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There are reasons for renters to be renters, but they shouldn't have to subsidize homeowners. The government shouldn't favor one group over another using tax policy.
That is the purpose of individual income taxation.
Any Tax Theory class you take will lay that out for you.
Only a small portion of Federal Revenue comes from individual taxation, the primary purpose of which is to influence behavior of the masses.
Actually if the deduction is eliminated, houses will become more affordable. Prices will come down because there no longer will be any tax incentive to own a home. Homeownership will still have other advantages (i.e., inflation hedge, certainty that you won't be evicted as long as your mortgage payments are current, autonomy), but the tax deduction will not be one of them.
Oh come on, you really think that if they eliminate the deduction, houses will be that much more affordable? How much more affordable? a $300,000 house will become what, $290,000? Is that more affordable? To Whom? What about $270,000, is that more like it? Now would it be more affordable? And anyway, if we are talking about affording a home, many people who can't afford a home (families at least) are in a low enough tax bracket that they are not paying anywhere near the amount of taxes that homeowners are. I agree that singles are getting screwed.
In Massachusetts renters get a deduction on their taxes.
Let's see, I just took a look at my 2006 and 2007 tax returns. We bought a house in 2007 so lets see the difference.
In 2007 we did not take the standard deduction of $10,600. We itemized to the tune of 23,000. (our itemized list totaled over 25K but was limited due to the income) Considering the $10,600 was a given, we were allowed to deduct an extra $12,400. So, at a 30% tax bracket, this probably saved us $3,500. We were NOT able to take the $2,000 child tax credit (which is CASH back or CASH off the amount you owe), because we are now considered too rich. So as far as I am concerned with buying the house and increased income we made out about $1500. Not a huge amount.
In 2006 we took the standard deduction of $10,300. And we were able to get the child tax credit of $2,000. I don't feel terrible about not getting the $1,500.
Renting is cheaper. Renters may thing they are paying more to rent, but that is narrow minded. I for one can say that I have paid more to own my home than I ever paid renting. The costs of owning and maintaining a home at a respectable level so far outweigh the costs of renting it isn't even funny. Would I prefer to go back to renting? Not on your life. Do I want the majority of people in our society to rent? NO. Have you seen how some neighborhoods with primarily renters haver turned out lately? Do you want a nation of Landlords? Do you feel that landlords properly and respectfully maintain their property?
I don't. The last apartment I lived in while at first glance, looked nice, until the previous occupants took their stuff out. The landlords did nothing to make the apt. look better. When we had a baby we offered to paint because the room we were putting the baby in was so disgusting, they said they'd provide the paint and brought over the absolutely cheapest stuff available (now that I have painted about 7 areas of my own home it is clear to me that they either gave us ceiling paint or primer). The vanity in the bathroom (and i am using the term vanity loosely) was literally falling apart, the paint was chipping and I couldn't even sweep next to it w/out more paint falling off it. Terrible. After we moved, they repainted most of the apt because they realized no decent person would rent it in it's condition. (three years the worse and I did nothing to help hide the conditions when they were showing the apt.--hey, the people looking should know exactly what they are getting.
On the other hand, the apt we lived in before that, the landlord had just redone it (including refinishing hardwood floors). We lived in it for 2 years, and they were always complaining about our running toddler (they lived downstairs) and asked us to move. Fine. We left it in PRISTINE condition. Not a nail hole in the wall, etc.... Well, they got their new tenants (with no toddlers) and then decided to move to their own home because they really didnt want to live with renters anyway. The new tenants were lousy tenants who stopped paying rent after 3 months (i met this old landlord who said the biggest mistake they ever made was asking us to move, our rent was never late a day--i told her if we were stressing her out that much she did the right thing) it took them 5 months to evict the next tenants, and that cost, in addition to their own irresponsible overspending, caused them to lose the building in foreclosure. After that they lost the home they purchased for themselves as well and last I saw them they were selling their fridge because they were moving into an apt. that already had one.
The point of the story is that renters and landlords are getting screwed all around. And who do you think foots the bill for that in the end anyway? Probably the taxpayers!
So if you can get people into their own houses, where they will have a little pride of ownership and something more to work for, and the gov't offers an incentive, I believe that is a good thing.
