student loan interest shouldn't be deductible either by half the logic in this thread
but yeah the mortgage interest deduction is pretty shitty. but it's not how rich people save taxes. it's just incidental to them.
Student loan interest is, IIRC, one of the few things you can deduct while still not itemizing.
And I'd bet the average taxpayer in my bracket is taking the standard deduction. That is more or less the point. You may get a deduction that covers you mortgage interest and similar expenses. You are arguing that I should eat those costs because I have other expenses as well.
Another way to put it is, if the standard deduction is what the median homeowner would itemize with mortgage interest, what justifies keeping it that high if you get rid of the interest deduction?
I'd argue that it should be possible to take partial deductions on certain categories of deductions, while still keeping the standard deduction, to deal with cases like yours where you really have significantly above average expenses in one category.
The standard deduction, to some extent, acts as the "renter's deduction" for everybody without a mortgage or with too small of one. I don't see, at that point, what necessary purpose the actual HMID serves other than encouraging excessive borrowing, borrowing at higher rates, low-equity loans, refinancing and withdrawing equity, etc.
I didn't know you couldn't deduct your mortgage interest without giving up the standard deduction. Jesus, that's terrible, considering how huge the standard deduction is.
That puts me pretty firmly in the "fuck this deduction" camp.
I didn't know you couldn't deduct your mortgage interest without giving up the standard deduction. Jesus, that's terrible, considering how huge the standard deduction is.
That puts me pretty firmly in the "fuck this deduction" camp.
Yeah, my total deduction for my $200K mortgage, property tax, and sales tax is only something like...$13.5K?
Which is all of about $1500 more than my deduction married filing jointly.
Which, even at our 25% top marginal rate, means I save...$375. Yay!
Now that I'm single again this year should work out a little better for me (since my standard goes down to $6K). It'll work out to more like...$13K versus $6K, at 25%, so...$1750.
student loan interest shouldn't be deductible either by half the logic in this thread
but yeah the mortgage interest deduction is pretty shitty. but it's not how rich people save taxes. it's just incidental to them.
Student loan interest is, IIRC, one of the few things you can deduct while still not itemizing.
And I'd bet the average taxpayer in my bracket is taking the standard deduction. That is more or less the point. You may get a deduction that covers you mortgage interest and similar expenses. You are arguing that I should eat those costs because I have other expenses as well.
Another way to put it is, if the standard deduction is what the median homeowner would itemize with mortgage interest, what justifies keeping it that high if you get rid of the interest deduction?
I'd argue that it should be possible to take partial deductions on certain categories of deductions, while still keeping the standard deduction, to deal with cases like yours where you really have significantly above average expenses in one category.
The standard deduction, to some extent, acts as the "renter's deduction" for everybody without a mortgage or with too small of one. I don't see, at that point, what necessary purpose the actual HMID serves other than encouraging excessive borrowing, borrowing at higher rates, low-equity loans, refinancing and withdrawing equity, etc.
The standard deduction is a means for the IRS to save time and money, that is all. They don't want to have to sort through and check the itemization a for every taxpayer, the rules are too complex. Instead they give a standard deduction that is high enough to cover the average taxpayer. No cost to income maths, no supporting paperwork and no need for the IRS to check the numbers. That massive work deduction I have is much the same. Work related travel expenses are, to varying degrees, deductible. However, the IRS does not want to sort through a year's worth of restaurant and truckstop receipts from every OTR driver out there. So instead, we have a flat deduction for every day we spend over the road. It may be more than some drivers actually spend, but the IRS saves more money by avoiding the paperwork than they would gain by doing it.
If you aren't saving much over the standard deduction; this is basically working as intended. If you eliminate the HMID, then there is no longer a need for the standard deduction to be so high; they can drop it significantly and still have the bulk of taxpayers take it over itemization.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
student loan interest shouldn't be deductible either by half the logic in this thread
but yeah the mortgage interest deduction is pretty shitty. but it's not how rich people save taxes. it's just incidental to them.
1) Student loan interest deduction is above the line (as you know). Most of the arguments against the mortgage interest deduction in this thread are intensified because mortgage interest is below the line.
