Author Topic: talk of reducing the mortgage deduction  (Read 19404 times)

Offline Smurf Hunter

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talk of reducing the mortgage deduction
« on: August 04, 2017, 04:21:01 PM »
http://www.politico.com/story/2017/08/04/trump-homeowner-tax-benefit-241328

This is nuts.  Even if they only did a small %, the perception would trash the real estate market, and probably defeat the purpose.
As anyone who owned real estate before 2008 recalls, just because the market plunges, doesn't change the amount you owe the bank.

Maybe the average homeowner isn't completely dialed in here, but part of the advantage of owning a home is the deduction on taxes.  If that's reduced or removed completely, combined with a soft or declining housing market, suddenly the economic advantage of home ownership is largely negated.

Could something this craptastically stupid really happen?

This is a loser short term for home owners and a long term loser for tax collectors because market prices will crash.

Offline Morning Sunshine

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Re: talk of reducing the mortgage deduction
« Reply #1 on: August 04, 2017, 04:32:59 PM »
I don't know.... you only get that deduction now if you HAVE A MORTGAGE.  I know people who could pay more on their mortgage, but do not because it would mess with their deductions.  Maybe we would get more people trying to pay off their homes?

Offline Smurf Hunter

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Re: talk of reducing the mortgage deduction
« Reply #2 on: August 04, 2017, 04:44:34 PM »
I don't know.... you only get that deduction now if you HAVE A MORTGAGE.  I know people who could pay more on their mortgage, but do not because it would mess with their deductions.  Maybe we would get more people trying to pay off their homes?

We have a car with less than a year of payments left.  I have the cash to pay it off, but wife and I decided we'd rather have the cash for emergencies than save $150 over the next 9 months.

If nothing else, buyers will get LESS house than previously.  Some quick napkin math for my situation, based on my current interest paid last month, and my income tax rate, it's more than $300 extra monthly.
That all said, if this hurts the real estate market, prices will drop so maybe it could be a wash for the cost of housing?

Offline Carl

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Re: talk of reducing the mortgage deduction
« Reply #3 on: August 04, 2017, 07:32:24 PM »
  The bad home loans from 2008 are what are called assets and they just said something like they plan to release 4 Trillon in assets ...wonder what is going to happen when that floods the way over valued market?

Online FreeLancer

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Re: talk of reducing the mortgage deduction
« Reply #4 on: August 04, 2017, 08:55:56 PM »
It would hurt me to lose that particular .gov handout, but that's probably the point.  Economists broadly agree that the mortgage deduction disproportionately favors the haves over the have-nots.  The current administration promised to right the economic inequalities of the flyover states, so accomplishing that at the expense of left-coast suburbanites with big mortgages probably won't provoke the expected outcry from Republicans in our current political climate.
« Last Edit: August 05, 2017, 10:39:57 PM by FreeLancer »

Offline iam4liberty

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Re: talk of reducing the mortgage deduction
« Reply #5 on: August 05, 2017, 12:37:22 AM »
Maybe we would get more people trying to pay off their homes?

Most definitely. And less people buying houses beyond their means.  And more people inheriting their family homes and renovating existing homes at much lower cost than searching for a different one.

Offline Carl

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Re: talk of reducing the mortgage deduction
« Reply #6 on: August 05, 2017, 04:37:00 AM »
  And more 4 family residences!

Offline iam4liberty

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Re: talk of reducing the mortgage deduction
« Reply #7 on: August 05, 2017, 07:49:03 AM »
It always seemed strange that people would pay 10s of thousands of dollars in extra interest to save a few hundred on taxes. 

http://www.interest.com/home-equity/advice/mortgage-interest-deduction-may-not-be-worth-what-you-think/

Another common misconception relates to the difference between a tax deduction and a tax credit.

A tax credit reduces your taxes dollar for dollar. If you get a $2,500 tax credit, your tax bill will be $2,500 lower.

The tax benefits associated with home ownership are deductions, not credits.

They reduce the amount of your taxable income. Their dollar value is equal to the amount of the deduction minus the standard deduction times your marginal tax rate.

