patrick.net

Good, they should axe it. Way overdue.

Fine with me. People should not depend on the MID for a way to offset the PITI payment. It does kind of offset the home maintenace costs.

That is of course until your mortgage balance gets so small that the interest portion can't come close to beating the standard federal deduction. This happens about the same time home maintenace costs get higher.

I think the MID will go away, but it will be phased out over time.

If they eliminate it completely they will treat renters and owners equally. :)

Interesting that's it's getting traction. It's been surfaced before but this sounds more real. I think it's a reasonable idea to make it a tax credit limited to primary residences and capped at $500,000 in mortgage debt.

"A presidential budget commission last year proposed turning the deduction into a 12 percent tax credit for buyers. The plan, which languished after being presented to Congress in December, would have capped the credit at $500,000 in mortgage debt and limited it to primary residences."

However, I'd say here in the goofy SF bay area, people are stretched so far to "own" a house, this will put many under / out of the market. Or they'll just stretch their rationalization for over-paying a bit further ...

Payoff2011 says

until your mortgage balance gets so small that the interest portion can't come close to beating the standard federal deduction

I bet most owners don't realize that and keep playing the "payment is fixed for 30 years" game. Who wants to rent for life? All I am saying is don't buy when prices are heading down. Oh well, for some people math is very fuzzy.

bubblesitter says

All I am saying is don't buy when prices are heading down

The problem is that most people don't have ESP and can't tell for sure where prices are heading. For example, prices are actually rising now in most places...

bubblesitter says

I bet most owners don't realize that and keep playing the "payment is fixed for 30 years" game.

A lot of them don't, you are correct. I have heard of people who have a single digit percent LTV telling me about the awesome "tax benefits" of buying a house. It functions largely as a discount on the interest rate.

It would be good policy to eliminate or reduce it. It is largely regressive, and its application is somewhat nonsensical when it applies to something other than a primary residence. The amount of the limit is also far too high, and dropping it to $500K would be far more reasonable than what we have now.

It also props up housing prices by lowering financing costs, which is mostly good for used house salesmen and banksters, but crappy for everyone else.

Do we have to go through this again? No, the mortage interest deduction is NOT going anywhere. That would be considered a tax increase and would violate His Majesty Grover Norquist's tax pledge.

It's a net zero for buyers.

If the deduction goes away, prices will fall simply because buyers can't afford to borrow as much without the deduction.

The losers would be current owners, who will lose equity, and banks, who will lose on mortgage debt volume (interest).

Buyers would get lower prices, but would also lose exactly the proportional amount of tax "benefit". It never really was a benefit for buyers. It was a giveaway to existing owners at the time it was created, and to banks all the time, at public expense.

if the US did away with the mortgage deduction, California probably would, too. But since it would make prices fall, the assessments would also go down. So maybe a wash in the tax bill, but more money for Sac, less for local.

tatupu70 says

For example, prices are actually rising now in most places...

Oh yea! rising alright...

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

Alameda $351,000 -12.30%
Contra Costa $268,000 -5.50%
Marin $650,000 -6.90%
Napa $310,000 -15.60%
Santa Clara $511,250 -3.10%
San Francisco $665,000 0.20%
San Mateo $580,000 -3.30%
Solano $177,500 -15.50%
Sonoma $299,000 -7.10%
Bay Area $377,750 -7.90%

bubblesitter says

If they eliminate it completely they will treat renters and owners equally. :)

There should be a retro-active tax credit for people who rented in the past 40 years, with interest. Then it would be fair to renters.

Buyers would get lower prices, but would also lose exactly the proportional amount of tax "benefit".

Yes, but at least we wouldn't pay real estate taxes on the "benefit" of deducting mortgage interest. When the house prices go down, so do the taxes.

Dan8267 says

There should be a retro-active tax credit for people who rented in the past 40 years, with interest. Then it would be fair to renters.

There are plenty of landlords out there who rented out property and never reported their rental incomes to the IRS. You can certainly give renters a minor deduction like say 100-500/year and report the 'rental payments' plus landlords tax ID to claim the deduction. The IRS can cross refence to see if the income was reported. If we had this it would boost tax collections by 100s of Millions if not Billions.

thomas.wong1986 says

Dan8267 says

There should be a retro-active tax credit for people who rented in the past 40 years, with interest. Then it would be fair to renters.