I am sorry, but there are so many people getting tax breaks for so many things, I wonder why you choose to point out my $1,500 in savings from owning my house, when I have one particular cousin who is a lifer on welfare (and if not welfare, she may have been kicked off it by now, she certainly gets a housing allowance). Believe you me she is getting far more than $1,500 from the gov't every year (how would you feel about $50 per month in rent). (Don't read into this that I am picking on welfare, that is anther topic completely)
Also, one year, when my husband and I spent nearly the whole year out of the US for him to attend school, in a country where I could not work, I had no income except for one day when I worked at an office for a temp agency just before the new year. Because of working that one day, and getting the whopping income of $35 for the year, we were eligible for the earned income credit and got a refund of $350. Duh! How does that work. The next year after that, us being here only part of the year, I made about, oh I cannot remember, about $6,000 or $8,000 and we got back all the tax money we paid plus about 2,000 for the earned income credit. (Because by then we had a baby and were a family of 3 living on $8,000 for the year). At the time we were so broke, living on school loans that we were delighted, but from a taxpayer perspective this might be considered RIDICULOUS. $2,000 back that you didn't even pay? Come on, and you are going after homeowners? How about you spend your time going after that type of situation instead?
We are now also too rich to get the student loan interest deduction. Which is a real kick in the pants. All the years my husband was in school we were too poor to get the deduction because we were too poor to pay on the loan, and now that we have to pay on it we are too "rich" to get it.
At this point I am feeling pretty annoyed. When we were poor, we got money we didn't even pay.
Now that we're "rich" we are getting royally screwed when it comes to taxes.
What about a flat tax rate?
Forget about the interest deduction being an incentive to own a house, The way taxes are set up in general don't provide an incentive for people to WORK. Like me, there is no way I am going to go out and get a job, because we don't need the money and whatever I make, a HUGE chunk of it will just go to taxes, and another HUGE chunk to daycare, and then I'll get whatever is left over. And whatever is left will go towards gas, lunches out, work wardrobe, dinners out because I am too frazzled to cook, and my kids won't be able to do any of the activities they are now doing at 4:30 every day because I won't even be home by then!
sorry for the rant I know i've gotten just a bit off track............
Oh come on, you really think that if they eliminate the deduction, houses will be that much more affordable? How much more affordable? a $300,000 house will become what, $290,000? Is that more affordable? To Whom? What about $270,000, is that more like it? Now would it be more affordable? And anyway, if we are talking about affording a home, many people who can't afford a home (families at least) are in a low enough tax bracket that they are not paying anywhere near the amount of taxes that homeowners are. I agree that singles are getting screwed.
In Massachusetts renters get a deduction on their taxes.
Let's see, I just took a look at my 2006 and 2007 tax returns. We bought a house in 2007 so lets see the difference.
In 2007 we did not take the standard deduction of $10,600. We itemized to the tune of 23,000. (our itemized list totaled over 25K but was limited due to the income) Considering the $10,600 was a given, we were allowed to deduct an extra $12,400. So, at a 30% tax bracket, this probably saved us $3,500. We were NOT able to take the $2,000 child tax credit (which is CASH back or CASH off the amount you owe), because we are now considered too rich. So as far as I am concerned with buying the house and increased income we made out about $1500. Not a huge amount.
In 2006 we took the standard deduction of $10,300. And we were able to get the child tax credit of $2,000. I don't feel terrible about not getting the $1,500.
Renting is cheaper. Renters may thing they are paying more to rent, but that is narrow minded. I for one can say that I have paid more to own my home than I ever paid renting. The costs of owning and maintaining a home at a respectable level so far outweigh the costs of renting it isn't even funny. Would I prefer to go back to renting? Not on your life. Do I want the majority of people in our society to rent? NO. Have you seen how some neighborhoods with primarily renters haver turned out lately? Do you want a nation of Landlords? Do you feel that landlords properly and respectfully maintain their property?
I don't. The last apartment I lived in while at first glance, looked nice, until the previous occupants took their stuff out. The landlords did nothing to make the apt. look better. When we had a baby we offered to paint because the room we were putting the baby in was so disgusting, they said they'd provide the paint and brought over the absolutely cheapest stuff available (now that I have painted about 7 areas of my own home it is clear to me that they either gave us ceiling paint or primer). The vanity in the bathroom (and i am using the term vanity loosely) was literally falling apart, the paint was chipping and I couldn't even sweep next to it w/out more paint falling off it. Terrible. After we moved, they repainted most of the apt because they realized no decent person would rent it in it's condition. (three years the worse and I did nothing to help hide the conditions when they were showing the apt.--hey, the people looking should know exactly what they are getting.
