Why rents are not tax deductible? (small business, borrow, purchase, sell)

[jimhcom]

Originally Posted by markg91359

This is an example of someone who blindly supports "tax simplification" without ever stopping to ask about the real public policies that exist for some tax deductions.

I won't be blind or dishonest about this one. The deduction favors property owners over renters. Since property owners generally have higher incomes than renters it is more of a benefit for wealthier people than poorer people. The problem is that wealth isn't the only public policy that is important in determining the contours of a tax system.

Whenever someone complains about the mortgage interest deduction, the first question I always have for them is what has your experience been as a renter and with rental property? My experiences were very illuminating. In short, what I generally saw was a pattern where renters typically felt no incentive to put anything into their property at all. There is a great percentage of rental property in the USA that is badly neglected. It didn't start that way. It largely ended up that way because of ordinary "wear and tear" that neither landlords, nor tenants felt a compulsion to fix. I'm referring to broken windows that get taped rather than replaced. I'm referring to light fixtures in which no one bothers to replace bulbs. I'm referring to peeling paint on walls that no one paints over. Sometimes furnaces don't get fixed leading to dangerous situations that can involve carbon monoxide poisoning or accidents.

Property that is owned is not always better cared for than rental property. However, the pattern I've observed over my fifty year life is that it is generally much better cared for. That simple reason can be characterized in one sentence. Its called "pride of ownership". I believe the state and the public do have an interest in seeing that property is kept in some kind of a safe and manageable condition. I believe that we also have an interest in encouraging people to take pride in their homes and stay in one place longer. That's the sort of thing that helps build communities. It makes communities more than simply a place where people sleep at night.

Finally, the deduction encourages new home construction and this puts construction workers and realtors to work.

Go ahead and try to get this deduction repealed. You'll be met by hundreds of powerful lobbyists for real estate companies and the home construction industry. They'll oppose you and I will too. Rightfully so, because tax simplification is continuously overstated as a value in society.

My statement was the simple truth and I stand by it.
Our laws are all written as a result of lobbing by the wealthy.
The poor are not represented in our government.
Politicians are sold like any product with mass advertising. That advertising costs money, and the wealthy provide that money.
The usefulness of property tax exemption aside, it benefits property owners.
I owned several rental properties for many years and made considerable profits from things like inflation, 1031 deferrals, recoverable depreciation, and interest deductions. I have no problem not paying the government more in taxes, there have been years when I paid six figures in taxes.
The bottom line here is that this country is at present cannibalizing itself. We have allowed the wealth to divide the country up and sell it off like the LBO's of the 80's.
The purpose of taxation is not to finance government; it is to control inflation and to level the playing field between rich and poor.
When the rich are allowed to run amok we have what we have now, and had at the turn of the 20th century when we invoked anti trust legislation to correct the imbalance.
Henry Ford understood that paying his workers twice the prevailing wage would create customers for his products.
Today we decimate our own jobs base to increase profits by exporting the very jobs the people need to afford the products. That is a recipe for failure.
Peace in a society, is achieved with fairness and justice.
We have little of either any more, and are beginning to pay the consequence.
The question you really need to ask yourself is if you want to live in a country where revolution, hatred, and anarchy are the norm, or would you rather live in a peaceful society where the wealth is equally divided.

[Carla Hailey]

Rent is not deductible. But in some states, they do have special credit for renters. Better check the state you live in.

[rimmerama]

Deductions and credits in the tax code exist to encourage certain behavior - a tax deduction for your mortgage payment (only the interest on it, mind you) exists to encourage people to buy homes.

[sll3454]

I'm a landlord. I don't get a tax deduction for the mortgage interest because there is no mortgage. Maybe I should complain that those who have mortgages get a deduction and I don't.

The landlord gets the mortgage deduction, just like the landlord pays the property taxes. The landlord is the one paying the interest. The landlord is the one who has risked his money to purchase the property. He's made a significant down payment, is responsible for repairs, takes the loss if values go down. The rent sometimes covers the landlord's costs. Sometimes it doesn't. Sometimes there's a profit. Sometimes there isn't.

Without the deduction, maybe fewer people would buy houses. Fewer people would want to be landlords. With fewer rentals available, rent would go up. Then what?

[slackjaw]

Originally Posted by sll3454

Then what?

A new thread by same poster about unfairly high rent?

[msdmoney]

Originally Posted by markg91359

This is an example of someone who blindly supports "tax simplification" without ever stopping to ask about the real public policies that exist for some tax deductions.

I don't think simplification is as overstated as you claim. From the Pew study on housing below, I think the first sentence summarizes the effects of subsidies on markets.

At the same time, these tax subsidies also distort the housing market and affect the allocation of capital across the economy. The current housing tax subsidies—for example, the mortgage interest deduction in particular—leads people to borrow more money and buy larger homes than they would otherwise, making the overall economy more leveraged. By effectively lowering the price of owner-occupied housing relative to other goods and services, housing tax subsidies encourage investment in and consumption of housing, particularly owner-occupied housing, over other types of investments, goods and services. The resulting distortion in the allocation of capital likely lowers overall output and leads Americans to have personal assets that are more heavily skewed toward housing at the expense of diversification in other investments.