So, if you have tax deductions of $15,000, you are married filing jointly and you fall into the 25% marginal tax bracket, you aren’t saving $15,000 on your tax bill.

You also aren’t saving $3,750 on your tax bill ($15,000 x 25%). You’re saving $650 ([$15,000 - $12,400] x 25%).

In fact, the Reason Foundation, a libertarian think tank, found the average amount homeowners saved thanks to the mortgage interest tax deduction was just $615 in 2012.

In the past, when interest rates were substantially higher (such as in the 1980s), the deductions were worth much more, but homeowners should still understand the true level of tax savings that home ownership brings, how these savings are calculated and that these savings are often overstated, even by financial and real estate experts.

The bottom line is that buying property to get tax benefits is the wrong reason to buy property.

The additional expenses associated with owning property will probably offset any tax benefits you receive.

And advice that you shouldn’t pay off your mortgage early because you’ll lose the tax deduction is just wrong. It doesn’t make sense to pay a dollar in interest to save 25 cents on your tax bill

Offline Redman

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Re: talk of reducing the mortgage deduction
« Reply #8 on: August 05, 2017, 08:08:48 AM »
When I had a mortgage I was I was never able to use the deduction simply because I didn't have enough other deductions to add up to more than the standard deduction.

Offline mountainmoma

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Re: talk of reducing the mortgage deduction
« Reply #9 on: August 05, 2017, 08:24:59 AM »
I am one of the families that even when I had a mortgage, it wasnt enough interest to be over the standard deduction, my neighbor has this situation also, it depends on how expensive your house is, lower income with less expensive houses means not "using" this write off. Where my eldest lives, out of state, if she every finds a house she can buy, in her area for the 'regular people', like her and just about everyone else, no-one is paying over 15,000 a year in interest on their mortgage, maybe 1,000/month total, not 1,000 or over just in interest !

So, I agree that for most of the country, for most average people, it does them no good, the people whom it does good are the coastal intellectual elites ( engineers, managers, etc...) who live where housing prices are expensive and then rich people. So, I agree with IamLiberty, it realy doesnt affect that many people. But, boy, are the ones around here going to fuss about it, because prices overall are high here and they are vocal !

Offline Morning Sunshine

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Re: talk of reducing the mortgage deduction
« Reply #10 on: August 05, 2017, 08:38:19 AM »
The bottom line is that buying property to get tax benefits is the wrong reason to buy property.

The additional expenses associated with owning property will probably offset any tax benefits you receive.

And advice that you shouldn’t pay off your mortgage early because you’ll lose the tax deduction is just wrong. It doesn’t make sense to pay a dollar in interest to save 25 cents on your tax bill
[/i]

exactly right.

Offline archer

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Re: talk of reducing the mortgage deduction
« Reply #11 on: August 05, 2017, 09:22:46 AM »
this will lead to less ppl buying homes i expect.

Offline Morning Sunshine

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Re: talk of reducing the mortgage deduction
« Reply #12 on: August 05, 2017, 09:30:13 AM »
this will lead to less ppl buying homes i expect.

and maybe some people should not be buying homes.  to some people, home ownership is a curse, not a blessing (as Dave Ramsey says).  Or maybe they buy homes they can afford.  Or less than they can "afford" - We were approved for twice as much as we wanted to pay, and that only because we put a cap.  They actually came back and said we could buy more than that.  Our realtor was thrilled, and started to show us bigger houses   ::)  Glad we did not; when 2008 happened (actually it hit us about 2010), we could still afford to make our payments.  If we had bought more just because "you qualify for more", we would have lost the house.

disclaimer - the loss of the deduction will hurt us also.  And I am not in favor of it if .gov doesn't also cut their spending.

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Re: talk of reducing the mortgage deduction
« Reply #13 on: August 05, 2017, 10:14:21 AM »
Mortgage deduction does me no good.
I have never itemized enough to beat the standard deduction.
So I don't really care.

