patrick.net

Michinaga says

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?

Great for you, but very few people live on the same property as the landlord. You need a different bank if they are charging for bill pay. So if your landlord moves to Lake Tahoe your plan is what?

Michinaga says

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?

These are all questions between you, your lawyer, your accountant, and the IRS. Since these are all things that are deceptive, at least on the face of it, then what the IRS decides your intent was will determine what happens if you are caught. If the IRS decides a transaction exists only to avoid taxes they will come down hard. Sometimes very hard if you really piss them off, like criminal charges hard.

Los Angeles Renter says

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...

1) Your argument is that people can't adjust their allowances on their W-4 properly to compensate? That is a very weak argument. If people are regularly (i.e. year after year) getting $5-10K in tax refunds, they should learn how to fill out the W-4 properly. I wouldn't trust them to have calculated the tax benefits of home ownership correctly if they can't get their W-4 right, so this undercuts your argument.

2) Why must a tax preference be permanent? Any tax deduction or credit can change over time. That argument is not sympathetic and can be accounted for by a phaseout.

3) The range you gave isn't always accurate. If you make $100K as married filing jointly, we are probably talking about the 25% bracket (unless you have huge items that put your AGI below 70K or so bumping you into 15%). If you make $200K, then you are talking about the 28% bracket.

If you live in Texas (no state income tax), then your net benefit (which is an interest rate deduction, effectively) is only $2250 at $100K with a $400K house (assuming the loan is interest only!) because 11K of that would be covered by a standard deduction anyway, and similarly it would be $5320 for $200K/$600K.

If you live in California (9.55% marginal bracket), then it might be in the range you're saying, since you might be paying a larger amount in state taxes, although the range would be $7,510-$11,265 for federal and state taxes, again assuming an interest only loan.

However, if the loan is not interest only and instead amortizing (as most loans do), then the amount of the benefit decreases over time. Someone who is 15 years in isn't getting the benefit you're suggesting since they aren't paying as much interest as you're saying.

For what klarek said: let's say $800K house and 33% bracket and in California, which would give more than $17K on an interest only basis. Removing the deduction would disproportionately affect higher income people, which is probably a good thing, since they may own more expensive houses.

The middle class in big cities is sort of a red herring. The median income in the city of San Francisco is still around $70K. If you make $200K, you are still exceedingly well off.

Texans are allowed to deduct the State sales tax paid for the year from their Federal taxes(whether or not you own or rent). You may either use a standard amount or if you bought a large ticket item (car) actual amount paid.

I think the mortgage deduction will stay because

1. It lets banks write bigger loans for higher origination fees and servicing charges to consumers who base maximum home purchase price on what it does to their cash flow.

2. The National Association of Realtors members can sell more homes (to buyers with an emotional attachment to the tax deduction they don't get as renters) and more expensive homes with bigger expensive commissions with the deduction in place. As of 2005 their PAC was the largest in the country and #3 donor to political campaigns.

Being nice to current mortgagees and bad for future buyers is just a side effect of funneling money which would be paid as taxes into the banking and real-estate industries and getting agents' a bigger share of the housing buy.

C Boy says

Texans are allowed to deduct the State sales tax paid for the year from their Federal taxes(whether or not you own or rent). You may either use a standard amount or if you bought a large ticket item (car) actual amount paid.

Sure, but that's not nearly as much unless you're a big consumer. If you're one of the people who buys a new car frequently enough that this makes a difference, then you can probably afford losing the deduction too. Even if you made $4000/month in consumer spending (which implies you earn quite a bit, since that would exclude rent and utilities, various services, and any number of other things that aren't subject to sales tax), with the highest possible sales tax of 8.25%, that only totals around $4000/year in sales tax to deduct. And Texas excludes groceries and medicine from sales tax, has sales tax holidays for clothes items under $100, and cars are taxed at 6.25% only (no local/county). It doesn't boost things into the stated range unless you are very well off.

drew_eckhardt says

Being nice to current mortgagees and bad for future buyers is just a side effect of funneling money which would be paid as taxes into the banking and real-estate industries and getting agents' a bigger share of the housing buy.

Yes, it's a handout largely to banksters and realtors. For everyone else, housing prices just rise to compensate. They have better lobbyists than us other folk.