2) SLID is scaled progressively with income and you can't take it at all above $75k/yr income (again, as you know). MID doesn't phase out until you're over $100k/yr and you can't take it above $109k/yr.
3) SLID caps at $2500/yr. MID caps at a home value of $1m, which at a 5% interest rate means you could take a MID of $50k.
4) Part of the SLID offsets interest paid on direct federal loans. This means some percentage of SLID (and I don't know how much) is revenue-neutral.
Regarding part 4, I would be fine of the SLID was restricted to direct loans only.
(BTW, the 'as you knows' here aren't meant to be insulting. I'm writing this post for the thread audience in general, and I'm just sincerely acknowledging your expertise on the subject.)
also slapping the label "regressive" on deductions to color it in a bad way is silly.
Not really. A regressive tax deduction works fiscally like a subsidy - that's why from a government budget perspective, they're called tax expenditures. That deduction has to be offset either by reduced services, increased debt, or higher taxes elsewhere.
We are, effectively, paying the fourth income quintile to take out mortgages.
Feral on
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
I didn't know you couldn't deduct your mortgage interest without giving up the standard deduction. Jesus, that's terrible, considering how huge the standard deduction is.
That puts me pretty firmly in the "fuck this deduction" camp.
Yeah, my total deduction for my $200K mortgage, property tax, and sales tax is only something like...$13.5K?
Which is all of about $1500 more than my deduction married filing jointly.
Which, even at our 25% top marginal rate, means I save...$375. Yay!
Now that I'm single again this year should work out a little better for me (since my standard goes down to $6K). It'll work out to more like...$13K versus $6K, at 25%, so...$1750.
Yeah, I think we should keep it.
If they eliminate the mortgage interest credit, then wouldn't they also reduce the standard deduction? You're close to average on salary and mortgage costs, so it makes sense that you're also close to what the standard deduction is.
but I mean, all tax deductions are regressive. saying a deduction is regressive is "uh duh" but it shouldn't be one of the reasons why a particular deduction is bad policy.charitable contributions are regressive. the state tax deductions and real estate taxes are regressive. I mean, by the same logic, those two deductions are to encourage rich people to move to rich neighborhoods with high real estate values.
"oh boy I get a really good deduction if I pay a shitload in real estate taxes and mortgage interest". I can count the number of rich people who have said that to me on my hands. The main people who benefit the most from these deductions are not people on the margin between renting and owning. The MID is a bad subsidy not because it works, but because it hardly works at all.
also the student loan interest deduction is still interest on personal debt.
credit card interest, home mortgage interest, student loan interest are all were all deductible originally. the mortgage interest deduction wasn't originally intended to be a home-owner subsidy. then there were major changes to the tax code. then all personal interest was nondeductible. and now some are and some aren't, but some are structured in a way to phase out as you get more income (good idea), and some are still limited but just barely (the MID).
so I mean, are we going to try and make credit card interest an above the line deduction, which phases out after a certain income level now? i mean, it seems like kinda in the same vein. interest made on qualified purchases. etc.
also just an FYI but the itemized deduction phase-out for 2013 will be hilarious to hear about again
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Exactly. The problem isn't so much the amount you get off your taxes (in most areas at least, in San Francisco this is ABSOLUTELY the problem due to enormous housing costs. People in the thread talking about $200K houses make me green with envy. Here in SF you've got to spend at least $600K and at that level the mortgage deduction DWARFS the standard) but the problem is that it encourages price growth in this one asset that everyone needs.
What if you could get interest deductions on taking out loans to buy water futures rather than houses. Clearly that would raise the price of water. Why do we want to send the price of necessities skyrocketing?
Raising the price of the home is not the same as raising the cost of the home. The MID might raise the price of the home in areas with abnormal property values, but unless you have some actual numbers, or provide some logical reasoning why the rise in price due to the MID outpaces the drop in cost due to the MID, I will challenge that it raises the cost of those homes (except for people who pay full cash value). For the median home ($240,000 in the West, below $175,000 in the Midwest and South), the MID generally has no effect on cost or price, since the homeowner either takes the standard deduction or receives little benefit over it (which, again, is more or less the SD's purpose).
