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.
Because you can declare bankruptcy when you have a bunch of credit card debt, and the debt goes away.
If you do that with a mortgage, your house goes away, too.
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.
This may or may not be a lesson time for me.
I have a house worth $250k with a $150k mortgage, a few grand in cash/savings and, say, $50k in other non-liquid assets.
I want to go on a super awesome trip that'll cost me $10k I don't have. I have two choices:
-Borrow $10k unsecured at 7%
-Borrow $10k (second mortgage or whatever) against the house ($100k equity) at 4%
If I fail to make the payments on the secured loan, I lose my house. (edit: presumably, house is sold and I get what's left after paying loan / first mortgage).
If I fail to make the payments on the unsecured loan, isn't the lender going to be able to go after my stuff anyways?
It seems like an unsecured loan would only be better in the event of a bankruptcy where your residence is protected or something like that.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
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.
Because you can declare bankruptcy when you have a bunch of credit card debt, and the debt goes away.
If you do that with a mortgage, your house goes away, too.
Bingo. Secured creditor status relates to the priority in which they participate in bankruptcy. You can't take secured assets (like a mortgaged house) out of the bankruptcy estate in most cases.
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.
This may or may not be a lesson time for me.
I have a house worth $250k with a $150k mortgage, a few grand in cash/savings and, say, $50k in other non-liquid assets.
I want to go on a super awesome trip that'll cost me $10k I don't have. I have two choices:
-Borrow $10k unsecured at 7%
-Borrow $10k (second mortgage or whatever) against the house ($100k equity) at 4%
If I fail to make the payments on the secured loan, I lose my house. (edit: presumably, house is sold and I get what's left after paying loan / first mortgage).
If I fail to make the payments on the unsecured loan, isn't the lender going to be able to go after my stuff anyways?
It seems like an unsecured loan would only be better in the event of a bankruptcy where your residence is protected or something like that.
Unless you've secured the debt with your home, a debt collector can't go after your home at all, other than maybe putting a lien on it.
If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
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.
If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
Right, but it's still your house, and as long as you continue to make mortgage payments, you can continue to live in it regardless of what other debts you have. Sure, you won't be able to sell it or anything, but nothing stops you from living there.
And if you declare bankruptcy, that lien will go away, too.
Which means that with an unsecured loan you're buying bankruptcy insurance (vis-à-vis mortgage). That said, you'd think the people with the highest risk of bankruptcy would have the hardest time getting an unsecured loan in the first place, and a higher rate if they can. So I guess the person who should take the unsecured loan has very little equity available... meaning they probably can't get a secured one in the first place.
If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
Right, but it's still your house, and as long as you continue to make mortgage payments, you can continue to live in it regardless of what other debts you have. Sure, you won't be able to sell it or anything, but nothing stops you from living there.
And if you declare bankruptcy, that lien will go away, too.
This is interesting and a lot different than under Illinois law.
Here, you only get an exemption of, I think, 15,000 dollars of your equity after they sell your house from a unsecured loan.
It seem odd that you could remove a lien from your primary residence and basically own your house outright after a bankruptcy.
If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
Right, but it's still your house, and as long as you continue to make mortgage payments, you can continue to live in it regardless of what other debts you have. Sure, you won't be able to sell it or anything, but nothing stops you from living there.
And if you declare bankruptcy, that lien will go away, too.
This is interesting and a lot different than under Illinois law.
Here, you only get an exemption of, I think, 15,000 dollars of your equity after they sell your house from a unsecured loan.
It seem odd that you could remove a lien from your primary residence and basically own your house outright after a bankruptcy.
There is almost certainly a primary residence exemption from that. I would be shocked as hell if there weren't.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
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If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
Right, but it's still your house, and as long as you continue to make mortgage payments, you can continue to live in it regardless of what other debts you have. Sure, you won't be able to sell it or anything, but nothing stops you from living there.
And if you declare bankruptcy, that lien will go away, too.
Only if your equity is below the exemption amount. If your equity exceeds the exemption, say because you've decided mortgages are bad and unsecured debt is the tits, you will still lose your home. The trustee will sell your house, pay you the exemption (100k for a married couple in CA, 20k for a single homeowner without a more beneficial state system to take advantage of), and use the rest of the proceeds to settle your debts.
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.
If the creditor gets a judgement, he can attach a lien to the property. That will prevent any action requiring a clear chain of title until the lien is removed.
