Elimination of Mortgage Deduction

[ucodegen]

[quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).

[jstoesz]

I think the only way they are going to get rid of this deduction is a full scale tax code overhaul…

A VAT implementation with a drastic cut in overall tax rates may be enough to do the trick.

Reagan did some pretty unpleasant tax loophole closures, but he got it done by cutting the overall tax rates. I doubt Barry will have the political capital to ever get this kind of thing done. But then again I was wrong about Healthcare…Stranger things have happened.

[jstoesz]

I think the only way they are going to get rid of this deduction is a full scale tax code overhaul…

A VAT implementation with a drastic cut in overall tax rates may be enough to do the trick.

Reagan did some pretty unpleasant tax loophole closures, but he got it done by cutting the overall tax rates. I doubt Barry will have the political capital to ever get this kind of thing done. But then again I was wrong about Healthcare…Stranger things have happened.

[jstoesz]

I think the only way they are going to get rid of this deduction is a full scale tax code overhaul…

A VAT implementation with a drastic cut in overall tax rates may be enough to do the trick.

Reagan did some pretty unpleasant tax loophole closures, but he got it done by cutting the overall tax rates. I doubt Barry will have the political capital to ever get this kind of thing done. But then again I was wrong about Healthcare…Stranger things have happened.

[jstoesz]

I think the only way they are going to get rid of this deduction is a full scale tax code overhaul…

A VAT implementation with a drastic cut in overall tax rates may be enough to do the trick.

Reagan did some pretty unpleasant tax loophole closures, but he got it done by cutting the overall tax rates. I doubt Barry will have the political capital to ever get this kind of thing done. But then again I was wrong about Healthcare…Stranger things have happened.

[jstoesz]

I think the only way they are going to get rid of this deduction is a full scale tax code overhaul…

A VAT implementation with a drastic cut in overall tax rates may be enough to do the trick.

Reagan did some pretty unpleasant tax loophole closures, but he got it done by cutting the overall tax rates. I doubt Barry will have the political capital to ever get this kind of thing done. But then again I was wrong about Healthcare…Stranger things have happened.

[Coronita]

[quote=ucodegen][quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).[/quote]

Seriously, the IRS if it greater capacity would go after tax cheats using corporate entities versus chasing after mortgage interest deductions. The bang for buck would be investigating tax cheats in corp entities people set up. Plus at least in the near term, the government has no interesting in policies that would further sink the RE markets…Come on, we know this. This entire game is rigged…

Not to mention if this happened, you would suddenly have a bunch of homes reclassified as investment homes rentals to oneself, with annual losses probably.. (Ok, this is sort of tongue and cheek).

[Coronita]

[quote=ucodegen][quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).[/quote]

Seriously, the IRS if it greater capacity would go after tax cheats using corporate entities versus chasing after mortgage interest deductions. The bang for buck would be investigating tax cheats in corp entities people set up. Plus at least in the near term, the government has no interesting in policies that would further sink the RE markets…Come on, we know this. This entire game is rigged…

Not to mention if this happened, you would suddenly have a bunch of homes reclassified as investment homes rentals to oneself, with annual losses probably.. (Ok, this is sort of tongue and cheek).

[Coronita]

[quote=ucodegen][quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).[/quote]

Seriously, the IRS if it greater capacity would go after tax cheats using corporate entities versus chasing after mortgage interest deductions. The bang for buck would be investigating tax cheats in corp entities people set up. Plus at least in the near term, the government has no interesting in policies that would further sink the RE markets…Come on, we know this. This entire game is rigged…

Not to mention if this happened, you would suddenly have a bunch of homes reclassified as investment homes rentals to oneself, with annual losses probably.. (Ok, this is sort of tongue and cheek).

[Coronita]

[quote=ucodegen][quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).[/quote]

Seriously, the IRS if it greater capacity would go after tax cheats using corporate entities versus chasing after mortgage interest deductions. The bang for buck would be investigating tax cheats in corp entities people set up. Plus at least in the near term, the government has no interesting in policies that would further sink the RE markets…Come on, we know this. This entire game is rigged…

Not to mention if this happened, you would suddenly have a bunch of homes reclassified as investment homes rentals to oneself, with annual losses probably.. (Ok, this is sort of tongue and cheek).

[Coronita]

[quote=ucodegen][quote flu]Not going to happen either. Simply because the IRS does not have the bandwidth to go through the details of every person’s financial situation and figure out how a heloc was used, or a cash out refinance was used.[/quote]
The IRS is increasing their bandwidth. They are now using systems that can ‘read’ and ‘process’ the forms for tax ‘mistakes’. Its not perfect, but it is getting scary.

What the IRS may do is make the interest from an HELOC non-deductible as a default unless you can prove by receipts that the money was spent on improvements to the property. Only the interest on the principal that can be justified by receipts would be allowed.

As for cash-out refi, that would be easier. The interest on the amount that is cashed-out would not be deductible unless there are home improvement receipts for that amount.

[quote joec]Yeah, your idea sounds much better than renting someone else’s house. :)[/quote]
It was from my primitive understanding of how the wealthy were getting around the system before the home mortgage interest deduction was allowed.

[quote meadandale]I love how they always talk about how much these things are ‘costing’ the government. It’s not costing the government ANYTHING to give this deduction to home owners–it just means that they can’t collect that much additional tax.[/quote]
Actually it just shifts the tax burden, unless the gov. reduces spending(yeah, right). The total bill has to be paid eventually anyway. You can shift it to different parts of the population, or you can ‘time shift’ it using treasuries (fed borrowing).[/quote]

Seriously, the IRS if it greater capacity would go after tax cheats using corporate entities versus chasing after mortgage interest deductions. The bang for buck would be investigating tax cheats in corp entities people set up. Plus at least in the near term, the government has no interesting in policies that would further sink the RE markets…Come on, we know this. This entire game is rigged…

Not to mention if this happened, you would suddenly have a bunch of homes reclassified as investment homes rentals to oneself, with annual losses probably.. (Ok, this is sort of tongue and cheek).

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[Author]

Posts