In short, the only homes liable to rise in price (but not necessarily cost) due to the MID are those already expensive enough to provide a reasonable benefit from itemizing deductions, and the whole point of this thread seems to be, "Fuck those guys, they have too much money anyways," so I fail to see the problem here.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
- John Stuart Mill
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ElJeffeNot actually a mod.Roaming the streets, waving his gun around.Moderator, ClubPAmod
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
I submitted an entry to Lego Ideas, and if 10,000 people support me, it'll be turned into an actual Lego set!If you'd like to see and support my submission, follow this link.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Yes, but as equity builds, the MID decreases. The first year of a 30 year mtg, over 80% of the payment is interest; it decreases over time.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Yeah. I am in a similar situation, combined with the fact that my career is one that has so far required me to move every three or four years to advance. With the housing market so volatile, I would have been stuck had I decided to buy instead of rent.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Yes, but as equity builds, the MID decreases. The first year of a 30 year mtg, over 80% of the payment is interest; it decreases over time.
o.O
At 5.5% interest, yes. That seems a bit high for right now. 4% gives you ~68% of your payment as interest in the first year, and 62% in the sixth - so after five years, you're still getting 90% of the deduction and you've got about 10% of your loan paid off, plus any increase in overall value. If your equity is starting to eat substantially into the mortgage deduction you either had very little to start with or you've built up a lot of it.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
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ElJeffeNot actually a mod.Roaming the streets, waving his gun around.Moderator, ClubPAmod
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
I submitted an entry to Lego Ideas, and if 10,000 people support me, it'll be turned into an actual Lego set!If you'd like to see and support my submission, follow this link.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
And if that is the case, so be it in those cases. That doesn't mean that we should actively encourage people who can obtain personal loans to take out home equity loans instead, which is precisely what we do now with the HMID.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
I would agree with you if it did not encourage people to keep their homes more at risk, since you will generally never be able to borrow at a cheaper rate than you can against your home. I would like to see the deduction phase out over the period in which you own the home, to encourage people to actually pay off their homes instead of taking out home equity loan after home equity loan because the rates are effectively better than car loans or other private loans.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
I would agree with you if it did not encourage people to keep their homes more at risk, since you will generally never be able to borrow at a cheaper rate than you can against your home. I would like to see the deduction phase out over the period in which you own the home, to encourage people to actually pay off their homes instead of taking out home equity loan after home equity loan because the rates are effectively better than car loans or other private loans.
How about if the HMID can only be used for initial mortgages and refinancing w/o removing equity?
Personally, I'd just like to see the HMID changed from a deduction to a credit (making it not-regressive) and capping it out at some fixed level tied to median income.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
And then the question is whether or not it ends up hiking the home price in a competitive market, because you can afford more house, making it a subsidy that kicks in when you cash out. How about a refundable tax credit of, say, 5% of the house price, capped at whatever... $15000, say... for a first-time buyer? Costs money, encourages behavior beneficial in the long term, doesn't give $Texas to people who don't need it, and if you do a good job on the qualifying rules you make it a lot harder for people to end up underwater.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
I would agree with you if it did not encourage people to keep their homes more at risk, since you will generally never be able to borrow at a cheaper rate than you can against your home. I would like to see the deduction phase out over the period in which you own the home, to encourage people to actually pay off their homes instead of taking out home equity loan after home equity loan because the rates are effectively better than car loans or other private loans.
How about if the HMID can only be used for initial mortgages and refinancing w/o removing equity?
Personally, I'd just like to see the HMID changed from a deduction to a credit (making it not-regressive) and capping it out at some fixed level tied to median income.
I think that a down payment assistance program like the first time home buyers credit is the way to go, personally. If you say "first mortgage only" then people will put down the smallest down payments possible, and repay on the longest schedule.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
The HMID does not actually encourage home ownership, it encourages larger home ownership. As in, buying a larger house. (Or buying a second house.) I see no reason for the government to subsidize larger houses, let alone second houses, which offer no societal benefits over smaller houses. If you want to encourage home ownership, you are better served by subsidizing down-payments, particularly for first-time home buyers.