Right, but it's still your house, and as long as you continue to make mortgage payments, you can continue to live in it regardless of what other debts you have. Sure, you won't be able to sell it or anything, but nothing stops you from living there.
And if you declare bankruptcy, that lien will go away, too.
This is interesting and a lot different than under Illinois law.
Here, you only get an exemption of, I think, 15,000 dollars of your equity after they sell your house from a unsecured loan.
It seem odd that you could remove a lien from your primary residence and basically own your house outright after a bankruptcy.
There is almost certainly a primary residence exemption from that. I would be shocked as hell if there weren't.
Been out of school so long that I had to look it up, embarrassing.
Anyway, I was about 90 percent right. You have a 15,000 dollar exemption for your primary residence. If you have less equity than that you can keep it otherwise they sell it and give you the 15,000.
How does it work where you are? Just a straight 100 percent exemption on primary plus free an clear title? That seems really generous.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Not true, because property tax is ALSO often tax deductible.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Let's be fair - when it comes to property, CA is its own tier of derp.
If you are expecting to buy your first home in the Bay Area, then yes, you are going to have trouble saving up for it. Just like you would have trouble buying in Palm Springs or Orange County. Living in a high-rent district is a luxury.
The Bay Area doesn't have much room to grow, but it is a highly desirable place to live. That drives up the price way more than the MID (and again, that is not the same as saying it drives up the cost). To a lesser degree, the universities, transpotation infrastructure, port facilities and gay community, will also drive up housing prices.
On the other hand, if you head east to Tracy, you will be looking at homes that cost about 40% what they do over the hill. It's an ugly commute, but the average person can afford to buy there.
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.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Let's be fair - when it comes to property, CA is its own tier of derp.
True, but CA fails by having crazy low property taxes. In states with sane property tax rates, it seems like the divergence would be even less... divergy.
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If you are expecting to buy your first home in the Bay Area, then yes, you are going to have trouble saving up for it. Just like you would have trouble buying in Palm Springs or Orange County. Living in a high-rent district is a luxury.
The Bay Area doesn't have much room to grow, but it is a highly desirable place to live. That drives up the price way more than the MID (and again, that is not the same as saying it drives up the cost). To a lesser degree, the universities, transpotation infrastructure, port facilities and gay community, will also drive up housing prices.
On the other hand, if you head east to Tracy, you will be looking at homes that cost about 40% what they do over the hill. It's an ugly commute, but the average person can afford to buy there.
Tracy??? Yeah, the idea of 'why not move to Tracy to avoid high home prices' is the exact problem that the MID is causing. Tracy has no public transport to SF. Someone 'moving to Tracy' is literally bad for the entire world if they work in SF. You'd be sitting in traffic for 2 hours each way every day.
The bay areas high cost exaggerates the effect of the MID. Effectively everyone who can force their way into the housing market in the bay area becomes one of the rich folk taking advantage of the tax break. You don't need to be rich when you start out, the tax break is so huge and the monthly outlay barely more than the rent that the numbers add up to make it hugely valuable. And hell, combined with Prop 8 it means that you can refinance your home, while paying property tax based on the 1940's value. Which means there is a HUGE incentive to not sell if you've lived in your home for a while, driving prices higher still. Affording life in the bay area is no problem, and the home prices should be high because it's not Tracy (thank god), it just shouldn't be as high as it is.
edit - Heck, spacekungfuman just mentioned how he comes out ahead by using the deduction. And I'm sure he'll agree that the fact he came out ahead is good for him, and made him willing to pay more for his house. So home values went up, and SKFM got cash from the rest of us to help him buy his house.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
If you are expecting to buy your first home in the Bay Area, then yes, you are going to have trouble saving up for it. Just like you would have trouble buying in Palm Springs or Orange County. Living in a high-rent district is a luxury.
The Bay Area doesn't have much room to grow, but it is a highly desirable place to live. That drives up the price way more than the MID (and again, that is not the same as saying it drives up the cost). To a lesser degree, the universities, transpotation infrastructure, port facilities and gay community, will also drive up housing prices.
On the other hand, if you head east to Tracy, you will be looking at homes that cost about 40% what they do over the hill. It's an ugly commute, but the average person can afford to buy there.