On the other hand, the apt we lived in before that, the landlord had just redone it (including refinishing hardwood floors). We lived in it for 2 years, and they were always complaining about our running toddler (they lived downstairs) and asked us to move. Fine. We left it in PRISTINE condition. Not a nail hole in the wall, etc.... Well, they got their new tenants (with no toddlers) and then decided to move to their own home because they really didnt want to live with renters anyway. The new tenants were lousy tenants who stopped paying rent after 3 months (i met this old landlord who said the biggest mistake they ever made was asking us to move, our rent was never late a day--i told her if we were stressing her out that much she did the right thing) it took them 5 months to evict the next tenants, and that cost, in addition to their own irresponsible overspending, caused them to lose the building in foreclosure. After that they lost the home they purchased for themselves as well and last I saw them they were selling their fridge because they were moving into an apt. that already had one.
The point of the story is that renters and landlords are getting screwed all around. And who do you think foots the bill for that in the end anyway? Probably the taxpayers!
So if you can get people into their own houses, where they will have a little pride of ownership and something more to work for, and the gov't offers an incentive, I believe that is a good thing.
I am sorry, but there are so many people getting tax breaks for so many things, I wonder why you choose to point out my $1,500 in savings from owning my house, when I have one particular cousin who is a lifer on welfare (and if not welfare, she may have been kicked off it by now, she certainly gets a housing allowance). Believe you me she is getting far more than $1,500 from the gov't every year (how would you feel about $50 per month in rent). (Don't read into this that I am picking on welfare, that is anther topic completely)
Also, one year, when my husband and I spent nearly the whole year out of the US for him to attend school, in a country where I could not work, I had no income except for one day when I worked at an office for a temp agency just before the new year. Because of working that one day, and getting the whopping income of $35 for the year, we were eligible for the earned income credit and got a refund of $350. Duh! How does that work. The next year after that, us being here only part of the year, I made about, oh I cannot remember, about $6,000 or $8,000 and we got back all the tax money we paid plus about 2,000 for the earned income credit. (Because by then we had a baby and were a family of 3 living on $8,000 for the year). At the time we were so broke, living on school loans that we were delighted, but from a taxpayer perspective this might be considered RIDICULOUS. $2,000 back that you didn't even pay? Come on, and you are going after homeowners? How about you spend your time going after that type of situation instead?
We are now also too rich to get the student loan interest deduction. Which is a real kick in the pants. All the years my husband was in school we were too poor to get the deduction because we were too poor to pay on the loan, and now that we have to pay on it we are too "rich" to get it.
At this point I am feeling pretty annoyed. When we were poor, we got money we didn't even pay.
Now that we're "rich" we are getting royally screwed when it comes to taxes.
What about a flat tax rate?
Forget about the interest deduction being an incentive to own a house, The way taxes are set up in general don't provide an incentive for people to WORK. Like me, there is no way I am going to go out and get a job, because we don't need the money and whatever I make, a HUGE chunk of it will just go to taxes, and another HUGE chunk to daycare, and then I'll get whatever is left over. And whatever is left will go towards gas, lunches out, work wardrobe, dinners out because I am too frazzled to cook, and my kids won't be able to do any of the activities they are now doing at 4:30 every day because I won't even be home by then!
sorry for the rant I know i've gotten just a bit off track............
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Did you drink too much today? This makes little sense, most people are talking about federal tax. But even state wise a lot of the property tax doesn't go to the state in the first place, but rather local governments. So even in the case of state governments the removal of the deduction will increase tax revenue.
Depends on the jurisdiction. Most property taxes though go into law enforcement, fire department, schools, and other public services and projects (also, don't forget about the bond issues, CFDs, and Meloo Roos which also get piled onto owners). Renters in apartment complexes more or less pay a lesser proportion of these fees (because of pooling), but get the same benefit as owners.
These activities actually create jobs, gives companies business, and that in turn means a larger income/corporate tax base for the Fed (isn't that where the Fed gets most of its' revenues). So, overall, which action "stimulates" growth and results in a larger tax base? An apartment complex? people renting? or people buying homes?