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
I would agree with you if it did not encourage people to keep their homes more at risk, since you will generally never be able to borrow at a cheaper rate than you can against your home. I would like to see the deduction phase out over the period in which you own the home, to encourage people to actually pay off their homes instead of taking out home equity loan after home equity loan because the rates are effectively better than car loans or other private loans.
How about if the HMID can only be used for initial mortgages and refinancing w/o removing equity?
Personally, I'd just like to see the HMID changed from a deduction to a credit (making it not-regressive) and capping it out at some fixed level tied to median income.
I think that a down payment assistance program like the first time home buyers credit is the way to go, personally. If you say "first mortgage only" then people will put down the smallest down payments possible, and repay on the longest schedule.
Down payment assistance--especially if you limit it to first-time homebuyers--incentivizes better behaviors than HMID. It incentivizes larger down payments, which means if your home price takes a dive, it's not as big of a deal. Also, it means that people buying real estate as an investment or to flip aren't being subsidized by the government. Finally, with a cap on it, it would mean that instead of a tremendously regressive tax writeoff, it would be a flat-to-progressive benefit, helping those who need it most. And unlike HMID, instead of helping people to just buy a bigger house (which is the primary effect of it), it would help people who couldn't otherwise afford a house to buy one, which, if we actually want to encourage homeownership, is the way to do it.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
Just to provide my own anecdote, when I first went from renting to buying, I wound up trading a 2/1 apartment in a good neighborhood for a 2/1 condo in a crappy neighborhood. Rent on the apartment was approximately equal to mortgage on the condo plus the HMID minus the cost of property taxes, with the apartment overall costing slightly more (but being, again, in a nicer area). So for me, there wasn't a lot of immediate fiscal incentive to own.
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
The HMID does not actually encourage home ownership, it encourages larger home ownership. As in, buying a larger house. (Or buying a second house.) I see no reason for the government to subsidize larger houses, let alone second houses, which offer no societal benefits over smaller houses. If you want to encourage home ownership, you are better served by subsidizing down-payments, particularly for first-time home buyers.
Technically, it subsidizes larger mortgages, not larger homes. That can manifest in buying larger homes, or in putting less down on a more modest home. Either way, its not good policy.
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
And if that is the case, so be it in those cases. That doesn't mean that we should actively encourage people who can obtain personal loans to take out home equity loans instead, which is precisely what we do now with the HMID.
Yes, yes we absolutely should. You should never encourage unsecured borrowing over secured borrowing. Unsecured borrowing is always going to be more expensive, even without the MID, it is going to be more limited in terms of the amount of funds, and it is going to be much harder to get away from if things don't go as you planned.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
- John Stuart Mill
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
And if that is the case, so be it in those cases. That doesn't mean that we should actively encourage people who can obtain personal loans to take out home equity loans instead, which is precisely what we do now with the HMID.
Yes, yes we absolutely should. You should never encourage unsecured borrowing over secured borrowing. Unsecured borrowing is always going to be more expensive, even without the MID, it is going to be more limited in terms of the amount of funds, and it is going to be much harder to get away from if things don't go as you planned.
I respectfully disagree. You are saying that we should encourage a higher risk behavior (entering into secured debt) in exchange for a short term reward (lower interest rate). The lower interest rate does not come without a price, and in this case, the price is pledging your home if you fail to make the loan payments. Secured debt has a lower interest rate because the lender has a lower risk, not because the borrower's risk is lower.
Bwa? In what bizzaro fantasy realm is taking a mortgage considered higher risk than racking up an equivalent amount of credit card debt? Because that is basically what you are arguing.
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion.
The biggest problem with the home mortgage interest deduction is that it is the only source of deductible interest for most individuals. This results in a perverse incentive to leverage your house as much as possible, since it will give you the lowest cost of borrowing. Any system which makes it reasonable for someone to put their home at risk to invest in a mutual fund is a broken incentive system IMO, if we care about people having stable and secure living arrangements.
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
And if that is the case, so be it in those cases. That doesn't mean that we should actively encourage people who can obtain personal loans to take out home equity loans instead, which is precisely what we do now with the HMID.