Tracy??? Yeah, the idea of 'why not move to Tracy to avoid high home prices' is the exact problem that the MID is causing. Tracy has no public transport to SF. Someone 'moving to Tracy' is literally bad for the entire world if they work in SF. You'd be sitting in traffic for 2 hours each way every day.
The bay areas high cost exaggerates the effect of the MID. Effectively everyone who can force their way into the housing market in the bay area becomes one of the rich folk taking advantage of the tax break. You don't need to be rich when you start out, the tax break is so huge and the monthly outlay barely more than the rent that the numbers add up to make it hugely valuable. And hell, combined with Prop 8 it means that you can refinance your home, while paying property tax based on the 1940's value. Which means there is a HUGE incentive to not sell if you've lived in your home for a while, driving prices higher still. Affording life in the bay area is no problem, and the home prices should be high because it's not Tracy (thank god), it just shouldn't be as high as it is.
edit - Heck, spacekungfuman just mentioned how he comes out ahead by using the deduction. And I'm sure he'll agree that the fact he came out ahead is good for him, and made him willing to pay more for his house. So home values went up, and SKFM got cash from the rest of us to help him buy his house.
Yes. Thanks, guys!
Its really not a well thought out policy, but its hard to change. Transition costs are a big deal in tax changes, since people order their whole lives around things like the home mortgage interest deduction.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Not true, because property tax is ALSO often tax deductible.
Plus if you're renting the cost of the property tax to the building owner is already factored into your rent.
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SerukoFerocious Kittenof The Farthest NorthRegistered Userregular
This is the kind of insane calculus that just boggles the mind.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
"How are you going to play Dota if your fingers and bitten off? You can't. That's how" -> Carnarvon
"You can be yodeling bear without spending a dime if you get lucky." -> reVerse
"In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
"In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
This is the kind of insane calculus that just boggles the mind.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
You are talking about transition costs, which are remarkably high for any change to the HMID, but they don't make it a good policy, just a painful policy to change.
Rwiw, the first ime home buyer credit was more meaningful to me at the time I used it than the HMID has ever been, even though it netted me much less money in total than HMID does in a year. The government could certainly make better use of the money I save with HMID than I can. Remember, this is up there with charitable giving and exclusion of employer provided health insurance as one of the biggest tax expenditures.
This is the kind of insane calculus that just boggles the mind.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
You should probably read the thread before you decide we're advocating fucking over the middle class.
If you are expecting to buy your first home in the Bay Area, then yes, you are going to have trouble saving up for it. Just like you would have trouble buying in Palm Springs or Orange County. Living in a high-rent district is a luxury.
The Bay Area doesn't have much room to grow, but it is a highly desirable place to live. That drives up the price way more than the MID (and again, that is not the same as saying it drives up the cost). To a lesser degree, the universities, transpotation infrastructure, port facilities and gay community, will also drive up housing prices.
On the other hand, if you head east to Tracy, you will be looking at homes that cost about 40% what they do over the hill. It's an ugly commute, but the average person can afford to buy there.
Tracy??? Yeah, the idea of 'why not move to Tracy to avoid high home prices' is the exact problem that the MID is causing. Tracy has no public transport to SF. Someone 'moving to Tracy' is literally bad for the entire world if they work in SF. You'd be sitting in traffic for 2 hours each way every day.
That is not a problem caused by the MID. That is a problem of you wanting to live in an area with high demand, low inventory and a number of features that raise property values (and focusing solely on how factors affect the list price, while ignoring how they affect the actual cost of a home financed over 30 years). If you can't afford to buy in the Hamptons, it isn't the MID that is stopping you.
The bay areas high cost exaggerates the effect of the MID. Effectively everyone who can force their way into the housing market in the bay area becomes one of the rich folk taking advantage of the tax break. You don't need to be rich when you start out, the tax break is so huge and the monthly outlay barely more than the rent that the numbers add up to make it hugely valuable.
If you don't have to be rich to start out, what's stopping you from buying and magically becoming rich? Do your outlay calculations include property taxes, homeowners insurance and whatnot? Yes they are deductible, but that still leaves you on the hook for 55-75% of their cost depending on how much you make.
And hell, combined with Prop 8 it means that you can refinance your home, while paying property tax based on the 1940's value. Which means there is a HUGE incentive to not sell if you've lived in your home for a while, driving prices higher still. Affording life in the bay area is no problem, and the home prices should be high because it's not Tracy (thank god), it just shouldn't be as high as it is.
