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CA renter.
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March 24, 2014 at 7:22 PM #772197March 24, 2014 at 7:46 PM #772198
SK in CV
Participant[quote=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.[/quote]
Most of the complications in the tax code have nothing to do with graduated marginal rates. They have to do with defining income. Under your flat tax idea, are the following items income?
Student loans
Cash out home refinance proceeds
Medical Insurance reimbursement
Medical insurance premiums paid by an employer on behalf of an employee
Other insurance reimbursements
Gross income from a trade or business (before any expenses)
Life insurance proceeds
I could go on. I hope you get my point.
March 24, 2014 at 7:52 PM #772199moneymaker
ParticipantPretty sure that for a lot of us the MID is phased out with time, by the time you are halfway through paying on the mortgage the interest is pretty negligible compared to standard deduction, again that is just for most of us, does not apply to people that buy Mac Mansions or can itemize a lot of stuff (business owners).
March 24, 2014 at 10:58 PM #772204CA renter
Participant[quote=flu]So, for folks that have a primary home and also with the financial means and desire to stack up on more rental property(ies) with cash purchase(s)….
What’s to prevent someone with equity in their primary home from taking out a cash out refinance, and use the proceeds to buy a rental property, and getting their mortgage interest deduction from the “other” way on their rental property income, instead of their primary home?
Seems like all it’s doing for people with the means…is to shift the mortgage interest deduction from Schedule A (primary home) to Schedule E (rental property expense)..And adding some extra work/complication for folks to ensure that loans on the primary property is traceable to the properties that were purchased with the loan proceeds…
In any case, the amount deducted from your net income is more or less the same whether it’s done on Schedule A or Schedule E, provided you don’t have a net loss on your rental properties (for which you would have to carryover and not be able to offset other income unless you are a real estate professional)….
Doesn’t seem like it’s a very effective way to make richer people with the financial means to pay more taxes, if that’s the intent. The only once it seems to hurt are people who only have a primary home who are cash poor with no plan or financial means of acquiring rental properties.
But I guess it does illustrate what a cluster f our tax code is, and why rich(er) people have much more variables to play with….[/quote]
IMO, people who buy existing homes aren’t producing anything, and should not be able to deduct interest. I favor eliminating all govt-backed loans, deductions for mortgage interest on rentals, and other benefits for residential landlords unless the benefits of these subsidies are shared with the tenants.
Of course, I am fully aware that I’m in the minority on this, but I think that only productive investment should be encouraged via out tax code.
March 25, 2014 at 8:25 AM #772221joec
Participant[quote=moneymaker]Pretty sure that for a lot of us the MID is phased out with time, by the time you are halfway through paying on the mortgage the interest is pretty negligible compared to standard deduction, again that is just for most of us, does not apply to people that buy Mac Mansions or can itemize a lot of stuff (business owners).[/quote]
One reason to refinance at year 10 or 15 of your loan to a 15 year at that time. Assuming the lower rate would make it close to the 30 year payment, you can continue to deduct the interest…
The problem with any changes now and why nothing will be done is that a lot of the comments here are biased as to what won’t “hurt me” or said poster as much or people in elected office.
The tax code is too screwed up so any large scale changes would be near impossible to pass.
The problem with your idea CAR of not letting people who buy existing homes deduct MID is that now, you have just as much assisted all the new home builders/big businesses since now, people are more likely to want to buy new to get the MID…This point is why trying to “fix” this issue on what might be a good idea can’t be done and I’d vote for either running 2 systems and take your pick and see what happens before forced changes or have massive deductions for all (lower state revenue) which screws up the state further though.
Also, it’s not that your idea is in the minority…I think you posted that you are trying to eliminate all of your debt so your suggestion is very biased…
again, my point is that you (and everyone involved) are just looking out for their own interests rather than what’s fair/right/etc…so you’d want to eliminate something which won’t benefit you so you don’t care if it’s gone.
I plainly admit I am more interested in what works out better for me than what’s fair since there is no fair system already and I just try to do it all to take advantage of what makes the most sense…
Sorta like as I have very little Roth accounts now, let’s just start to tax that too.
March 25, 2014 at 4:45 PM #772240ParticipantI need to clarify that I wasn’t suggesting eliminating the MI deduction for *primary buyers* who buy an existing home, though I’m not opposed to that, either. I’m talking about eliminating the MID for speculators and “investors” who buy existing homes.
In other words, I think that the tax code should not encourage speculation in basic necessities and commodities; it should encourage productive investments like building *new* buildings or expanding or improving productive capacity in some way (capital expenditure). I don’t think that people who are simply trying to buy food or housing should have to compete with well-funded, highly-leveraged “investors” who will greatly exaggerate price movements at the very worst times (when unusually high/low demand/supply are expected).
