[(former)FormerSanDiegan]

[quote=peterb]The best we’ve gotten so far on this technical bounce has been 9000. From a low of 7400. The record bad news just keeps rolling in. I’m with Chris on this one. The worst is yet to come. The govt is gearing up to spend $3T. Amazing!! Lay-offs are coming in waves. The Dow at 8000 seems too high given the economic devistation at hand and increasing. Historically, credit contractions of this magnitude are very rare and devistating events. One year into a contraction of this level, seem way too early for a bottom.[/quote]

That’s why I suggested dollar cost-averaging into this market over the next couple years rather than dumping in a lump sum.

[(former)FormerSanDiegan]

[quote=peterb]The best we’ve gotten so far on this technical bounce has been 9000. From a low of 7400. The record bad news just keeps rolling in. I’m with Chris on this one. The worst is yet to come. The govt is gearing up to spend $3T. Amazing!! Lay-offs are coming in waves. The Dow at 8000 seems too high given the economic devistation at hand and increasing. Historically, credit contractions of this magnitude are very rare and devistating events. One year into a contraction of this level, seem way too early for a bottom.[/quote]

That’s why I suggested dollar cost-averaging into this market over the next couple years rather than dumping in a lump sum.

[(former)FormerSanDiegan]

Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.

The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:

1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.

2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.

Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?

I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.

As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?

[(former)FormerSanDiegan]

Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.

The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:

1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.

2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.

Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?

I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.

As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?

[(former)FormerSanDiegan]

Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.

The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:

1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.

2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.

Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?

I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.

As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?

[(former)FormerSanDiegan]

Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.

The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:

1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.

2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.

Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?

I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.

As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?

[(former)FormerSanDiegan]

Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.

The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:

1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.

2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.

Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?

I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.

As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?

[(former)FormerSanDiegan]

Part 2 – Rental property tax laws

Next, let’s consider Rental property. Rental property is handled on Schedule E. Mortgage interest on rental property is not an itemized deduction of the interest. It is considered a business expense under schedule E, as are the insurance, property taxes and maintenance. The expenses deductible against rental income are more generous than the deductions for the homeowner
all other forms of interest.

The law governing rental property expenses is based on the same laws applied to business expenses for any business. They are not taxed on their Gross Revenue. They are taxed on the difference between their gross revenue and their expenses. Expenses include their lease, employee salaries, wages, materials, insurance, local taxes, etc.

So, rental property is taxed like a business. Why ? Well, because it is a business.

It is highly unlikely (impossible) that we would alter the tax code to tax businesses on other than net profits.

[(former)FormerSanDiegan]

Part 2 – Rental property tax laws

Next, let’s consider Rental property. Rental property is handled on Schedule E. Mortgage interest on rental property is not an itemized deduction of the interest. It is considered a business expense under schedule E, as are the insurance, property taxes and maintenance. The expenses deductible against rental income are more generous than the deductions for the homeowner
all other forms of interest.

The law governing rental property expenses is based on the same laws applied to business expenses for any business. They are not taxed on their Gross Revenue. They are taxed on the difference between their gross revenue and their expenses. Expenses include their lease, employee salaries, wages, materials, insurance, local taxes, etc.

So, rental property is taxed like a business. Why ? Well, because it is a business.

It is highly unlikely (impossible) that we would alter the tax code to tax businesses on other than net profits.

[(former)FormerSanDiegan]

Part 2 – Rental property tax laws

Next, let’s consider Rental property. Rental property is handled on Schedule E. Mortgage interest on rental property is not an itemized deduction of the interest. It is considered a business expense under schedule E, as are the insurance, property taxes and maintenance. The expenses deductible against rental income are more generous than the deductions for the homeowner
all other forms of interest.

The law governing rental property expenses is based on the same laws applied to business expenses for any business. They are not taxed on their Gross Revenue. They are taxed on the difference between their gross revenue and their expenses. Expenses include their lease, employee salaries, wages, materials, insurance, local taxes, etc.

So, rental property is taxed like a business. Why ? Well, because it is a business.

It is highly unlikely (impossible) that we would alter the tax code to tax businesses on other than net profits.

[(former)FormerSanDiegan]

Part 2 – Rental property tax laws

Next, let’s consider Rental property. Rental property is handled on Schedule E. Mortgage interest on rental property is not an itemized deduction of the interest. It is considered a business expense under schedule E, as are the insurance, property taxes and maintenance. The expenses deductible against rental income are more generous than the deductions for the homeowner
all other forms of interest.