I know unsubstantiated rhetoric is way more fun than facts, but just so you are aware, no property in California is being taxed based on its 1940's value. And not selling your home doesn't drive prices higher unless you aren't planning to buy a replacement. Otherwise the ratio of inventory vs buyers remains exactly the same.
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.
This is the kind of insane calculus that just boggles the mind.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
You should probably read the thread before you decide we're advocating fucking over the middle class.
To be fair, you are advocating a course of action that would completely shitcan the standard deduction.
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.
This is the kind of insane calculus that just boggles the mind.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
@seruko I'm sorry, did you miss the part where everyone advocating gutting the HMID suggested replacing it with means-tested down-payment subsidies
Because everyone advocating gutting the HMID did that, since it fulfills the stated goal of HMID more effectively, efficiently, and progressively
Eliminating the MID would raise taxes more for suburban residents than for those in central cities or outside metropolitan areas. Limiting the benefit of the deduction to 28 percent of interest would affect far fewer taxpayers than eliminating the MID, but those affected would be even more disproportionately concentrated among residents of suburbs. Replacing the MID with the non-refundable credit options would increase taxes for suburban residents, lower taxes for those outside metropolitan areas, and leave average taxes for central city residents about the same. The results would be similar for the refundable credit, except that those outside metropolitan areas would benefit even more than with a non-refundable credit
Eliminating the MID would affect approximately the same share of taxpayers in all regions of the country. Differences in average tax changes across regions would be modest, with residents of the Northeast paying on average the most additional tax and residents of the South the least. Capping the mortgage deduction at 28 percent of interest would also affect about the same share of taxpayers in all regions, with the average tax changes again largest in the Northeast, but now smallest in the Midwest. Replacing the MID with either a refundable or non-refundable credit would affect different numbers of metropolitan area taxpayers across regions. The share receiving a net tax cut would be highest in Midwest metro areas and lowest in metro areas of the Northeast; on average, taxpayers in metro areas in the Northeast would see their taxes rise by $75 while those in Midwest metro areas would see their taxes fall by $26.
In summary, replacing the MID with any of the credit options would benefit low- and middle-income groups, blacks and Hispanics, residents outside metropolitan areas, and, among metro residents, those living in the Midwest. Redistribution among groups would be larger with refundable than with non-refundable credits. The distributional effects largely reflect the fact that the mortgage interest deduction provides the largest benefit relative to a credit for taxpayers who itemize, face high marginal tax rates, and live in expensive homes.
There is another catch that someone mentioned in passing, but has generally been ignored. Interest on business related debt is deductible. By eliminating the HMID, you only do so for owner-occupied homes. For landlords, that interest would still count as a business expense and be deductible. It would also partially apply for people who work from home.
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.
There is another catch that someone mentioned in passing, but has generally been ignored. Interest on business related debt is deductible. By eliminating the HMID, you only do so for owner-occupied homes. For landlords, that interest would still count as a business expense and be deductible. It would also partially apply for people who work from home.
If you use the home office thing you lose your capital gains exemption so that is a bad idea.
Edit: also, the comparison is apples to oranges because homeowners don't pay taxes on rent that they pay to themselves and don't have to pay capital gains tax when they sell.
There is another catch that someone mentioned in passing, but has generally been ignored. Interest on business related debt is deductible. By eliminating the HMID, you only do so for owner-occupied homes. For landlords, that interest would still count as a business expense and be deductible. It would also partially apply for people who work from home.
If you use the home office thing you lose your capital gains exemption so that is a bad idea.
Edit: also, the comparison is apples to oranges because homeowners don't pay taxes on rent that they pay to themselves and don't have to pay capital gains tax when they sell.
A home office does not negate the capial gains exemption. you will owe some taxes, but those are based on the depreciation of the home office (which will probably be about the same amount you saved by taking that deduction). Also, landlords have the option of a 1031 exchange.
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.
There is another catch that someone mentioned in passing, but has generally been ignored. Interest on business related debt is deductible. By eliminating the HMID, you only do so for owner-occupied homes. For landlords, that interest would still count as a business expense and be deductible. It would also partially apply for people who work from home.
If you use the home office thing you lose your capital gains exemption so that is a bad idea.
Edit: also, the comparison is apples to oranges because homeowners don't pay taxes on rent that they pay to themselves and don't have to pay capital gains tax when they sell.
