patrick.net

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.

bob2356 says

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.

A colleague at work rents to family for cash.

I hope this happens as it will quickly drive down home prices back to reality!

The mortage deduction is not going anywhere people. If they can't get rid of private jet deductions, how are they going to get rid of the mortage deduction?

HousingWatcher says

The mortage deduction is not going anywhere people. If they can't get rid of private jet deductions, how are they going to get rid of the mortage deduction?

Originally, it was not just mortgage interest that you could deduct from your income tax, it was all interest.

I think it was the late 80's when that was phased out as that was the same time they got rid of income averaging which I was eager to take advantage of just having graduated from college and gotten my first real job.

MID does not benefit the large number of senior citizens that own their houses out right. I can see it being phased in over a 3-4 year period to rope in those seniors close to retirement age.

Lets throw it in, along with the elimination of the BUSH BS tax cuts, to reduce deficits, instead of the pure spending cuts path we are currently on

Remove it by itself. It's an inflationary mechanism anyway.

However, the pure spending cuts are exactly what is needed. Government spending has doubled in 10 years. The Debt has increased 140% in 10 years. How can you honestly sit here and rip the MID because it creates debt when government spending does exactly the same thing?

If MID is eliminated it will be because the government wants more of the people's capital. It won't be eliminated because it's an inflationary catalyst that serves the capitalization of the banking sector.

robertoaribas says

I'd love to see the MID die.
1. it encourages debt.
2. MOST people who think they are going to get it, get no benefit or a very small benefit from it.
3. Agents lie about it.

If I may add to that....

4. It benefits only the banks who collect the interest, and the agents who use it as a sales pitch
5. It's a huge drain on our tax revenue
6. It's unfair to those who pay rent, own outright, and aren't leveraged to the hilt
7. It's a form of social engineering. The narrative of "home ownership is good for America" has increasingly pounded into the public's and Congress' heads.

Disregarding the reality (such as) the economic, social, and non-MID-county ownership rates, the MID has become almost as much of an entitlement as Social Security. People actually believe they deserve it. Many claim they cannot live without it. THAT is why it needs to go. It's an impetus for over-consumption in the housing market, which drives up costs and makes the benefit a net-zero for those who "earn" their MID.

wtfcapinv says

If MID is eliminated it will be because the government wants more of the people's capital. It won't be eliminated because it's an inflationary catalyst that serves the capitalization of the banking sector.

I don't care what their official reason is; they could claim it needs to end because we're building a ladder to the moon, fine by me.

vain says

Let's axe ALL deductions.

I agree. And ax the tax credits as well.

The trouble with axing tax credits is there are many that give to organizations because of that.

Non profits usually pick up with services that the government does not offer and that the private industry will not serve. If they get cut further it might dump the services.

mdovell says

The trouble with axing tax credits is there are many that give to organizations because of that.

I've thought about this quite a bit and I know this will sound cold, but there's no reason that our govt should be bribing people to make charitable donations. That should be done out of sincere charity, not a tax loop game. I see this as yet another way to use our tax code to socially engineer the masses, and to make ourselves feel more generous as a nation than we really are. Just like home ownership should merit the decision to buy rather than a bribe, so too should the merits of a particular charity be enough for one to donate. Also, since not all charities are equal, this allows people to funnel their money through some less-than-honorable charitable accounts for self-serving purposes. That ends up costing us tax revenue as a whole, which those who don't get the deductions end up paying for. Further, on this point, why should my tax dollars indirectly go to a church or mosque that I disagree with? Why should someone get a tax break for donating to the Westboro Baptist Church?

In principle, charitable donations should not be made tax-deductible.

I disagree. New buyers would get a lower price on a house if there were no MID. So California income tax payers who buy a new house would win by paying a lower price. There would simply be less debt out there to push up prices.

But yes, for current California owners, they would no longer get that deduction, yet would not benefit from the lower price like new buyers would. So they would lose -- except of course they could save even more by upgrading to a bigger house at the new, lower prices. The savings on their new house might be larger than the loss on their current house.

the MID doesn't factor in when qualifying for a mortgage. so I doubt removing it would effect housing prices that much.

toothfairy says

the MID doesn't factor in when qualifying for a mortgage. so I doubt removing it would effect housing prices that much.

Its impact is indirectly modeled in the risk factors. Removing the MID would cause more defaults, which would in turn increase the lending standards or DTI ratios. Not that this is a bad thing, but it will make a difference.

SJ says

I hope this happens as it will quickly drive down home prices back to reality!

I hope so. I would also expect them to grandfather in anyone who already has a mortgage though.

huh? why would that be? because they've been given this benefit and they're not entitled to it?

I hope so. I would also expect them to grandfather in anyone who already has a mortgage though.

zzyzzx says

I would also expect them to grandfather in anyone who already has a mortgage though.

That actually doesn't make a lot of sense and just creates more distortions and preferences in the tax code.

What is more likely is a phaseout of sorts. This was done in reverse for the itemized deduction phaseout that we used to have.

ih8alameda2 says

huh? why would that be? because they've been given this benefit and they're not entitled to it?

Well, because most people calculate their TAX deduction for their home when deciding how much home they can afford. Especially in the $400K-600K range for earners in the $100-200K income range.

Scrapping that deduction would mean these people... (not rich by any stretch.. just middle class in big cities). Will be told they won't get $5K-10K in cash come tax time that they probably planned for...

How do you think that will effect the economy? Huge crash in home prices another 20% atleast, more unemployment, more foreclosures... all around a guarantee of a deep, deep depression unlike anytime in history....

One that we might not recover from in our lifetimes.

Los Angeles Renter says

ih8alameda2 says

huh? why would that be? because they've been given this benefit and they're not entitled to it?

Well, because most people calculate their TAX deduction for their home when deciding how much home they can afford. Especially in the $400K-600K range for earners in the $100-200K income range.

Scrapping that deduction would mean these people... (not rich by any stretch.. just middle class in big cities). Will be told they won't get $5K-10K in cash come tax time that they probably planned for...

How do you think that will effect the economy? Huge crash in home prices another 20% atleast, more unemployment, more foreclosures... all around a guarantee of a deep, deep depression unlike anytime in history....

One that we might not recover from in our lifetimes.

So end of the world if the mortgage interest deduction is eliminated?

Michael D says

So end of the world if the mortgage interest deduction is eliminated?

That's what NAr want us to believe, yes.

If the MID ended tomorrow, lots of homeowners would be fucked. While I don't feel sorry for them since it's DUMB to base your finances on an unjustifiable bribe, I am pretty sure they would be grandfathered in. If not, maybe they actually can make ends meet; get rid of that fucking benz or don't go on vacation.

LA renter is wrong though. The MID vastly helps the UPPER class, that's where the "lost" revenue is disproportionally going.

klarek says

DUMB to base your finances on an unjustifiable bribe,

or the value of a simple home.

C Boy says

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.

A colleague at work rents to family for cash.

I paid my landlord in cash every month for six years. To pay him by bank transfer would have incurred bank transfer fees every month; why waste $2 a month when I can go downstairs and hand him the money?

Tangential question (and off topic, MID-wise): let's say you own your first home and need a bigger one (you have kids, say), so you rent something while renting out your home to someone else. If the person renting your home deposits money directly to your new landlord, does that count as taxable income for you in your state?

What if you buy a second home with a mortgage and have the renter of your first home make the mortgage payments on your second one?

How about if you paid the utilities for the person renting your home (so the bills are still in your name)? Do you still "live" at your first home in that case?