Study shows mortgage interest deduction doesn’t encourage home ownership

[ctr70]

http://online.wsj.com/news/articles/SB10001424052702303949704579457342129970328?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj

Good article from the WSJ on a recent study on the mortgage interest deduction.

I would love to see the mortgage interest deduction scrapped all together and in return lower the federal income tax rates. This study shows that all the mortgage interest deduction does is help keep prices inflated in a few coastal markets in the U.S. It’s of no help to the majority of homeowners in flyover states. Getting rid of this would be a great step in simplifying the tax code and then lowering the federal income tax rate to stop penalizing people for being financially successful at their jobs.

Prop 13 would be the other one good to see go. Get rid of prop 13 and in turn LOWER the state income tax. Stop punishing high w-2 income earners and inflating the real estate market. Changing the interest deduction AND getting rid of prop 13 would be two great steps towards reducing the artificial inflation of real estate prices in coastal CA and other high cost U.S. areas.

[Jazzman]

Agreed!

[scaredyclassic]

Phase it out slowly until I don’t need it anymore. That seems fairest, to me.

[CA renter]

Yes, they would definitely have to phase it out. Agree that the MID is useless. As with any subsidy that’s available to the general public, it’s the sellers who benefit as prices rise to offset any “benefit” the buyers might have gotten.

Too many people think it’s a good idea to spend $1.00 in order to “save” 25-30 cents (or less!).

[all]

Paying taxes on any interest seems kind of unfair to me.

[Doofrat]

[quote=CA renter]Too many people think it’s a good idea to spend $1.00 in order to “save” 25-30 cents (or less!).[/quote]

I think the understanding of this is somewhere between spending $1.00 to “save” 25-30 cents and — I get to “write off” the whole dollar somewhere on my taxes but I don’t know where because I just punch it into Turbo Tax or have my tax guy at H&R Block do it and it’s a good thing because I get a refund that is free money and would probably have to pay $10,000 in taxes if I was a sucker paying rent.

[Coronita]

Or maybe some people figure out that with a 2.5 to 3% fixed rate loan ….

1) payments still end up being below rent even before tax benefits

And

2)instead or paying off a house early, younger people slightly more financially savvy can do better than 2.5% -3% by taking the nice low interest loan and investing whst otherwise would have been sunk into paying off a primary to generate higher return income elsewhere. Like maybe 34% last year in the stock market or 6-8% cash on cash in rentals or something else.

Afterall, its not like your primary is generating any income. I believe some folks call it being house rich but cash poor…

[FlyerInHi]

For the more entrepreneurial and leveraged, mortgage interest deduction works out better, I think.

[an]

I don’t mind removing MID and prop 13 IF tax rate decrease enough to offset the additional tax, which means my net change tax dollar would be 0. However, I highly doubt that would ever happen. What would more likely happen is the removal of MID and Prop 13 but also increase in income tax. So, my first instinct is to object any kind of such proposal. Unless both tax rate decrease and removal of MID/prop 13 is on the same bill.

[CA renter]

[quote=AN]I don’t mind removing MID and prop 13 IF tax rate decrease enough to offset the additional tax, which means my net change tax dollar would be 0. However, I highly doubt that would ever happen. What would more likely happen is the removal of MID and Prop 13 but also increase in income tax. So, my first instinct is to object any kind of such proposal. Unless both tax rate decrease and removal of MID/prop 13 is on the same bill.[/quote]

I don’t think they would increase the income tax rate if they eliminated MID and Prop 13, but they could (and should) leave it at the same levels, at least (possibly lower state income tax in CA a bit).

Again, these are tax subsidies that have questionable goals, with the exception of keeping people from being taxed out of their primary homes.

[CA renter]

[quote=all]Paying taxes on any interest seems kind of unfair to me.[/quote]

You’re not paying taxes on interest. You’re paying taxes on whatever income you have, and interest is one expense that can be deducted.

Personally, I have a much bigger problem with corporations being able to deduct all of their expenses before paying taxes, while Joe Sixpack isn’t able to do so himself. The standard deduction doesn’t come anywhere close to the cost of very basic living expenses. If corporations can deduct ongoing expenses, middle and working-class individuals should be able to deduct expenses for a basic standard of living.

[joec]

[quote=CA renter][quote=all]Paying taxes on any interest seems kind of unfair to me.[/quote]

You’re not paying taxes on interest. You’re paying taxes on whatever income you have, and interest is one expense that can be deducted.

Personally, I have a much bigger problem with corporations being able to deduct all of their expenses before paying taxes, while Joe Sixpack isn’t able to do so himself. The standard deduction doesn’t come anywhere close to the cost of very basic living expenses. If corporations can deduct ongoing expenses, middle and working-class individuals should be able to deduct expenses for a basic standard of living.[/quote]

I agree with this as well…Businesses get taxed after every single expense they pay, Joe Sixpack can’t deduct a thing…

Medical expenses? It has to be more than 10% now? Are you f*cking kidding me?

At the end of the day, someone has to pay and the government realizes it’s easier to rip off the “middle-class” w-2 wage earner and Joey Sixpack than to challenge a corporation which has massive resources to work with and who contributes to their campaign.

I’ve had friends who were accountants at companies who’s sole job was to find tax loopholes to use…

This is why I’m now favoring a 0% corporate tax now since large businesses will find a way around it anyways…They already have it all offshore at 0% places and anything over 0 will prevent the money from coming back to these shores. Even if that means giving it to shareholders.

They should just raise the dividend investment tax IMO to tax the same as income…That affects the wealthy far more, is passive income and is more fair compared to taxing W-2 secretaries, etc…

This is how extremely wealthy people like Bill Gates, Buffett has like a 10% effective tax rate since so much of their income is capital gains or dividends.

[joec]

[quote=FlyerInHi]For the more entrepreneurial and leveraged, mortgage interest deduction works out better, I think.[/quote]

This is very true…Again, any change is going hurt one party and help another so they need to take a baseline of what we have now, and consider what to change since it’ll hurt someone.

At the end of the day, I think a lot of us just wants what will be better for ourselves. It’s selfish, but such is society and life nowadays.

The point about the MID not helping a lot of flyover states is more because their mortgage is just too low because their housing cost is too low compared to the standard deduction. With it being $12,400 now, if you aren’t paying more than that in MID, you’re better off probably using the standard deduction…depends on other items of course as well (donations, etc)…but it’s not an issue with the MID itself.

Say you are someone who is a business owner and have lots of business expenses or simply decide to keep growing your business and run it at a loss (lots of tech companies do this actually)…Your tax rate is essentially 0 so taking away the MID which you might be using to offset, say IRA withdrawals or something hurts people who aren’t pure w-2 earners.

I would vote for having simultaneous plans and you choose whichever one helps you better.

I honestly doubt the gov’ment folks can work together enough to make anything happen…especially in an election year.

They were talking about getting rid of this MID like 9 years ago I think and it got nowhere.

They can’t even figure out the internet tax issue for the whole US.

It’s just to make it look like they are trying to work I feel and “doing something” to justify their jobs.

[Hatfield]

I always liked the idea of a flat tax for individuals. Get rid of all deductions and AMT entirely. Everyone gets a standard deduction of say, $80k, and then tax perhaps 25% of all income above that. You’d have to tinker with these numbers but I bet you could dial it in where overall revenues are about what they are today with a much fairer tax structure overall.

[CA renter]

Agree that ALL income should be taxed at the same rates. There is no reason for passive income to be taxed at a lower rate. This is clearly another tax law that was written by the wealthy, for the wealthy.

[Author]

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