A home office does not negate the capial gains exemption. you will owe some taxes, but those are based on the depreciation of the home office (which will probably be about the same amount you saved by taking that deduction). Also, landlords have the option of a 1031 exchange.
Like kind exchange (which, correct me if I am wrong is only tax differed anyway) is hardly the same as a complete exemption and it doesn't change the point that a landlord would still end up paying more in taxes even if we did away with morgage interest deduction.
I mean, currently if someone wanted to pay themselves rent and set their house up as income property (I used to do this in my building) that is perfectly legal. It's just that primary residences has so many benefits that that would it would not make sense to do so.
There is another catch that someone mentioned in passing, but has generally been ignored. Interest on business related debt is deductible. By eliminating the HMID, you only do so for owner-occupied homes. For landlords, that interest would still count as a business expense and be deductible. It would also partially apply for people who work from home.
If you use the home office thing you lose your capital gains exemption so that is a bad idea.
Edit: also, the comparison is apples to oranges because homeowners don't pay taxes on rent that they pay to themselves and don't have to pay capital gains tax when they sell.
A home office does not negate the capial gains exemption. you will owe some taxes, but those are based on the depreciation of the home office (which will probably be about the same amount you saved by taking that deduction). Also, landlords have the option of a 1031 exchange.
Like kind exchange (which, correct me if I am wrong is only tax differed anyway) is hardly the same as a complete exemption and it doesn't change the point that a landlord would still end up paying more in taxes even if we did away with morgage interest deduction.
I mean, currently if someone wanted to pay themselves rent and set their house up as income property (I used to do this in my building) that is perfectly legal. It's just that primary residences has so many benefits that that would it would not make sense to do so.
It's not that they are getting the deduction that concerns me. It is the complications that will arise with hybrid properties, rooms for let and so on. Right now, the mortgage deduction pretty much runs itself. We are changing it to be more progressive and efficient, but at the same time creating more grey areas and overhead.
I guess the best thing to do is get some numbers tumbling around. What percent of the population do we want this down payment subsidy to apply to? Does the income ceiling apply to individual or household income? Also, does this apply to first time buyers only, or all sales (there are advantages and drawbacks to either)?
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 discussing this issue with my ladyfriend; she owns her own house. Without getting into personal financial details, this year she itemized more than the standard deduction just in mortgage interest, and last year it was a lot more (she's since restructured the loan).
Important points would be that the mortgage is relatively new, so it's more interest heavy. However, I have to say, the Mortgage Deduction is definitely helping her quite a bit.
Letting reality sink in, I have absolutely zero faith that a Republican House can or would pass legislation that would help us as much (if at all). So, while it's all well and good to discuss how we could change things for the better, there is absolutely no way in Hell I would be behind any legislation of this kind going through the Republican House. They would absolutely go Turbo Regressive on it and I think we all know that.
So in political reality, we're not talking about improving the MID. We're talking about destroying it or Turbo Regressing it.
What this conversation has really made me realize is how differently laws like this impact different parts of the country. Here in San Francisco for example a house will rent for ~$30-35k a year. A 1 bedroom apartment for ~$24k. Buying a house requires ~$36000-48000 a year of mortgage payments. Even moving outside the city numbers remain at about 75% of the that until you go so far away that all the benefits (personal and societal) of living in a large city are eliminated.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Property taxes are also deductible
"How are you going to play Dota if your fingers and bitten off? You can't. That's how" -> Carnarvon
"You can be yodeling bear without spending a dime if you get lucky." -> reVerse
"In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
"In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
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Dhalphirdon't you open that trapdooryou're a fool if you dareRegistered Userregular
Just a quick chime in from a country where we do have a first homebuyers grant. Here in australia, All first homebuyers get to claim a one time payment of $7000 on a house with a purchase price up to $500k. If a married couple claim it, it counts as being claimed for both of them, and if you are married and one of you has previously claimed it, you cannot claim it together a second time.
If you are wanting to get people into their own homes, it seems to be an excellent way to do it.
The government also exempts first home buyers from paying stamp duty on their first home, which Is significant. On a home of 500k, that's 20k.
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If you do that with a mortgage, your house goes away, too.
This may or may not be a lesson time for me.
I have a house worth $250k with a $150k mortgage, a few grand in cash/savings and, say, $50k in other non-liquid assets.