There are plenty of landlords out there who rented out property and never reported their rental incomes to the IRS. You can certainly give renters a minor deduction like say 100-500/year and report the 'rental payments' plus landlords tax ID to claim the deduction. The IRS can cross refence to see if the income was reported. If we had this it would boost tax collections by 100s of Millions if not Billions.

That's exactly what's done in Canada, Ontario namely.
A token "renter's tax deduction" is employed to compile the record of all rentals.

thomas.wong1986 says

Dan8267 says

There should be a retro-active tax credit for people who rented in the past 40 years, with interest. Then it would be fair to renters.

There are plenty of landlords out there who rented out property and never reported their rental incomes to the IRS. You can certainly give renters a minor deduction like say 100-500/year and report the 'rental payments' plus landlords tax ID to claim the deduction. The IRS can cross refence to see if the income was reported. If we had this it would boost tax collections by 100s of Millions if not Billions.

I'm quite certain thats very correct. I highly doubt most landlords, much like a tipped wage person, report all of their income for tax purposes.

thomas.wong1986 says

tatupu70 says

For example, prices are actually rising now in most places...

Oh yea! rising alright...

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

Alameda $351,000 -12.30%
Contra Costa $268,000 -5.50%
Marin $650,000 -6.90%
Napa $310,000 -15.60%
Santa Clara $511,250 -3.10%
San Francisco $665,000 0.20%
San Mateo $580,000 -3.30%
Solano $177,500 -15.50%
Sonoma $299,000 -7.10%
Bay Area $377,750 -7.90%

Do we have to go over this again?

#1--despite your BA centric thinking, "most places" usually encompasses more than 1 metro area.

#2--YOY numbers are good, but they don't tell what prices are currently doing.

Let's axe ALL deductions.

vain says

Let's axe ALL deductions.

Agreed. It might sound cold-hearted, but even donations to charity should not be a deduction. There's nothing worth doing or charitable if the govt is bribing you to do it. That's just a way for us to lie to ourselves and the world about how generous we really are.

That's a good one! My taxes are higher today than they were at the peak of the market.

It isn't so much of fairness but rather does it make sense to basically subsidize housing when we have millions of units that are sitting empty.

It might have been something interesting if we had some massive backlog of homes to be made but obviously that is not happening.

It's a net zero for buyers.

If the deduction goes away, prices will fall simply because buyers can't afford to borrow as much without the deduction.

The losers would be current owners, who will lose equity, and banks, who will lose on mortgage debt volume (interest).

Buyers would get lower prices, but would also lose exactly the proportional amount of tax "benefit". It never really was a benefit for buyers. It was a giveaway to existing owners at the time it was created, and to banks all the time, at public expense.

And realtors, who will collect less of a commission on lower priced houses.

dodgerfanjohn says

I'm quite certain thats very correct. I highly doubt most landlords, much like a tipped wage person, report all of their income for tax purposes.

I don't know how it is in the BA but no landlords I know get paid in cash. I don't. My tenants pay with checks or electronic deposit. I don't have the balls to run all those transactions through a bank account then not declare them. I certainly don't have time to run around and cash the checks at the tenants banks. Even if I did that my companies name would still be on the checks and recorded at the bank. Maybe the landlords you know have more chutzpah than I do. Have you actually ever actually run a business yourself? If you did then you should know how the day to day nuts and bolts of business operations work.

I hope they get rid of the deduction.

No, the MID won't be chopped for the average Joe and Joanne. It may get chopped for very expensive, million dollar plus homes. Also, as it is now boat interest can be deductible if you say you live on it, that may go away and also the second home deduction may disappear. I have several friends with large vessels that deduct the interest because they sleep in it when they are docked in or around the bay and harbour. But as a general rule the MID for the average Joe isn't going away because it's been with us for many decades, NAR is very powerful and homeowners would flood the inboxes and phones of their elected officials at the Capitol. Unless you have million dollar plus mortgage you're not going to see any change. I read an article by Mr. Lowenstein in the NY Times about five years ago. It is a very good and extensive article regarding this MID. http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=1

dodgerfanjohn says

I'm quite certain thats very correct. I highly doubt most landlords, much like a tipped wage person, report all of their income for tax purposes.

Not to mention all the people who rent out rooms in their home they occupy... all TAXABLE INCOME.. but I highly doubt ever reported as Income to the IRS... There are actual better controls on reporting tipped wages than rents.

lurking says

No, the MID won't be chopped for the average Joe and Joanne. It may get chopped for very expensive, million dollar plus homes.