Yes, yes we absolutely should. You should never encourage unsecured borrowing over secured borrowing. Unsecured borrowing is always going to be more expensive, even without the MID, it is going to be more limited in terms of the amount of funds, and it is going to be much harder to get away from if things don't go as you planned.
I respectfully disagree. You are saying that we should encourage a higher risk behavior (entering into secured debt) in exchange for a short term reward (lower interest rate). The lower interest rate does not come without a price, and in this case, the price is pledging your home if you fail to make the loan payments. Secured debt has a lower interest rate because the lender has a lower risk, not because the borrower's risk is lower.
Absent homestead exemptions, can't a unsecured creditor come after a persons home anyway?
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but yeah the mortgage interest deduction is pretty shitty. but it's not how rich people save taxes. it's just incidental to them.
Student loan interest is, IIRC, one of the few things you can deduct while still not itemizing.
I'd argue that it should be possible to take partial deductions on certain categories of deductions, while still keeping the standard deduction, to deal with cases like yours where you really have significantly above average expenses in one category.
The standard deduction, to some extent, acts as the "renter's deduction" for everybody without a mortgage or with too small of one. I don't see, at that point, what necessary purpose the actual HMID serves other than encouraging excessive borrowing, borrowing at higher rates, low-equity loans, refinancing and withdrawing equity, etc.
That puts me pretty firmly in the "fuck this deduction" camp.
Yeah, my total deduction for my $200K mortgage, property tax, and sales tax is only something like...$13.5K?
Which is all of about $1500 more than my deduction married filing jointly.
Which, even at our 25% top marginal rate, means I save...$375. Yay!
Now that I'm single again this year should work out a little better for me (since my standard goes down to $6K). It'll work out to more like...$13K versus $6K, at 25%, so...$1750.
Yeah, I think we should keep it.
Horse trading houses is more of an upper middle class thing - less CEO and more local Domino's franchisee.
The standard deduction is a means for the IRS to save time and money, that is all. They don't want to have to sort through and check the itemization a for every taxpayer, the rules are too complex. Instead they give a standard deduction that is high enough to cover the average taxpayer. No cost to income maths, no supporting paperwork and no need for the IRS to check the numbers. That massive work deduction I have is much the same. Work related travel expenses are, to varying degrees, deductible. However, the IRS does not want to sort through a year's worth of restaurant and truckstop receipts from every OTR driver out there. So instead, we have a flat deduction for every day we spend over the road. It may be more than some drivers actually spend, but the IRS saves more money by avoiding the paperwork than they would gain by doing it.
If you aren't saving much over the standard deduction; this is basically working as intended. If you eliminate the HMID, then there is no longer a need for the standard deduction to be so high; they can drop it significantly and still have the bulk of taxpayers take it over itemization.
- John Stuart Mill
1) Student loan interest deduction is above the line (as you know). Most of the arguments against the mortgage interest deduction in this thread are intensified because mortgage interest is below the line.
2) SLID is scaled progressively with income and you can't take it at all above $75k/yr income (again, as you know). MID doesn't phase out until you're over $100k/yr and you can't take it above $109k/yr.
3) SLID caps at $2500/yr. MID caps at a home value of $1m, which at a 5% interest rate means you could take a MID of $50k.
4) Part of the SLID offsets interest paid on direct federal loans. This means some percentage of SLID (and I don't know how much) is revenue-neutral.
Regarding part 4, I would be fine of the SLID was restricted to direct loans only.
(BTW, the 'as you knows' here aren't meant to be insulting. I'm writing this post for the thread audience in general, and I'm just sincerely acknowledging your expertise on the subject.)
Not really. A regressive tax deduction works fiscally like a subsidy - that's why from a government budget perspective, they're called tax expenditures. That deduction has to be offset either by reduced services, increased debt, or higher taxes elsewhere.
We are, effectively, paying the fourth income quintile to take out mortgages.
the "no true scotch man" fallacy.