Offline iam4liberty

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Re: talk of reducing the mortgage deduction
« Reply #14 on: August 05, 2017, 11:36:22 AM »
Below is the table from the Reason article. It is a few years old but about the same as current numbers.  It really benefits the upper middle class.  The vast majority of families see litlle benefit from it.  There is a major geographically component as well. Almost all the benefit accrues to people in the high cost areas like the coasts.  Very, very little benefit accrues to less expensive places to live like the midwest and south.  Basically, the middle class people in the Midwest and south are subsidizing those on the coasts.  It is the same with the state tax deduction.


Offline RitaRose1945

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Re: talk of reducing the mortgage deduction
« Reply #15 on: August 05, 2017, 11:53:33 AM »
A couple of things here...

First, I have to admit that I find it amusing that so many people (not here in particular - in the general population) who argue against entitlements and incentives are okay with it when it's a break on your taxes for having a mortgage.

Second, as some of you have said, it's not a break on home ownership, it's a break on maintaining debt for decades.

Also stated was that not everyone who can buy a house should, so if it cuts down on the numbers, that might be a good thing.  If fewer people are buying, the prices start dropping, and now it's suddenly affordable again for more people, and then it swings back and forth like that until it settles at what the market will bear with fewer artificial stimulants.

Part of my job several years ago was to notarize the loan documents for residential home buyers.  By law, I had to be an impartial third party, but I did hold up the various documents (circa 300 pages) and state what each one was for clarity, so they were aware of the document they were signing.  I couldn't say if those documents were good for them, bad for them, or somewhere in the middle.  And maybe I overstepped a bit when I would say "This document shows you have an adjustable rate loan, which means your interest can increase... and very likely will."  They didn't care.  They would tell me that they would just refinance if it went up by much, which was nearly impossible when that occurred, and obviously so.  If interest rates go up, they go up all over, not just with one company.  "Oh, by the way," I would point out - "Here's the document showing you have a $10,000 pre-payment penalty should you choose to refinance within five years."  They still didn't care.  They just wanted that house which, just a few years later, was worth half what they paid... if they were lucky.

Offline Stwood

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Re: talk of reducing the mortgage deduction
« Reply #16 on: August 05, 2017, 04:27:00 PM »
When I had mortages, the deductions never amounted to enough to even keep track of the possible deductions.

Offline Redman

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Re: talk of reducing the mortgage deduction
« Reply #17 on: August 05, 2017, 04:52:02 PM »
So it seems only the well to do and those living above their means can take advantage of the deduction. The average person living within their means can not benefit from the deduction. Of course the average person living with in their means likely can not afford to buy a newly built home and maybe just barely a 40 or 50 year old home.

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Re: talk of reducing the mortgage deduction
« Reply #18 on: August 05, 2017, 05:00:01 PM »
Of course the average person living with in their means likely can not afford to buy a newly built home and maybe just barely a 40 or 50 year old home.

Agreed, and I got lucky 5 years ago and picked up a 7 year old $380,000 home for $129,000.
Well within my means.
It was a perfect storm of short sales, and income.

Online FreeLancer

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Re: talk of reducing the mortgage deduction
« Reply #19 on: August 05, 2017, 05:27:14 PM »
This piece, from PBS News, ties into this debate.

The premise is that the upper middle class (20% with earnings > $117k) rigs policy and society to their advantage, which largely keeps those below them from moving up. 

Offline Smurf Hunter

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Re: talk of reducing the mortgage deduction
« Reply #20 on: August 05, 2017, 10:27:06 PM »
This piece, from PBS News, ties into this debate.

The premise is that the upper middle class (20% with earnings > $117k) rigs policy and society to their advantage, which largely keeps those below them from moving up.

In 2017 $117k is upper middle class?  Maybe I live in the wrong zipcode. 

People in southern CA understand this.  When the average home price is over $500k, the household needs to earn more.  So mom gets a full time job, career is not just ego, but necessary to remain economically viable in that market.


Offline iam4liberty

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Re: talk of reducing the mortgage deduction
« Reply #21 on: August 05, 2017, 11:08:24 PM »
In 2017 $117k is upper middle class?  Maybe I live in the wrong zipcode. 

