to have some sort of kitchen).

[(former)FormerSanDiegan]

[quote=flu][quote=FormerSanDiegan][quote=flu][quote=mike92104]I could support losing the tax credits for second homes. It amazes that that no one ever thinks about spending less money.[/quote]

What tax credits on second homes? I thought the mortgage interest rate deductions only apply the the first. At least, when it comes to AMT calculations.

Maybe I’m wrong. Enlighten me please.[/quote]

The regular tax code allows deduction of mortgage interest on both a primary residence and a second (e.g. vacation) home used for personal use (as opposed to rental property).

http://www.irs.gov/publications/p936/ar02.html

Not sure how a mortgage on a second home is treated for AMT. But, I suppose the majority of second home owners are subject to AMT.[/quote]

So I’m enlightened. Actually, I think AMT allows for deduction on the second too. My bad.[/quote]

You are right that AMT allows for deduction on the second home (but there are limits on second mortgages); unless the second “home” is a boat or trailer (which actually count as second homes under regular tax code and certain limitations, e.g. the boat has to have some sort of kitchen).

[(former)FormerSanDiegan]

[quote=flu][quote=FormerSanDiegan][quote=flu][quote=mike92104]I could support losing the tax credits for second homes. It amazes that that no one ever thinks about spending less money.[/quote]

What tax credits on second homes? I thought the mortgage interest rate deductions only apply the the first. At least, when it comes to AMT calculations.

Maybe I’m wrong. Enlighten me please.[/quote]

The regular tax code allows deduction of mortgage interest on both a primary residence and a second (e.g. vacation) home used for personal use (as opposed to rental property).

http://www.irs.gov/publications/p936/ar02.html

Not sure how a mortgage on a second home is treated for AMT. But, I suppose the majority of second home owners are subject to AMT.[/quote]

So I’m enlightened. Actually, I think AMT allows for deduction on the second too. My bad.[/quote]

You are right that AMT allows for deduction on the second home (but there are limits on second mortgages); unless the second “home” is a boat or trailer (which actually count as second homes under regular tax code and certain limitations, e.g. the boat has to have some sort of kitchen).

[(former)FormerSanDiegan]

[quote=flu][quote=FormerSanDiegan][quote=flu][quote=mike92104]I could support losing the tax credits for second homes. It amazes that that no one ever thinks about spending less money.[/quote]

What tax credits on second homes? I thought the mortgage interest rate deductions only apply the the first. At least, when it comes to AMT calculations.

Maybe I’m wrong. Enlighten me please.[/quote]

The regular tax code allows deduction of mortgage interest on both a primary residence and a second (e.g. vacation) home used for personal use (as opposed to rental property).

http://www.irs.gov/publications/p936/ar02.html

Not sure how a mortgage on a second home is treated for AMT. But, I suppose the majority of second home owners are subject to AMT.[/quote]

So I’m enlightened. Actually, I think AMT allows for deduction on the second too. My bad.[/quote]

You are right that AMT allows for deduction on the second home (but there are limits on second mortgages); unless the second “home” is a boat or trailer (which actually count as second homes under regular tax code and certain limitations, e.g. the boat has to have some sort of kitchen).

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