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Old 09-17-2008, 06:28 PM
 
1,956 posts, read 4,677,050 times
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Quote:
Originally Posted by NJ987654 View Post
Home ownership and property rights are vital to the success and growth of a market economy.
These two are not even close to being the same thing. I agree that property rights are the absolute most fundamental thing for a market economy, but I wouldn't necessarily say the same thing about home ownership.
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Old 09-17-2008, 07:19 PM
 
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Quote:
These two are not even close to being the same thing. I agree that property rights are the absolute most fundamental thing for a market economy, but I wouldn't necessarily say the same thing about home ownership.
Good point. The other area of confusion is the assumption (based on some reactions here) that eliminating the mortgage interest deduction is equivalent to eliminating homeownership, and that people will become mere renters if this were to happen. That's a false dichotomy. There are other advantages to being a homeowner other than getting a tax deduction.

People buy houses in 2 ways: pay for the whole thing in cash, or get a mortgage. The mortgage interest deduction benefits those who have a mortgage; it certainly doesn't benefit those who own their homes outright. So the deduction incentivizes the taking on of debt. The larger the debt is, the greater the benefit to be derived. Instead of paying off the mortgage quickly, people are incentivized to hang on to it for as long as possible. People are encouraged to overinvest in/overborrow for homes (sound familiar?) and neglect to save for retirement. Is this correct policy?

Mortgage Deduction | Home Mortgage Interest Deduction
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Old 09-17-2008, 07:28 PM
 
Location: Columbia, SC
1,860 posts, read 4,337,732 times
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Quote:
Originally Posted by ndfmnlf View Post

People buy houses in 2 ways: pay for the whole thing in cash, or get a mortgage. The mortgage interest deduction benefits those who have a mortgage; it certainly doesn't benefit those who own their homes outright. So the deduction incentivizes the taking on of debt. The larger the debt is, the greater the benefit to be derived. Instead of paying off the mortgage quickly, people are incentivized to hang on to it for as long as possible. People are encouraged to overinvest in/overborrow for homes (sound familiar?) and neglect to save for retirement. Is this correct policy?

Mortgage Deduction | Home Mortgage Interest Deduction
This is a dumb plan to just 'keep the mortgage around for the tax deduction.' Say you have a $200k loan at 6%, you will pay $12,000 in interest for the year, even if all of that is above your standard deduction (you have other itemized deductions that = the standard which is nearing $11,000 for a married couple this tax year if I remember right) and have $23k in itemized deductions. If you are in the 25% bracket, you save $3,000 in taxes, but you are paying $12,000 to the bank, so you still are out $9,000. So to say that it's an incentive to hang onto the mortgage as long as possible is not a way to win financially. Is it nice to get the deduction? Sure, but it's not the reason to keep a mortgage around as long as possible.
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Old 09-17-2008, 07:39 PM
 
Location: Rural Central Texas
3,581 posts, read 9,002,297 times
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Quote:
Originally Posted by StoneOne View Post
By that logic, though, I should get a federal tax deduction for the local excise taxes I pay on alcohol.

You do, and if you purchase enough to exceed the standard sales tax deduction you can itemize those taxes to maximize your deduction even further. If you utilize that alcohol in a legitimate business capacity, even the purchase price becomes a deduction from income.


Quote:
Originally Posted by StoneOne View Post
By the way, if we're going to offer a mortgage interest deduction, why not an interest deduction for credit cards, business loans, car loans. What is so special about houses as a product?

The incentivation of the mortgage credit is to encourage savings and investment through real estate ownership. This helps drive the economy and GNP. Business loans are considered part of the cost of doing business and are 100% deductible as a business expense. They too drive GNP and are incentivized.

I agree that car loans also drive GNP and the same argument can be made for them as home loans. Note that as a business purchase they fall into the business expense category and are already deductible.

Credit cards, however, are a drain on savings and do not contribute to GNP to the extent they reduce cash savings and monetary reserves. While they increase the consumer's abilty to transact instant purchases, they also reduce over time the consumer's ability to afford those transactions.
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Old 09-17-2008, 07:46 PM
 
Location: Rural Central Texas
3,581 posts, read 9,002,297 times
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Quote:
Originally Posted by ndfmnlf View Post
Good point. The other area of confusion is the assumption (based on some reactions here) that eliminating the mortgage interest deduction is equivalent to eliminating homeownership, and that people will become mere renters if this were to happen. That's a false dichotomy. There are other advantages to being a homeowner other than getting a tax deduction.