March 25, 2014 at 5:04 PM #772242
CoronitaParticipant[quote=CA renter]I need to clarify that I wasn’t suggesting eliminating the MI deduction for *primary buyers* who buy an existing home, though I’m not opposed to that, either. I’m talking about eliminating the MID for speculators and “investors” who buy existing homes.
In other words, I think that the tax code should not encourage speculation in basic necessities and commodities; it should encourage productive investments like building *new* buildings or expanding or improving productive capacity in some way (capital expenditure). I don’t think that people who are simply trying to buy food or housing should have to compete with well-funded, highly-leveraged “investors” who will greatly exaggerate price movements at the very worst times (when unusually high/low demand/supply are expected).[/quote]
????? This doesn’t make sense…
You don’t get a mortgage interest deduction for speculation homes (IE your investment property(ies)) …
MID applies to primary homes and vacation homes, as long as you stay within the 1.1 million threshold.
Interest related to “investment property” fall under “investment expense” (schedule E)…It’s no different than any any sort of investment expense that you can report either for property or for other investments for that matter…It’s considered cost of doing business….No different than other expenses related to investment properties (repair costs, upgrade costs,etc,etc,etc)…
Even taking a loan out on your primary and using it for investments is considered investment expense.. You don’t deduct it on Schedule A if you were to do that… If instead you were to use borrowed money to invest on other things (stocks/mutual funds) that would fall under investment expense for stocks/mutual funds (not suggesting one should do that necessarily)…
March 25, 2014 at 5:08 PM #772243The-Shoveler
ParticipantI think this came up before, I think someone wanted to start a biz that match home owners to other home owners that would rent to each other LOL.
Actually not a bad Idea.
March 25, 2014 at 6:09 PM #772244scaredyclassic
Participantbrilliant! there’s alreadya website that matches high school seniors for arranged marriages for purposes of increasing financial aid. this is the future!
March 25, 2014 at 6:31 PM #772246Participantwe can all rent each other’s houses and deduct al our expenses! all we need is a busy lawyer. is this fraudulent? does anyone do this? seems like it could work intrafamily…
March 25, 2014 at 7:09 PM #772248CoronitaParticipant[quote=The-Shoveler]I think this came up before, I think someone wanted to start a biz that match home owners to other home owners that would rent to each other LOL.
Actually not a bad Idea.[/quote]
Negatory……You would need to report the rent as rental income….
And even if your expenses exceeded your rental income, if your AGI is >$150k you wouldn’t be able to use loss to offset income from elsewhere…unless you happen to be a real estate professional…..And the phaseout of deduction rental losses starts at $100k.
March 25, 2014 at 10:28 PM #772249Hatfield
Participant[quote=SK in CV][quote=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.[/quote]
Most of the complications in the tax code have nothing to do with graduated marginal rates. They have to do with defining income. Under your flat tax idea, are the following items income?
Student loans
Cash out home refinance proceeds
Medical Insurance reimbursement
Medical insurance premiums paid by an employer on behalf of an employee
Other insurance reimbursements
Gross income from a trade or business (before any expenses)
Life insurance proceeds
I could go on. I hope you get my point.[/quote]
Actually, I have to confess that I don’t. I’m not sure that I understand any of these obfuscations. Loans are not income, so you can strike those examples. Reimbursements are not income. Gross income from a business is not income, net income is.
March 25, 2014 at 11:47 PM #772252Participant[quote=flu]
????? This doesn’t make sense…
You don’t get a mortgage interest deduction for speculation homes (IE your investment property(ies)) …
MID applies to primary homes and vacation homes, as long as you stay within the 1.1 million threshold.
Interest related to “investment property” fall under “investment expense” (schedule E)…It’s no different than any any sort of investment expense that you can report either for property or for other investments for that matter…It’s considered cost of doing business….No different than other expenses related to investment properties (repair costs, upgrade costs,etc,etc,etc)…
Even taking a loan out on your primary and using it for investments is considered investment expense.. You don’t deduct it on Schedule A if you were to do that… If instead you were to use borrowed money to invest on other things (stocks/mutual funds) that would fall under investment expense for stocks/mutual funds (not suggesting one should do that necessarily)…[/quote]
Right, I don’t think flippers should be able to deduct mortgage interest (or any expenses) when flipping homes, nor should they have access to any govt-backed/GSE loans. I get that they don’t usually deduct the mortgage interest in the same way that a primary owner/landlord does, but they do get to deduct it upon sale of the property. IOW, I think that there should be a *disincentive,* through the tax code and govt mortgage industry, to flipping homes.