I want to go on a super awesome trip that'll cost me $10k I don't have. I have two choices:
-Borrow $10k unsecured at 7%
-Borrow $10k (second mortgage or whatever) against the house ($100k equity) at 4%
If I fail to make the payments on the secured loan, I lose my house. (edit: presumably, house is sold and I get what's left after paying loan / first mortgage).
If I fail to make the payments on the unsecured loan, isn't the lender going to be able to go after my stuff anyways?
It seems like an unsecured loan would only be better in the event of a bankruptcy where your residence is protected or something like that.
Bingo. Secured creditor status relates to the priority in which they participate in bankruptcy. You can't take secured assets (like a mortgaged house) out of the bankruptcy estate in most cases.
And yes, in a bankruptcy, your home is protected.
- John Stuart Mill
And if you declare bankruptcy, that lien will go away, too.
This is interesting and a lot different than under Illinois law.
Here, you only get an exemption of, I think, 15,000 dollars of your equity after they sell your house from a unsecured loan.
It seem odd that you could remove a lien from your primary residence and basically own your house outright after a bankruptcy.
You can see how numbers like that lead to GIANT tax deductions for homeowners and a huge divergence between homeowners and non-homeowners in terms of their tax liability. The difference is so great, that the non homeowners find it hard to save towards the massive down payment required for a home in the area, even with the higher local wages.
Downpayment assistance would be a much more sensible way to assist, since everyone could get similar assistance rather than people who are richer getting more assistance and driving up prices.
Once you figure in the $10k per year in property taxes, most of that divergence in tax liability goes away.
Only if your equity is below the exemption amount. If your equity exceeds the exemption, say because you've decided mortgages are bad and unsecured debt is the tits, you will still lose your home. The trustee will sell your house, pay you the exemption (100k for a married couple in CA, 20k for a single homeowner without a more beneficial state system to take advantage of), and use the rest of the proceeds to settle your debts.
- John Stuart Mill
Been out of school so long that I had to look it up, embarrassing.
Anyway, I was about 90 percent right. You have a 15,000 dollar exemption for your primary residence. If you have less equity than that you can keep it otherwise they sell it and give you the 15,000.
How does it work where you are? Just a straight 100 percent exemption on primary plus free an clear title? That seems really generous.
Not true, because property tax is ALSO often tax deductible.
Let's be fair - when it comes to property, CA is its own tier of derp.
The Bay Area doesn't have much room to grow, but it is a highly desirable place to live. That drives up the price way more than the MID (and again, that is not the same as saying it drives up the cost). To a lesser degree, the universities, transpotation infrastructure, port facilities and gay community, will also drive up housing prices.
On the other hand, if you head east to Tracy, you will be looking at homes that cost about 40% what they do over the hill. It's an ugly commute, but the average person can afford to buy there.
- John Stuart Mill
True, but CA fails by having crazy low property taxes. In states with sane property tax rates, it seems like the divergence would be even less... divergy.
Tracy??? Yeah, the idea of 'why not move to Tracy to avoid high home prices' is the exact problem that the MID is causing. Tracy has no public transport to SF. Someone 'moving to Tracy' is literally bad for the entire world if they work in SF. You'd be sitting in traffic for 2 hours each way every day.
The bay areas high cost exaggerates the effect of the MID. Effectively everyone who can force their way into the housing market in the bay area becomes one of the rich folk taking advantage of the tax break. You don't need to be rich when you start out, the tax break is so huge and the monthly outlay barely more than the rent that the numbers add up to make it hugely valuable. And hell, combined with Prop 8 it means that you can refinance your home, while paying property tax based on the 1940's value. Which means there is a HUGE incentive to not sell if you've lived in your home for a while, driving prices higher still. Affording life in the bay area is no problem, and the home prices should be high because it's not Tracy (thank god), it just shouldn't be as high as it is.
edit - Heck, spacekungfuman just mentioned how he comes out ahead by using the deduction. And I'm sure he'll agree that the fact he came out ahead is good for him, and made him willing to pay more for his house. So home values went up, and SKFM got cash from the rest of us to help him buy his house.
Yes. Thanks, guys!
Its really not a well thought out policy, but its hard to change. Transition costs are a big deal in tax changes, since people order their whole lives around things like the home mortgage interest deduction.
Plus if you're renting the cost of the property tax to the building owner is already factored into your rent.