People buy houses in 2 ways: pay for the whole thing in cash, or get a mortgage. The mortgage interest deduction benefits those who have a mortgage; it certainly doesn't benefit those who own their homes outright. So the deduction incentivizes the taking on of debt. The larger the debt is, the greater the benefit to be derived. Instead of paying off the mortgage quickly, people are incentivized to hang on to it for as long as possible. People are encouraged to overinvest in/overborrow for homes (sound familiar?) and neglect to save for retirement. Is this correct policy?

Mortgage Deduction | Home Mortgage Interest Deduction

The premise of the mortgage tax credit dates back to a time when homes were much less available to individuals than they are today. A credit economy was not part of American values.

Taking on debt, even for a home, was not a favorable way of living for the majority of Americans. It took some arm twisting to encourage people to accept mortgages as a practical way of purchasing a home. Most people saved until they could buy one outright back then. A mortgage was more synomous with hard times and actions you had to do to keep food on the table until times got better, and often just before the bank forclosed on you because the property was worth so much more than the loan amount. Homestead rights and fair debt practices were not around yet, so you were pretty much dependant on youself to keep the banker from taking your house for any reason he felt was defensible to public opinion.
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Old 09-17-2008, 11:21 PM
f_m
 
2,289 posts, read 7,363,491 times
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Quote:
Originally Posted by mommytotwo View Post
I don't know what this example is, but it doesn't jive with my taxes.

Are you saying that if my loan is 279K I would save 5600? Because I didn't save anywhere near that on my taxes!
I forgot to mention it depends on your rate. In actuality it will also depend on what other deductions you have, etc... This is a general calculation from standard calculators. Point is, it isn't some huge amount. The amount that homeowners spend on taxes and upkeep and utilities, etc... may be a fair bit more.
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Old 09-17-2008, 11:27 PM
f_m
 
2,289 posts, read 7,363,491 times
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Quote:
Originally Posted by tony23 View Post
Ok, so: I own a home. I pay a mortgage payment of $1000/month. I also pay property taxes that pay for various city services, which comes to $100/month. So, when I rent this home out, how much do I charge? You really think I'm not going to recoup the taxes?

The renter pays. It's just factored into the rent.

BTW, "mail service" is provided by the USPS, which is a federal agency - not supported by property taxes. And Trash collection is usually a billed service. It may be included in your rent, but I can guarantee you that the landlord isn't paying for it - he's adding it into your rent.
Trash service depends on the location, where I am, it is part of the services paid for by taxes, no extra billing is done.

Note however, if you choose not to pay property tax, who would they go after? You or the renter?
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Old 09-17-2008, 11:31 PM
f_m
 
2,289 posts, read 7,363,491 times
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Quote:
Originally Posted by forest beekeeper View Post
I am a landlord.

Apartment buildings are a big tax write-off. They provide sheltering from income taxes.

If anyone has rentals and the rental income is increasing their taxable income; they need a better accountant.
That's what I was pointing out, if the government doesn't provide a little help in some areas for the average family to be able to buy a home, then mainly landlords will be able to own most of the housing. They can depreciate the value, even if the value is going up, and take other business write-offs (i.e. "home office" to manage property, "equipment" to maintain property, etc...). When selling investment property, capital gains taxes can be avoided by reinvesting in more real estate, etc...

I was at one guy's house and he said his job was to sit at home and collect rent. I think he was in his early-mid-50's maybe, living in a nice home with fancy guest house.
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Old 09-17-2008, 11:35 PM
f_m
 
2,289 posts, read 7,363,491 times
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Quote:
Originally Posted by ndfmnlf View Post
Let's face it: the mortgage interest tax deduction is an entitlement created by tax policy to influence people's behavior. You can argue the merits of the behavior it is trying to influence, but it doesn't change that fact that it is an entitlement.
Sure, but it isn't so huge as people seem to be making it out to be. Also, there are many deductions and credits for all sorts of things. Should they all be "unfair" also? Why do students get to deduct student loans? Why should investors be able to deduct some investment loans? How come people can get dependent deductions? Aren't these "unfair" to the people that don't have these deductions?

That's how the tax system works, to promote certain things and not others. So I'm not sure why people are complaining about it.
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Old 09-18-2008, 02:47 AM
 
Location: Chicago
38,691 posts, read 86,797,403 times
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Whatever the policy arguments for and against the mortgage interest deduction, I'm tired of seeing it called a "subsidy" when the government in its infinite benevolence decides to let you keep a little more of your own money. That's like saying I get a subsidy whenever a burglar decides to hit someone else's house instead of mine.
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