The main thing I would be concerned with if I was the Fed is to increase income tax (create jobs), and keep corporate activity going (corporate tax). More property tax revenue for cities/counties/state would achieve this goal.
As a gross/exaggerated example of how ownership stimulates growth, we can see from the boom that more jobs and taxes were created/collected when people "owned" homes. But, of course, we all know that the last boom was speculative, stupid, and unsustainable. A normal transition/level of ownership would of been better and still would have created higher growth than a nation of just renters.
Generally speaking though... home ownership creates more economic growth than if everybody lived in apartments or rented. Just take the other extreme into mind... what would happen if everybody rented?
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Additionally, property tax gets paid whether a property is rented or lived in. How does an increase in ownership increase the number of homes required in an area?
I already gave you that example.... mainly because appreciation is higher than the yearly increase in property taxes (at least in most Counties in California, there is a cap on how much property tax can increase).
More transactions (velocity), means more opportunity to get a higher appraisal and likewise... higher property taxes. I would think the turn-over time (switching owners) on apartment complexes are far longer than SFHs, Condos, town homes.
IMO, an ownership society has more waste and is less efficient, than a landlord/serf arrangement. Landlords are more efficient housing managers... they won't buy another unit unless vacancy rates have dropped because they can squeeze more profit if they have more people in less units (charge more). Basically efficiency question. Meanwhile, promoting an ownership society creates more waste... since it spreads the number of people around and promotes more building/expansion (growth).
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They do, they do! And what they've found is that removing the tax deduction should net the federal government 1.2 trillion over a 10 year period. Of course the situation differs from state to state, after all some states don't have income tax in the first place.
Please cite the source and who came up with these numbers.
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Anyhow, I don't mind the mortgage interest deduction per se so long as a similar deduction is given to renters. If the mortgage interest deduction exists, then renters should be able to deduct about 50% of their rent in addition to the standard deduction.
But obviously the better option is to just remove the mortgage interest deduction and reduce income tax rates. Ideally the IRS would slowly reduce the deduction to zero over a 5~10 year period.
I don't think they will... there is far more benefits streaming from an ownership society vs. a lord/serf society.
It would put us in an economic depression because it would cause the values of homes to drop even more. Silly idea.
Given that the housing market is way off-kilter already, I don't see that being a bad thing, long term.
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Originally Posted by StoneOne
Not necessarily. If income taxes were cut so as not to pay for the deduction, I doubt you'd see any effect at all. It might help people actually buy a house!
Income taxes won't be cut. This is the government we're talking about.
That is the purpose of individual income taxation.
Any Tax Theory class you take will lay that out for you.
Only a small portion of Federal Revenue comes from individual taxation, the primary purpose of which is to influence behavior of the masses.
I'm taking a tax class now and what I can add to that is the sole purpose of tax is for the government to create enough revenue to cover the cost of operating government. At least orginally that's what its pupose. Then something happened in the middle of it, specifically the Employment Act of 1946, tax became an instrument of fiscal policy. This essentially means the goverment uses tax to "protect their citizens and institutions against the inherent instability of capitalism" (Principles of Taxation for Business Planning and Investment Planning 2009, Jones and Rhoades). The goverment essentially adopted a Keynesian tax schema.
Tax can is also used to alter behavior, such as including excise tax on cigarette purchases or entice businesses to revive old historical buildings instead of building new ones. In this case of this post, mortgage interest deduction is used to entice taxpayers to become homeowners.
My investment advisor has about $50M in the bank and doesn't own a lick of real estate. Maybe he's an outlier, but he (like I) knew the housing market was doomed for the most part about 5 years ago. So, you're wrong. Some peole much more successful than yourself don't own.
I just sold my home and plan on sitting on the sidelines while the collapse goes on, but I can see why renters felt as though they were being treated unequally.
Those taxes should without a doubt be lowered or eliminated.
The only rational taxes in my mind a flat sales tax that does not discriminate according to product. That way, someone is taxed only on the basis of his consumption.
All other taxes and deductions are nothing more than government meddling at best, thievery at worst.
I'd be all for a flat sales tax or consumption tax. This would put a lot of freeloaders back on the map including Illegal Aliens working under the table for cash. A great idea.
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