"As changing this thing hurts my perceived class enemies more than it helps me clearly it is a good idea," even though your class enemies don't give a flying frak about a couple of thousand dollars a year and your class friends depend on it to feed their families.
The biggest investment most middle class people have is their home.
So making homes harder to buy for the middle class while at the very same time reducing the value of middle class homes is like shooting a .45 cal cal. Into your forehead to spite your face.
It's walking into a dark tunnel during the zombie apocalypse kind of a bad call.
"You can be yodeling bear without spending a dime if you get lucky." -> reVerse
"In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
"In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
You are talking about transition costs, which are remarkably high for any change to the HMID, but they don't make it a good policy, just a painful policy to change.
Rwiw, the first ime home buyer credit was more meaningful to me at the time I used it than the HMID has ever been, even though it netted me much less money in total than HMID does in a year. The government could certainly make better use of the money I save with HMID than I can. Remember, this is up there with charitable giving and exclusion of employer provided health insurance as one of the biggest tax expenditures.
If you don't have to be rich to start out, what's stopping you from buying and magically becoming rich? Do your outlay calculations include property taxes, homeowners insurance and whatnot? Yes they are deductible, but that still leaves you on the hook for 55-75% of their cost depending on how much you make.
I know unsubstantiated rhetoric is way more fun than facts, but just so you are aware, no property in California is being taxed based on its 1940's value. And not selling your home doesn't drive prices higher unless you aren't planning to buy a replacement. Otherwise the ratio of inventory vs buyers remains exactly the same.
- John Stuart Mill
To be fair, you are advocating a course of action that would completely shitcan the standard deduction.
- John Stuart Mill
@seruko I'm sorry, did you miss the part where everyone advocating gutting the HMID suggested replacing it with means-tested down-payment subsidies
Because everyone advocating gutting the HMID did that, since it fulfills the stated goal of HMID more effectively, efficiently, and progressively
I like this study
- John Stuart Mill
If you use the home office thing you lose your capital gains exemption so that is a bad idea.
Edit: also, the comparison is apples to oranges because homeowners don't pay taxes on rent that they pay to themselves and don't have to pay capital gains tax when they sell.
A home office does not negate the capial gains exemption. you will owe some taxes, but those are based on the depreciation of the home office (which will probably be about the same amount you saved by taking that deduction). Also, landlords have the option of a 1031 exchange.
- John Stuart Mill
Like kind exchange (which, correct me if I am wrong is only tax differed anyway) is hardly the same as a complete exemption and it doesn't change the point that a landlord would still end up paying more in taxes even if we did away with morgage interest deduction.
I mean, currently if someone wanted to pay themselves rent and set their house up as income property (I used to do this in my building) that is perfectly legal. It's just that primary residences has so many benefits that that would it would not make sense to do so.
Like kind exchange (which, correct me if I am wrong is only tax differed anyway) is hardly the same as a complete exemption and it doesn't change the point that a landlord would still end up paying more in taxes even if we did away with morgage interest deduction.
I mean, currently if someone wanted to pay themselves rent and set their house up as income property (I used to do this in my building) that is perfectly legal. It's just that primary residences has so many benefits that that would it would not make sense to do so.
I guess the best thing to do is get some numbers tumbling around. What percent of the population do we want this down payment subsidy to apply to? Does the income ceiling apply to individual or household income? Also, does this apply to first time buyers only, or all sales (there are advantages and drawbacks to either)?
- John Stuart Mill
Important points would be that the mortgage is relatively new, so it's more interest heavy. However, I have to say, the Mortgage Deduction is definitely helping her quite a bit.
Letting reality sink in, I have absolutely zero faith that a Republican House can or would pass legislation that would help us as much (if at all). So, while it's all well and good to discuss how we could change things for the better, there is absolutely no way in Hell I would be behind any legislation of this kind going through the Republican House. They would absolutely go Turbo Regressive on it and I think we all know that.
So in political reality, we're not talking about improving the MID. We're talking about destroying it or Turbo Regressing it.
No thanks.
Property taxes are also deductible
"You can be yodeling bear without spending a dime if you get lucky." -> reVerse
"In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
"In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
If you are wanting to get people into their own homes, it seems to be an excellent way to do it.
The government also exempts first home buyers from paying stamp duty on their first home, which Is significant. On a home of 500k, that's 20k.