Originally Posted by markg91359

Whenever someone complains about the mortgage interest deduction, the first question I always have for them is what has your experience been as a renter and with rental property? My experiences were very illuminating. In short, what I generally saw was a pattern where renters typically felt no incentive to put anything into their property at all. There is a great percentage of rental property in the USA that is badly neglected. It didn't start that way. It largely ended up that way because of ordinary "wear and tear" that neither landlords, nor tenants felt a compulsion to fix. I'm referring to broken windows that get taped rather than replaced. I'm referring to light fixtures in which no one bothers to replace bulbs. I'm referring to peeling paint on walls that no one paints over. Sometimes furnaces don't get fixed leading to dangerous situations that can involve carbon monoxide poisoning or accidents.

Property that is owned is not always better cared for than rental property. However, the pattern I've observed over my fifty year life is that it is generally much better cared for. That simple reason can be characterized in one sentence. Its called "pride of ownership".

Your anecdotal evidence on rental maintenance versus home owner maintenance, although somewhat intuitive, is overstated. Because the mortgage interest deduction pushes homeowners to over-leverage themselves, it often leaves them with little money for repairs. They may not have the income to afford necessary maintenance compared to a landlord.

Originally Posted by markg91359

I believe the state and the public do have an interest in seeing that property is kept in some kind of a safe and manageable condition. I believe that we also have an interest in encouraging people to take pride in their homes and stay in one place longer. That's the sort of thing that helps build communities. It makes communities more than simply a place where people sleep at night.

We've seen what can happen to communities from over consumption in housing, and the fallout when entire neighborhoods go into foreclosure. This doesn't strengthen or build communities just because people signed a loan document. We live in an economy that is much more transient than in the past, and people will follow the jobs. Anchoring them to one location through a mortgage for 30 years doesn't suddenly make the community more stable.

Originally Posted by markg91359

Finally, the deduction encourages new home construction and this puts construction workers and realtors to work.

Again, it's a misallocation of capital into one sector of the economy, that capital could just as easily flow naturally into another sector of the economy to put people to work. You're arguing for the distribution of money into housing regardless of demand.

Originally Posted by markg91359

Go ahead and try to get this deduction repealed. You'll be met by hundreds of powerful lobbyists for real estate companies and the home construction industry. They'll oppose you and I will too. Rightfully so, because tax simplification is continuously overstated as a value in society.

I will continue to argue for the repeal of the interest deduction and for simplification of the tax code.

[hoffdano]

Most of these deductions are variations of behavior modification via taxation. It is offensive and distorts the true cost of goods and services.

The mortgage interest deduction should be eliminated over ten years. There is enough builtin human nature desire to own a home that no one needs incentive to do it. A ten year period should be long enough for homeowners to adjust to new taxation.

Federal deductions for state taxes, whether property or income or sales, are an attempt to equalize costs across states. That's offensive too. Why should someone living in a high tax state pay less in federal taxes? It encourages states to tax their citizens more than they should.

[mathjak107]

actually renters have the better tax deal. both a homeowner and a renter get the same standard deduction. a married couple who rents gets 11,600 as a deduction.

they renter may not have any money other than some state and local taxes coming out of their checks and get to pocket any difference from that 11,600 even if they didnt spend that much.

the homeowner is pulling 4 bucks out of his piggy bank over and above the price of the house for real estate taxes and mortgage interest to get back 1 buck.


the first 11,600 a homeowner writes off for real estate taxes and mortgage interest is consumed by the standard deduction giving the homeowner and the renter the exact same deduction for the first 11,600.00 dollars. . while the homeowner is pulling money out of the piggy bank and spending that 11,600.00 the renter may be getting money back from that standard deduction without even spending it in the first place giving the renter a net gain in the piggy bank.

[Skydive Outlaw]

Being able to deduct mortgage interest does not really promote homeownership but rather promotes the ridiculous concept of buying a house and maintaining a large mortgage to be paid off over the course of 30 years. It promotes paying an incredible amount of interest on a large purchase to banks. If the interest was not deductible, people would still buy houses but houses that cost less than one with a huge mortgage. It gives the taxpayer a false sense of actually getting ahead because they incorrectly figure that since the mortgage is deductible that they are also getting something in addition to paying a mortgage over the course of 30 years, which banks/creditors love.

The homeowner really isn't getting anything back. It's silly. Give a bank X amount of dollars and you get a deduction based on that amount of money that you had to pay a banker. It's the ultimate shell game. There should not even be 30 year mortgages. If someone cannot afford a house and pay it off in 10-15 years, then FYI, they can't afford it to begin with and the only reason that it seemed possible that most Americans could "afford" homes for so long was the government induced low interest rates for home loans and the mortgage interest deduction. Those two things created a distortion of economic reality that unfortunately this country is now paying for in many ways.

The whole mortage interest deduction also created some credit inequality for a period of at least 3 decades in this country where if a homeowner took money out of their house without selling it when they refinanced, they essentially paid it back and could deduct the interest. Someone that did not own a house if they borrowed the same amount of money from a bank would have to pay it back with interest and it was not deductible. The cost of borrowing money was then less expensive for someone that "owned" a house. Also, the fact that if a US homeowner was in a house for a period of two years and the gains from a sale were less than $500k and they sold it, the money was not taxable but if someone earned the same amount of money they had to pay taxes on it, caused a huge influx of capital into the economy that was not taxable, if of course you were a homeowner and sold your primary residence. That formula could not last forever, especially combined with the fact that real wage rates did not rise during the same period of time. The middle class really thought they were living the dream but it was all a facade and doomed to collapse. A nation can ignore basic economic realities for a while, but not forever. The shell game has been exposed and we are dealing with it right now.

[freemkt]

Originally Posted by CaptainNJ

if it bothers you so much then buy a house

I'd LOVE to buy a house but government doesn't allow properties small enough that I can afford to buy.