Irvine Housing Blog

What if the current system was to be phased out? Jan.1 201X make all purchases/refis eligable for 15% mortgage interest tax credit, any home purchased prior to that is “grand fathered in” and still eligable under the current tax code. If someone refi’s, they’re no longer eligable. That way you don’t get a brunt of strategic defalters and we still give the new loan owners something to look forward to.

...I would prefer if we eliminated all tax subsidies on home ownership…

Exactly!  Keep government out of the real estate markets!  Let the free markets work!

Another benefit of no HMID is the elimination of all the useless make work for tax accountants.

Those cost saving alone have just got to be substantial.

A couple points on taxes.  In California, households start itemizing more quickly than in other states because incomes are higher and the state income tax is high.  Therefore, a household making $75K+ may start to itemize because their state income tax exceeds the Standard Deduction. 

Also, the AMT starts “taking back” what the Standard Deduction gives at higher income/taxation levels.

Every year I do our taxes in TurboTax, I run an alternative scenario without itemizing mortgage interest and property taxes.  Then I know exactly how much benefit the tax code provided us in that year for home “ownership.”  In 2010, that figure was ~$1,700 monthly.

Why not just start by eliminating the second home mortgage deduction?  This seems like such a no-brainer and surely has political backing by the vast majority.  There really is no rational justification for such a deduction and is obviously a handout to the wealthy.

Everyone I know who itemizes basically commits tax fraud every year. They itemize car gas for their “work,” office space that they have at home for personal uses, major appliance purchases, sometimes even groceries. They even brag about it but of course with fingers crossed that they never get an audit. And they probably never will. I think it all stems from our national culture of “everybody’s doing it so why shouldn’t I?” MID is a ridiculous handout to the rich but middle class pretenders will do whatever they can to take advantage of it, even though most of them should legally just be taking the standard deduction. The risk of getting busted by the IRS is real and has nasty consequences.

Seems unlikely MID would be eliminated.  That is like touching social security or medicare - makes the politicans responsible unelectable.  Much more likely that the debt will just keep growing, and money will keep being printed (aka a default of sorts via printing).

Fed’s Dudley: Break the ‘Vicious Cycle’ in Housing
http://www.bloomberg.com/news/2011-10-24/fed-s-dudley-calls-for-breaking-vicious-cycle-of-housing-price-declines.html

I’m a homedebtor.

That out of the way, my thoughts are:

1.) I agree that the deduction has inflated housing prices unnecessarily, esp. in Orange County. I also think, rightly or wrongly, the deduction has played a major factor in the home buying process for many Americans.  I probably would still be renting today if there were no such deduction.  (I’d be pissed off though, since I really hated paying my landlord with his shoddy upkeep efforts, all of his pedantic annual 5% rent hikes, constant bargaining for basic repairs, and threats of moving ever year, etc.) 

2.) If the deduction were removed from the US tax code, then perhaps its best for a growing % of Americans to simply rent a nice house or apartment forever.  I mean, that way you’re not taking on too much debt, there’s no ball and chain on you, so you have financial liberty to borrow for things “your really need” like starting a business, etc., and you have freedom to move around for new employment opportunities, etc.

3.) They should remove the tax exemptions surrounding property taxes too while they’re at it.  I mean, seriously, why should loan-owners be protected from that when the renter of a SFH is basically paying these property taxes on the loanowners’ behalf anyway (via rent) and get no such “tax benefit”? 

4.) I know it would not be the end of the world.
France, Canada and I think the UK do not allow such mortgage interest deductions either.  I could be wrong, but believe more people rent in those societies.

5.) What about the capital gains exemptions when a house (primary residence) is sold? Should that benefit be rescinded too? If so, I think the financial benefit of renting would overwhelm that of loanowning. Of course, prices would decline, so actual rental parity in a place like Irvine, California would finally enter the “really interesting” territory.

Will this increase the rents for private rentals?

Does anyone think this will lower home prices proportionately?

Sounds like that “high interest/automatic lower prices” theory again.

Not going to happen, you won’t win the elections by putting further pressure on house prices, since 65% of households or so own real estate. People think about their own benefits first before they consider others and eliminating the deduction would most likely add dwonward pressure to the current prices.

The US is completely broke and the spending/borrowing continues, so I don’t think anyone can say it will never happen. 

The articles I’ve read state an estimated savings of US$100 billion per year if the MID were eliminated.

http://www.bloomberg.com/news/2011-10-17/a-taxing-debate-the-mortgage-interest-deduction.html

Looking at either the 2010 or 2011 US budget, $100 billion of extra revenue could theoretically almost halve our dedicated budget spent on net interest on US debt (currently $251 billion):

http://www.nytimes.com/interactive/2010/02/01/us/budget.html

If this were implemented, then they should put the money to good use, pay down the national debt and strengthen the US dollar.

Quoting Larry;
“Anyone out there who believes it is a good idea to spend $1 to receive $0.25 in return, please send me as much money as you wish, and I promise to send back 25% of it.”

Ii would like to publicly state that I am more generous than Larry.  I will make the same offer, only I will send back 30% of any money sent to me.
Please contact me as soonb as possible to start our wonderful new relationship.

Eliminate the MID?

Over (the hands of) my cold, dead body.

House prices would plummet another 25%... We just bought a home a would lose $400+ in interest deduction per MoNth!  Thats a lot of money for a family of 4 earning $100k… In los angeles!  You would have to lower sales tax, property taxes, ect… It would cause a hige increase in rent prices cause i would sell my home and rent… Rental market would become saturated… The economy would take a huge hit… That would be $5000-6000 year my family wouldnt spend.

I make $56k per year, own a small farm and itemize my taxes. It is not factual to state or imply that only X group of people making over X amount, itemize.

The need to get rid of the deduction and add in a National Property and Asset Tax.  This would then allow us to reduce taxes based on income and sales.