People in southern CA understand this.  When the average home price is over $500k, the household needs to earn more.  So mom gets a full time job, career is not just ego, but necessary to remain economically viable in that market.

Or the policies driving home prices to those levels could be stopped. It would probably be better if we changed the system so that people dont have to to pay 50% premiums above construction on homes, $150 for an aspirin in hospitals, $200k for a college degree, etc   The market distortions are enormous.

Agreed, and I got lucky 5 years ago and picked up a 7 year old $380,000 home for $129,000.
Well within my means.
It was a perfect storm of short sales, and income.

I am sure it was more than luck.  At the very least you identified an opportunity and had the courage to go for it.  Well played!

First, I have to admit that I find it amusing that so many people (not here in particular - in the general population) who argue against entitlements and incentives are okay with it when it's a break on your taxes for having a mortgage.

Its a good point.  But it seems fair to argue that the income tax itself is an unjust taking and they are just trying to minimize the theft from them.  Or said a different way, a deduction (where you are keeping your own money) is different than a credit (where you are taking money from others).  Most entitlements are credits and therefore much harder to justify.


Offline Redman

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Re: talk of reducing the mortgage deduction
« Reply #22 on: August 06, 2017, 07:57:29 AM »
I am sure it was more than luck.  At the very least you identified an opportunity and had the courage to go for it.  Well played!

We had the opportunity and since we couldn't take the mortgage deduction we took her parents house when they died and got rid of the house payment. Money saved.

Offline mountainmoma

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Re: talk of reducing the mortgage deduction
« Reply #23 on: August 06, 2017, 08:34:22 AM »
Or the policies driving home prices to those levels could be stopped. It would probably be better if we changed the system so that people dont have to to pay 50% premiums above construction on homes, $150 for an aspirin in hospitals, $200k for a college degree, etc   The market distortions are enormous.


Home prices out here have nothing to do with construction costs, which of course are expensive, but with property, land, prices due to too many people and no more room, and just basically lack of supply v demand and outright speculation. A house sells for the largest amount it can get away with, and most houses are not new construction, that is very rare. Now it could be that when new houses are built right outside of the bay area, that they are gouging based on what houses go for closer in.

So, because of all that, people with incomes that can be fairly high consider themselves middle class. A family with an income of 200,00 would consider themselves middle class, based on having to struggle with 2 income earners to pay a mortgage on a modest home. Of course, about everyone considers themselves middle class from incomes of about 60 - 300 .

It is hard to look at home prices you read about as they often include condos. So, I doubt an average home price in southern Ca is 500, sounds low, but I dont live there. You cant get a home for that low around here. Maybe a teardown. A small cabin by me did sell for 650 last week, so this does happen, but that is low end, not average. I think a family anywhere in the bay area would budget for at least 800, for a commute to silicon valley, and much more in a decent neighborhood in the valley proper. I hear of rents on a 3 bedroom house of 3500-5000 a month, maybe a 2bdrm apt or condo can be as low as 2500. Which renters complain about, but which make perfect sense given the mortgage payments and property tax payments if such were to be purchased at todays market. SO, new buyers do have mortgage deduction write-offs, and people who bought over 20 years ago, maybe not.
« Last Edit: August 06, 2017, 08:46:13 AM by mountainmoma »

Offline RitaRose1945

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Re: talk of reducing the mortgage deduction
« Reply #24 on: August 06, 2017, 11:48:33 AM »
In 2017 $117k is upper middle class?  Maybe I live in the wrong zipcode. 

People in southern CA understand this.  When the average home price is over $500k, the household needs to earn more.  So mom gets a full time job, career is not just ego, but necessary to remain economically viable in that market.


Depends on whether we're talking household income or individual income too.

Offline iam4liberty

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Re: talk of reducing the mortgage deduction
« Reply #25 on: August 06, 2017, 05:25:30 PM »
Home prices out here have nothing to do with construction costs, which of course are expensive

That is my point, it should! 

There is plenty of land out West.  Population density of California is less than states like pennsylvania.  Yet avrrage home price in pennsylvania is $160k vs $390k in California.  There is a major market distortion in California caused by building and other policies. 