The law governing rental property expenses is based on the same laws applied to business expenses for any business. They are not taxed on their Gross Revenue. They are taxed on the difference between their gross revenue and their expenses. Expenses include their lease, employee salaries, wages, materials, insurance, local taxes, etc.

So, rental property is taxed like a business. Why ? Well, because it is a business.

It is highly unlikely (impossible) that we would alter the tax code to tax businesses on other than net profits.

[(former)FormerSanDiegan]

Part 2 – Rental property tax laws

Next, let’s consider Rental property. Rental property is handled on Schedule E. Mortgage interest on rental property is not an itemized deduction of the interest. It is considered a business expense under schedule E, as are the insurance, property taxes and maintenance. The expenses deductible against rental income are more generous than the deductions for the homeowner
all other forms of interest.

The law governing rental property expenses is based on the same laws applied to business expenses for any business. They are not taxed on their Gross Revenue. They are taxed on the difference between their gross revenue and their expenses. Expenses include their lease, employee salaries, wages, materials, insurance, local taxes, etc.

So, rental property is taxed like a business. Why ? Well, because it is a business.

It is highly unlikely (impossible) that we would alter the tax code to tax businesses on other than net profits.

[(former)FormerSanDiegan]

[quote=patientrenter]FormerSanDiegan, if removing housing subsidies would likely reallocate capital to more productive activities (and I agree), then why shouldn’t we target getting that completed, and get a schedule with an end date, and make sure that each step we take is in the direction of the ultimate target, and not some other direction? That is a rational response.
[/quote]

Excellent points. It is a concept worth considering. In order to map out how to get to point B we should consider how we got to point A in the first place, and how it operates under current law.

Part 1 – How we got here

Under Reagan in ~1986 many tax loopholes were closed (in conjunction with lowering tax rates across the board). This included eliminating interest deductions for many forms of interest. Mortgage interest was allowed to remain deductible. Prior to this change ALL forms of interest were deductible against income,including credit card interest, auto payments, whatever. This interest deduction has been present in the US Tax code since at least 1913.

So, the Government did not explicitly place the mortgage interest deduction into the code as a subsidy to homeowners. No sure this matters but at least now we know the history.

So, we could take the Reagan idea one step further and eliminate mortgage interest deduction. Perhaps at the same time lowering overall rates, so that those who would have been subsidizing see their savings.

Seems reasonable, right ?

[(former)FormerSanDiegan]

[quote=patientrenter]FormerSanDiegan, if removing housing subsidies would likely reallocate capital to more productive activities (and I agree), then why shouldn’t we target getting that completed, and get a schedule with an end date, and make sure that each step we take is in the direction of the ultimate target, and not some other direction? That is a rational response.
[/quote]

Excellent points. It is a concept worth considering. In order to map out how to get to point B we should consider how we got to point A in the first place, and how it operates under current law.

Part 1 – How we got here

Under Reagan in ~1986 many tax loopholes were closed (in conjunction with lowering tax rates across the board). This included eliminating interest deductions for many forms of interest. Mortgage interest was allowed to remain deductible. Prior to this change ALL forms of interest were deductible against income,including credit card interest, auto payments, whatever. This interest deduction has been present in the US Tax code since at least 1913.

So, the Government did not explicitly place the mortgage interest deduction into the code as a subsidy to homeowners. No sure this matters but at least now we know the history.

So, we could take the Reagan idea one step further and eliminate mortgage interest deduction. Perhaps at the same time lowering overall rates, so that those who would have been subsidizing see their savings.

Seems reasonable, right ?

[(former)FormerSanDiegan]

[quote=patientrenter]FormerSanDiegan, if removing housing subsidies would likely reallocate capital to more productive activities (and I agree), then why shouldn’t we target getting that completed, and get a schedule with an end date, and make sure that each step we take is in the direction of the ultimate target, and not some other direction? That is a rational response.
[/quote]

Excellent points. It is a concept worth considering. In order to map out how to get to point B we should consider how we got to point A in the first place, and how it operates under current law.

Part 1 – How we got here

Under Reagan in ~1986 many tax loopholes were closed (in conjunction with lowering tax rates across the board). This included eliminating interest deductions for many forms of interest. Mortgage interest was allowed to remain deductible. Prior to this change ALL forms of interest were deductible against income,including credit card interest, auto payments, whatever. This interest deduction has been present in the US Tax code since at least 1913.

So, the Government did not explicitly place the mortgage interest deduction into the code as a subsidy to homeowners. No sure this matters but at least now we know the history.

So, we could take the Reagan idea one step further and eliminate mortgage interest deduction. Perhaps at the same time lowering overall rates, so that those who would have been subsidizing see their savings.

Seems reasonable, right ?

[Author]

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