patrick.net

How soon before they take the MID away and new home credit? This is basically the one reason I am still even going to consider buying this year before we just put our cash elsewhere.

Philistine says

How soon before they take the MID away and new home credit?

MID was designed as a tax relief measure over the high interest rates people were paying.
with total payments being 200% of principle. But with interest rates being so low.. it makes sense to suspend the tax relief since there is none to benefit from.

Yes, but you are throwing away a lot of money in interest payments to get that tax deduction.

zzyzzx says

Yes, but you are throwing away a lot of money in interest payments to get that tax deduction.

The rent for the type of pad we have would easily be double what we spent in interest last year, possibly more.

Philistine says

How soon before they take the MID away and new home credit? This is basically the one reason I am still even going to consider buying this year before we just put our cash elsewhere.

I believe new home credit in cali is already gone - the contact had to be signed with the builder by december 31 2010. As far as the MID and property tax deduction, I don't see that going away - it would be political suicide for any politician (rep or dem) to propose it - the opponent would make them seem like the anti-populist out of touch elitist. Their political career would be dead in its tracks.

dublin hillz says

As far as the MID and property tax deduction, I don't see that going away - it would be political suicide for any politician (rep or dem) to propose it - the opponent would make them seem like the anti-populist out of touch elitist. Their political career would be dead in its tracks.

the nation isnt like California enclaves of San Francisco and LA or even Manhatten/Boston...

there isnt any benefit from low interest MID... and frankly can be replaced with expanded standard deduction and credits.

the rest of the nation would be all for it...

SFace says

I would expect a major tax reform will be complete with 200-400 pages of analysis and a couple years of study lead by a tax reform commission. All this seems intentional.

Already happened... and findings were ignored.

Bowles was appointed in 2010 to co-chair President Barack Obama's National Commission on Fiscal Responsibility and Reform with Alan K. Simpson. The commission deadlocked, and the co-chairs' report on a policy for budget deficit reduction was not adopted by the Obama administration. Surprised by the rejection, Bowles later stated he believed that Obama decided to abandon the report and let [incoming House Budget Chairman] Paul Ryan go first, and then he would look like the sensible guy in the game, based on advice from his political advisers and over the objections of his economic team.

Dublin,

A couple of questions about those numbers. I presume you are itemizing your deduction and you will be adding on your state income taxes to that.

Xitemized = State_income_taxes + interest_paid + 5800 (this probably covers most of your itemized deduction).

Xstandard = 11900 (married filing jointly)

How much is Xitemized - Xstandard in your case? That's the additional savings you get for federal taxes. You are probably still saving money owning rather than renting.

cheers,
batman123

batman123 says

Dublin,

A couple of questions about those numbers. I presume you are itemizing your deduction and you will be adding on your state income taxes to that.

Xitemized = State_income_taxes + interest_paid + 5800 (this probably covers most of your itemized deduction).

Xstandard = 11900 (married filing jointly)

How much is Xitemized - Xstandard in your case? That's the additional savings you get for federal taxes. You are probably still saving money owning rather than renting.

cheers,

batman123

The differential between itemized and standard on the fed about 19K.

SFace says

robertoaribas says

It is a very stupid tax policy, and most of its benefit goes to people who A. already have lots of money, and B. likely would buy anyways...

and C. it goes back to the people who pays a lot of current tax.

We'll see how major tax reform goes. There's no direction/leadership in the senate and Obama and House are far apart (as different as it gets). There's no detail study if it was on the serious path like 1986. I would expect a major tax reform will be complete with 200-400 pages of analysis and a couple years of study lead by a tax reform commission. All this seems intentional.

Basically, major tax reform is impossible in the near future as there is nothing concrete to ponder and the political situation impossible as there is no one to lead the effort, notwithstanding it is basically dead on arrival.

All senators are millionaires, presumably owning a $million+ house, so why rush…

SFace says

Imagine if you are a CEO and you get something like Simpson Bowles proposal that would dramatically change the direction of the enterprise (but in a strategy context), WTF, there's a lot of nothing.

Have you actually read it? There are a lot of specifics in the proposal and most of them are really good.

dublin hillz says

The rent for the type of pad we have would easily be double what we spent in interest last year, possibly more.

Congrats Dublin. As discussed here many times, the tax savings typically covers your property tax and home insurance. Sometimes you don't see the full picture until you get into the game. :)

Philistine says

How soon before they take the MID away and new home credit?

No one knows for sure, but the odds are low. Same as the risk of us getting hit by an 18 wheelers, but that doesn't stop us from driving everyday. It's all about risk and reward. If you missed this cycle, there's a high probability that you'd have to wait 6-12 years to catch the next bottom of the housing cycle. Only if the choice was either black or white.

Good luck hunting. :)

E-man says

Congrats Dublin. As discussed here many times, the tax savings typically covers your property tax and home insurance. Sometimes you don't see the full picture until you get into the game. :)

I think the point is that this isn't a typical scenario. Most people -- most homeowners -- don't generate enough interest payments and state income tax / property tax to eclipse the standard deduction...or at least not by much.