If they eliminate the mortgage interest credit, then wouldn't they also reduce the standard deduction? You're close to average on salary and mortgage costs, so it makes sense that you're also close to what the standard deduction is.
but I mean, all tax deductions are regressive. saying a deduction is regressive is "uh duh" but it shouldn't be one of the reasons why a particular deduction is bad policy.charitable contributions are regressive. the state tax deductions and real estate taxes are regressive. I mean, by the same logic, those two deductions are to encourage rich people to move to rich neighborhoods with high real estate values.
"oh boy I get a really good deduction if I pay a shitload in real estate taxes and mortgage interest". I can count the number of rich people who have said that to me on my hands. The main people who benefit the most from these deductions are not people on the margin between renting and owning. The MID is a bad subsidy not because it works, but because it hardly works at all.
also the student loan interest deduction is still interest on personal debt.
credit card interest, home mortgage interest, student loan interest are all were all deductible originally. the mortgage interest deduction wasn't originally intended to be a home-owner subsidy. then there were major changes to the tax code. then all personal interest was nondeductible. and now some are and some aren't, but some are structured in a way to phase out as you get more income (good idea), and some are still limited but just barely (the MID).
so I mean, are we going to try and make credit card interest an above the line deduction, which phases out after a certain income level now? i mean, it seems like kinda in the same vein. interest made on qualified purchases. etc.
i don't have a problem with such an adjustment.
Exactly. The problem isn't so much the amount you get off your taxes (in most areas at least, in San Francisco this is ABSOLUTELY the problem due to enormous housing costs. People in the thread talking about $200K houses make me green with envy. Here in SF you've got to spend at least $600K and at that level the mortgage deduction DWARFS the standard) but the problem is that it encourages price growth in this one asset that everyone needs.
What if you could get interest deductions on taking out loans to buy water futures rather than houses. Clearly that would raise the price of water. Why do we want to send the price of necessities skyrocketing?
In short, the only homes liable to rise in price (but not necessarily cost) due to the MID are those already expensive enough to provide a reasonable benefit from itemizing deductions, and the whole point of this thread seems to be, "Fuck those guys, they have too much money anyways," so I fail to see the problem here.
- John Stuart Mill
Last I looked at house prices around here (in Sacramento, and this was a few years ago), there was pretty much no net fiscal benefit to owning versus renting, because monthly payments wound up the same and anything you saved on deductions you paid in property tax.
I am not trying to generalize this to the rest of the nation, just mentioning it as my personal experience.
Wouldn't the equity start to pile up as long as you're able to stay a few years, though (crash notwithstanding)?
edit: as long as the total payments are comparable, obviously if renting is (much) cheaper this may change
Yes, but as equity builds, the MID decreases. The first year of a 30 year mtg, over 80% of the payment is interest; it decreases over time.
- John Stuart Mill
Remind me again what other assets the average family can offer as collateral for a long-term secured loan.
- John Stuart Mill
Yeah. I am in a similar situation, combined with the fact that my career is one that has so far required me to move every three or four years to advance. With the housing market so volatile, I would have been stuck had I decided to buy instead of rent.
o.O
At 5.5% interest, yes. That seems a bit high for right now. 4% gives you ~68% of your payment as interest in the first year, and 62% in the sixth - so after five years, you're still getting 90% of the deduction and you've got about 10% of your loan paid off, plus any increase in overall value. If your equity is starting to eat substantially into the mortgage deduction you either had very little to start with or you've built up a lot of it.
Do we really want private individuals entering into secured loans where the consequence is losing their home though? Personal bankruptcy laws are relatively permissive because we don't want to let people get THAT screwed, but the literal roof over their head? Let them put it at risk to buy a car.
Better than losing their house because they don't have a car that can get them to a job that can pay for that house. Or better they can risk losing the house to foreclosure to put a new roof on it so they don't lose their house to the elements.
The fact that people use their house to secure loans for stupid reasons doesn't change that fact that a lot of people can't get unsecured loans for purchases that are vital or necessary, and their home is the only asset of any reasonable value they can use to secure a loan.
Which, along with rising prices, is exactly why we moved to get into the market when we did. We wanted to own a home to take advantage of equity (and also so we can do the things you can't do to a rental), and we wanted in right away while we could still afford entry.