“Investors” who buy existing homes to rent should also not get the MID in my ideal world. I totally understand the logic behind deductible expenses for business, but don’t think that buying up SFHs in areas where there is a high demand for this for-sale housing from organic/end buyers who are looking to buy a primary home is “running a business.” I’d rather see families — who are looking for a primary residence — have access to affordable homes that can be purchased with very conservative, traditional mortgages.
Again, I’m likely in the minority of one, but I have strong feelings about speculators and investors being in markets for basic necessities. Yes, I get that rental housing is still housing, but think that society is best served when the greatest possible number of people are in control of their own housing (stronger communities, lower crime rates, better maintained neighborhoods, etc.), and can benefit from owning a real asset and having a paid-off house upon retirement. I strongly dislike feudal societies and think we need to do everything in our power to prevent the concentration of power/wealth.
March 26, 2014 at 6:12 AM #772253Participantdelete
March 26, 2014 at 9:59 AM #772254CoronitaParticipant[quote=CA renter][quote=flu]
????? This doesn’t make sense…
You don’t get a mortgage interest deduction for speculation homes (IE your investment property(ies)) …
MID applies to primary homes and vacation homes, as long as you stay within the 1.1 million threshold.
Interest related to “investment property” fall under “investment expense” (schedule E)…It’s no different than any any sort of investment expense that you can report either for property or for other investments for that matter…It’s considered cost of doing business….No different than other expenses related to investment properties (repair costs, upgrade costs,etc,etc,etc)…
Even taking a loan out on your primary and using it for investments is considered investment expense.. You don’t deduct it on Schedule A if you were to do that… If instead you were to use borrowed money to invest on other things (stocks/mutual funds) that would fall under investment expense for stocks/mutual funds (not suggesting one should do that necessarily)…[/quote]
Right, I don’t think flippers should be able to deduct mortgage interest (or any expenses) when flipping homes, nor should they have access to any govt-backed/GSE loans. I get that they don’t usually deduct the mortgage interest in the same way that a primary owner/landlord does, but they do get to deduct it upon sale of the property. IOW, I think that there should be a *disincentive,* through the tax code and govt mortgage industry, to flipping homes.
“Investors” who buy existing homes to rent should also not get the MID in my ideal world. I totally understand the logic behind deductible expenses for business, but don’t think that buying up SFHs in areas where there is a high demand for this for-sale housing from organic/end buyers who are looking to buy a primary home is “running a business.” I’d rather see families — who are looking for a primary residence — have access to affordable homes that can be purchased with very conservative, traditional mortgages.
Again, I’m likely in the minority of one, but I have strong feelings about speculators and investors being in markets for basic necessities. Yes, I get that rental housing is still housing, but think that society is best served when the greatest possible number of people are in control of their own housing (stronger communities, lower crime rates, better maintained neighborhoods, etc.), and can benefit from owning a real asset and having a paid-off house upon retirement. I strongly dislike feudal societies and think we need to do everything in our power to prevent the concentration of power/wealth.[/quote]
Wait.
1. First of all, I thought flippers traditionally are cash buyers, no? At least they have to be if we’re talking foreclosures….
2. Even if they were to take out a loan, it wouldn’t be reported as mortgage interest deduction on schedule A. Again it would be investment interest expense on schedule E.
3. Flippers that take out a loan to flip a specific property isn’t paying *that* much interest anyway if the flip is really a flip. Maybe 1-3 months?
4. And I have a question. How can you tell a flipper from a non flipper/investor?
Seems to me you’re just asking for arbitrary restrictions on investments and or speculation…
So let me get this straight.. You’re suggesting that someone that speculates and earns money should be taxed for income. But someone that speculates and loses money should eat the costs…
How is this different from the reverse of this scenaro: a bank that earns money keeps the profits, but a bank that takes heavy losses, the government and taxpayer ends up picking up for the loss (sound familiar)?
And let’s take this one step further. Why stop at just flipping houses? Why not make this rule apply to all investments, including money you put into bonds, stocks, mutual funds, everything…
Everytime you earn a profit, you pay taxes on it. Every time you lose money, you can’t use it to offset your gain… That would also “discourage” speculation, (as well as sound investing) would it? When was the last time you lost money on a bad debt or bad investment? Did you write it off or not? Or have you had a perfect track record of never losing any money on any of your investments?
Seems to me, in the suggestion you are making, it’s government wins if you profit, government wins if you lose.
Uh, ok… I’m glad you’re not a politician and I’m glad this idea is not very popular…
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