It helps the well to do much more than the median folks.

It's going to help me some, but I'm not going to be able to deduct all of the interest (not even close)...with a relatively low state income tax (Colorado=4.6% ?), and property tax in the $2k range it would take an income > $200k before all of the interest were tax deductible. Most people don't make that much.

Maybe I'm missing something, but every time I run the numbers I see that I'm going to benefit some, but nothing like the "you can deduct the interest" line that gets thrown around...Of course California is different....incomes, taxes and all.

You are writing off what you gave to someone else, if you give bank $5 in interest, and than claim a deduction for it you aren't really saving anything.

How is this savings? Its that banksters promoting massive debt by having the taxpayer subsidize being in debt while the taxpayer has to recapitalize too big to fail banks even though the banks passed the loans off to the government.

Allowing a tax advantage to debtors is like writing a check to those in the loan business.

FortWayne says

You are writing off what you gave to someone else, if you give bank $5 in interest, and than claim a deduction for it you aren't really saving anything.

How much do you get to claim in deduction when you give the rent to your landlord? A part of something is better than a part of nothing.

Mick Russom says

How is this savings? Its that banksters promoting massive debt by having the taxpayer subsidize being in debt while the taxpayer has to recapitalize too big to fail banks even though the banks passed the loans off to the government.

Allowing a tax advantage to debtors is like writing a check to those in the loan business.

Mick,

You lost all credibility with me. You came on here whine and bitch last year. I offered to help because I thought you were in need for real. Turned out it was all a lie. What you say now doesn't hold water with me anymore. Good luck with your life.

E-man says

FortWayne says

You are writing off what you gave to someone else, if you give bank $5 in interest, and than claim a deduction for it you aren't really saving anything.

How much do you get to claim in deduction when you give the rent to your landlord? A part of something is better than a part of nothing.

Nonsense. MID raises house prices across the board, because people expect to "save" are willing to pay higher prices. Were there similar deduction for rents, the rents would go up as well.

Mick is spot on.

@swebb,

Points well taken. We're a credit based country, and the tax code encourages us to take on debt especially mortgage and business debt. It seems like the more debt we can take on, the more advantageous in terms of tax break.

unclemat says

MID raises house prices across the board, because people expect to "save" are willing to pay higher prices. Were there similar deduction for rents, the rents would go up as well.

Really? Did it raise house prices in fly over states? I'd love to see deduction for rents too if rents would go up. :)

E-man says

unclemat says

MID raises house prices across the board, because people expect to "save" are willing to pay higher prices. Were there similar deduction for rents, the rents would go up as well.

Really? Did it raise house prices in fly over states? I'd love to see deduction for rents too if rents would go up. :)

Really. It's economics 101, which makes it hard to grasp. Of course, the effects are not seen everywhere and in every income / price bracket. As it was pointed out in this thread, standard deduction reduces or even eliminates "benefits" of MID.

Landlords as is have enough advantages in the current tax code (depreciation).

unclemat says

Landlords as is have enough advantages in the current tax code (depreciation).

You're still missing a lot. I guess you haven't seen how a Schedule E looks like. Also, you understand that depreciation must be recaptured, right? Do you know how people can you get away without ever recapture the depreciation? Do you know how to get the equity from your investment properties without ever paying a nickel in taxes? Talking about our Congressmen and Senators putting those loopholes in the tax code to their advantage. They are there to serve themselves, not the people. It's time to wake up and play their game or be left behind.

Sadly, it is the attitude they want - playing along. The right attitude is to vote them all out.

dublin hillz says

This again points out that for buy vs rent, it is very important to compare apples to apples and adjust the amount for tax considerations.

Agreed, but for many, many people the standard deduction is still the better deal -- the ownership route doesn't generate enough deductions in many (most?) cases. When it does, it can really tip the balance, but so often it doesn't and so often (it seems) misinformed people base their buying decision (rationalize) at least in part on the major tax benefits...that they won't see.

The other part that you have to take into account is maintenance and repairs. You can probably get a good estimate for these costs over long periods of time, or in aggregate over a lot of houses...but there is a real possibility of a major expense popping up fairly early into the ownership period...I know someone who is going to get hit with a $25,000 foundation repair bill 3 years into owning the house...

donjumpsuit says

Now if I can just overpay someone for a house by $100-150k because rates are so low, I can get at this middling deduction.

Sorry, that's kinda snarky.

However, one note about the taxes I just did.

I pay so much in California state tax (~$7100) that it qualifies as an itemized deduction that is greater than the standard deduction.

So in other words, I live in a state and region where, not only is the median home price around $650k, but that the amount paid in state taxes is higher than the Federal standard deduction.

Seems sustainable.

On the bright side since your cali taxes are so high that means that you would be able to fully deduct your interest and property tax without having any of the 2 be washed out by standard deduction if your filing status is single.