Then: crash
Then: hilarity ensues
But on balance, home ownership is a net positive. You can rent for thirty years and then continue renting, or you can pay mortgage for thirty years and now you own a house. When you go into your sunset years, and probably have a lower income, you conveniently stop having a house payment, yay! If you want, you can sell it and buy a smaller place and now you own a home free and clear and you have extra money, yay!
There are negatives to owning a house, but they're mostly in the short term. If you're young and you buy a house and have no equity and suddenly your roof collapses, have fun paying for that. Not as big a deal when you're older and have a bigger savings, or you can take out a second mortgage if you really need to. It makes it harder to move around on a whim, but if you have kids and are established in your community, you're going to be more averse to moving anyway, and besides, you can carry your equity with you.
It seems to me that the HMID is a perfect tax deduction. It encourages a behavior that is very beneficial in the long term, less beneficial in the short term, and somewhat tricky to do when you're young and poor. Yes, it's a redistribution of wealth, just like every other deduction. Yes, it's "regressive", just like every other deduction. Yes, it costs money, just like every other deduction. It's a deduction. If we're trying to come up with ways to generate more tax revenue, raise taxes on the upper income some more. If you're pissed that the mortgage deduction often amounts to a way for rich people to pay less for their houses, hike their taxes to compensate for it.
And if that is the case, so be it in those cases. That doesn't mean that we should actively encourage people who can obtain personal loans to take out home equity loans instead, which is precisely what we do now with the HMID.
I would agree with you if it did not encourage people to keep their homes more at risk, since you will generally never be able to borrow at a cheaper rate than you can against your home. I would like to see the deduction phase out over the period in which you own the home, to encourage people to actually pay off their homes instead of taking out home equity loan after home equity loan because the rates are effectively better than car loans or other private loans.
How about if the HMID can only be used for initial mortgages and refinancing w/o removing equity?
Personally, I'd just like to see the HMID changed from a deduction to a credit (making it not-regressive) and capping it out at some fixed level tied to median income.
And then the question is whether or not it ends up hiking the home price in a competitive market, because you can afford more house, making it a subsidy that kicks in when you cash out. How about a refundable tax credit of, say, 5% of the house price, capped at whatever... $15000, say... for a first-time buyer? Costs money, encourages behavior beneficial in the long term, doesn't give $Texas to people who don't need it, and if you do a good job on the qualifying rules you make it a lot harder for people to end up underwater.
I think that a down payment assistance program like the first time home buyers credit is the way to go, personally. If you say "first mortgage only" then people will put down the smallest down payments possible, and repay on the longest schedule.
Where if we hadn't closed until January 1st, we would have gotten a $8000 credit that we wouldn't have had to repay at all.
EDIT - We probably would have waited, but it seemed like the world might melt down if we waited an extra week or two. Late 2008 was scary, you know?
Geth delights in the misfortunes of those who do not plan their lives around optimal tax behaviors.
Yeah, all those suckers who died December 31st, 2009 or January 1st, 2011.
The HMID does not actually encourage home ownership, it encourages larger home ownership. As in, buying a larger house. (Or buying a second house.) I see no reason for the government to subsidize larger houses, let alone second houses, which offer no societal benefits over smaller houses. If you want to encourage home ownership, you are better served by subsidizing down-payments, particularly for first-time home buyers.
Technically, it subsidizes larger mortgages, not larger homes. That can manifest in buying larger homes, or in putting less down on a more modest home. Either way, its not good policy.
Yes, yes we absolutely should. You should never encourage unsecured borrowing over secured borrowing. Unsecured borrowing is always going to be more expensive, even without the MID, it is going to be more limited in terms of the amount of funds, and it is going to be much harder to get away from if things don't go as you planned.
- John Stuart Mill
I respectfully disagree. You are saying that we should encourage a higher risk behavior (entering into secured debt) in exchange for a short term reward (lower interest rate). The lower interest rate does not come without a price, and in this case, the price is pledging your home if you fail to make the loan payments. Secured debt has a lower interest rate because the lender has a lower risk, not because the borrower's risk is lower.
- John Stuart Mill
Absent homestead exemptions, can't a unsecured creditor come after a persons home anyway?