patrick.net

YesYNot says

I am talking about somewhat expensive metro areas, where most of the Patnet readers live. I'm not talking about only new homes. My house is over 30 yrs old, but I still save by deducting mortgage interest and state taxes. You are talking about percentages of homeowners, which is completely irrelevant. Most people (70% or so) buy their first new house at some point in their lives. During the first 5 yrs or so, they save a lot on their taxes, and this increases the price of that first home, because they talk with bankers/mortgage people, and because the amount they are allowed to borrow is impacted by default rates, which depend on total monthly cost after taxes.
I don't mind getting rid of the MID, but it should be phased in, because it will otherwise arbitrarily damage people who recently made decisions based on the previous structure.

Where are your numbers? Percentages are the only thing that is relevant. You say percentages are completely irrelevant. You say not only new houses. But throw in 70% of people buy new houses at some point. WTF? You can't have it both ways. They save a lot on taxes? Who is they? How many? How much? For how long? What is their income? How much more expensive house could "they" afford over the lifetime of the loan?

Why is it only people in expensive metro area's count? The rest of the country is expected to subsidize you because you choose to live in one of the expensive metro areas that represents a small portion of homeowners? Screw that. I'm a rural area, why should I help pay for your 10 times more expensive house? Plus all the people writing off vacation homes. How does that work?

Where is your analysis of how all this will reduce rents, your original point? Other than it's true because I believe it should be true.

bob2356 says

Only 30% of taxpayers itemize now. Only 20% of homeowners take the MID and 80% of those have incomes over 100k. The amount of additional purchasing power of the MID at the 150k income level is 1.5%. The changes to house values from eliminating the MID will be negligible. The people truly benefiting from the MID either don't need it anyway or are in over their heads with creative financing.

Bob's right here. The MID is really not that important in 90% of all cases. Unless you're in the 39.5% tax bracket ($470k plus income) or near it AND itemizing substantially over the standard deduction, there isn't all that much savings for the average American. I'd guess most here are in the 25-28% tax bracket income wise. Let's say you saved up the down payment for a $1M house, $800K loan with 80% LTV. You're paying approximately $32,000/yr in interest with a 4% interest rate. I'd venture to guess less then 5% of people can even do this, probably less.

These are just completely basic numbers for married filing jointly and feel free to catch me making an error. I don't claim to be right 100% of the time. And I know there are other things to itemize, this is just strictly a look at the MID. Standard deduction (now) $12,600. So take your $32k in interest on the $1M home and subtract out what you would have gotten regardless. So you're at $19,400 over the standard deduction (current standard deduction). The rosy picture has you saving $5,432/yr because of that interest deduction on those last dollars earned in the 28% tax bracket. Take the same situation for the $470k earner in the 39.5% bracket. They saved $7,633/yr in taxes.

While those savings are real, they very likely have very little impact on what a potential homeowner is going to buy or pay for a house, especially at that price point. So I just don't see the argument for it impacting home prices. So now let's bring it down to the more realistic level. These 25-28% tax bracket people are much more likely getting the $500k house ($400k loan). Halve the interest to $16k/yr. You're not only $3,200 over the standard deduction. You're now saving $896/yr with itemizing due to the MID. And we're still talking about a fringe case here. Not that many people are buying $500k houses. In fact substantially less then 50% of the population if you go off median national home prices.

MID a tool for the wealthy or extreme high COL areas. A doubling of the standard deduction is essentially pretty close to ending the MID anyway for I'm guessing 70% of people that currently use it. This is why I'm not a fan of this tax plan. While most people won't notice a difference in $5,432/yr savings vs. $896/yr at this income level. It's essentially a tax increase, from my understanding of what I'm hearing and based on these numbers (could be wrong), on middle to upper middle class people. These are the people that most likely have small businesses or could potentially start one. This is the group that is most likely to create jobs in my opinion (good to better jobs, not an Amazon order packer). While this isn't a massive hurdle for them to clear, it definitely doesn't help.

And yes, I do realize that some people barely itemize now, so this tax plan is probably a benefit to them a little bit with the standard deduction potentially doubling. Overall though, I personally won't benefit from this tax plan. And I'm in the category most likely to vote republican based on income and location. So 2018 could get interesting. If the tax plan passes and is retroactive, there should be some data before the election. If it's bad, good luck republicans. I personally don't like this proposal. Workers/families making $100k-$250k are the one's that spend money, develop new ideas and businesses. This tax plan will hurt them in my opinion, even if it's just minimal. If I had all the answers though, I wouldn't be making comments here. So I could be an idiot.