The "Fortress" walls of PA, like Troy, are about to get knocked down.

Fisk says

That's exactly what's done in Canada, Ontario namely.
A token "renter's tax deduction" is employed to compile the record of all rentals.

California does this too, although in the form of a non-refundable credit. I think it's $60 for single/MFS and $120 for MFJ/HoH. It does phase out if you make about $70K or more, so it doesn't quite compile a full record.

bob2356 says

I don't know how it is in the BA but no landlords I know get paid in cash. I don't.

I definitely know some. One refers to it as "my illegal [ethnicity] house." Honestly, I wouldn't be surprised if that person fails to report, whether cash or not.

By the way, any renter who pays cash and doesn't ask for a receipt is stupid -- you don't have canceled checks to back you up if the landlord ever claims you didn't pay rent. As a landlord, going there in person to collect cash rent also gives you a quick look at the property.

vain says

Let's axe ALL deductions.

Agree, I don't think the government should use taxes as a means to encourage or discourage certain economic sectors, behaviors, etc"

They wont get rid of the deduction for existing owners.... That would just cause more defaults... But new buyers wouldnt get the benefit of the tax deduction... Which would make anyone selling their home now be screwed... It would probably cause a big stalemate in housing.... Only people who would sell would be retirees and full equity sellers who could afford to take the haircut. The rest would stay put for a long time or squat to make up the difference.

they should, but i dont know if they will. the costs are socialized to the society, but profits are privatized by NAR and the likes. I would think NAR would lobby and fight tooth and nail to keep this hand out going.

are they talking about immediately eliminating it entirely, or immediately limiting it, or some 'schedule' of phasing it out? I'm just trying to figure-out how quickly it would impact home sale-prices.

bsmith says

are they talking about immediately eliminating it entirely, or immediately limiting it, or some 'schedule' of phasing it out? I'm just trying to figure-out how quickly it would impact home sale-prices.

Neither. The deduction is not going anywhere.

It could just be limited to some reasonable amount, like the national median house price of $250K.

There is zero public benefit to subsidizing larger debts than that anyway. It's a pure transfer of wealth from the poor to the rich.

It's especially galling that people in the Midwest are currently forced to subsidize huge debts in California.

And if you believe that increasing ownership will improve neighborhoods, you want to target bad neighborhoods, where the houses are cheap. Good neighborhoods don't need any help. They never did.

The national median price is irrelevant. Go find me a median priced house in the Bay Area or NYC.

Exactly! The median price around here is insane.

So why are we making poor people elsewhere subsidize large debts around here?

If we stopped that, then prices around here would be lower, and you'd get to buy a house cheaper. You would benefit hugely from that lower price.

And all those poor people would not see their tax dollars flowing to pay for debt for the rich, which just benefits banks anyway.

The only problem with a price cap though is what you buy in some areas you cannot get in others.

$150k can get a decent place in Phoenix...it can't in Boston.

It runs contradictory to public housing to subsidize higher ended homes..

mdovell says

The only problem with a price cap though is what you buy in some areas you cannot get in others.

Not a problem!

High-end areas should not get subsidies. At all. Ever.

Ending subsidies will help make those high-end area more affordable, via lower prices.

Not a problem!

High-end areas should not get subsidies. At all. Ever.

Ending subsidies will help make those high-end area more affordable, via lower prices.

I much agree with that. When people buy something of luxury, subsidizing the price is the wrong thing to do. It's an appendage of status, high price ticket is the whole point of it being luxury. Poor shouldn't be forced to pay for some snob to live in some place he thinks is luxury.

And upsetting is that the banking/NAR cartell wins if this stays around. This artifically makes housing expensive, so now most people spend most of their income into unproductive housing market. At the end of that they have no money left to spend on real productive ventures. So small businesses now suffer because their potential clients have nothing left at the end of the month to spend on. Very upsetting one sided social engineering. I wonder if it will end before or after we are all poor, broke and are on government hand out because only the too big to fail are allowed to make it and be bailed out.

EncinoMan says

At the end of that they have no money left to spend on real productive ventures. So small businesses now suffer because their potential clients have nothing left at the end of the month to spend on. Very upsetting one sided social engineering.

The former Cali Gov, Gray "Red" Davis, pointed out a few years ago that neither Hollywood nor Silicon Valley are the biggest industries in CA. It was the Real Estate industry that topped
number 1. And he was all for keeping REI afloat.