Offline RitaRose1945

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Re: talk of reducing the mortgage deduction
« Reply #26 on: August 06, 2017, 06:17:39 PM »
That is my point, it should! 

There is plenty of land out West.  Population density of California is less than states like pennsylvania.  Yet avrrage home price in pennsylvania is $160k vs $390k in California.  There is a major market distortion in California caused by building and other policies.

There is plenty of land in the west, but a large chunk of it is virtually unusable, so the population is highly concentrated.  Nevada has the same problem as inland Southern California, though we have the addition of something like 80% (can't remember the actual number - 84%?) of the land in the state being the property of the federal government.

If there's no water, there are no utilities even reasonably close by, and no industry within 100 miles or more, then you're not going to get anyone except those willing and able to live completely off grid - assuming the government doesn't own the land in the first place.  And most people either can't or won't do that, so they end up piled on top of each other and fighting to outbid each other on the available homes.

Offline mountainmoma

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Re: talk of reducing the mortgage deduction
« Reply #27 on: August 06, 2017, 09:44:56 PM »
That is my point, it should! 

There is plenty of land out West.  Population density of California is less than states like pennsylvania.  Yet avrrage home price in pennsylvania is $160k vs $390k in California.  There is a major market distortion in California caused by building and other policies.

Jobs. The empty land is not by the jobs. The northern CA insane housing prices are in the greater San francisco/Silicon Valley area. People there will bid up pricesso they can live anywhere near by where they work. There is alot of industry concentrated there. And, alot concentrated in, let's say, Palo Alto, which has so much more companies than it does housing that there is all this traffic, and a light rail and the cal train bring commuters in from the close places like San Jose.

This perceived problem is being worked on by the new bullet train. They have given up on the southern CA route/connection for the time being and are implementing the first piece of the rail line from Merced to San Jose, and upgrading the CalTrain line that goes from SanJose up the peninsula to the dense job areas and ends in San Francisco. So, in effect, in 7 years they say you will be able to get from Merced to SanJose in an hour. So, there is the new housing area.....
Quote
Bay Area leaders, however, say the train to Silicon Valley would also open up a world of opportunities here.

“We are talking about a trip from Madera taking 40 minutes to downtown San Jose when you cannot get from the Almaden Valley to downtown San Jose in 40 minutes,” said Carl Guardino, CEO of the Silicon Valley Leadership Group. “The unemployment rate in the Central Valley is twice the amount as the rest of California, and this is going to provide such opportunities for workers throughout the Central Valley and then a way for travelers to get from the Central Valley to jobs in Silicon Valley.”

Bullet train proponents say another reason it will be such a game changer for the Bay Area is that it will make it easier to electrify Caltrain from San Jose to San Francisco because the bullet trains and Caltrain will run on the same tracks. Moreover, Guardino said, getting the train here by 2025 means it would arrive at about the same time as the scheduled BART extension to downtown San Jose.

“So we would have electrified Caltrain, BART and high-speed rail all coming together at the Grand Central Station of the West: Diridon Station,” said Guardino, a member of the state’s transportation commission.

“It is obviously a great victory for Silicon Valley

http://www.mercurynews.com/2016/02/17/california-bullet-train-headed-first-to-san-jose-a-big-bay-area-win/

Quote
California’s Central Valley and Silicon Valley are less than three hours apart by car, but the small towns and vast stretches of farmland along the middle of the state are a world away from $3,000-per-month studio apartments and jammed freeways.

America’s first-ever high-speed rail line would shrink the distance between the two estranged valleys. As soon as 2025, it could connect the nation’s breadbasket with its most powerful economic engine, whisking people from the agri-industrial city of Fresno to San Jose in under an hour.

In recent weeks, that vision appeared to be coming together with lightning-like speed — something considered impossible before June 6.

That’s when search giant Google announced plans to build a 20,000-employee campus within easy walking distance of San Jose’s downtown Diridon Station, where both bullet and BART trains would stop, raising some tantalizing possibilities:

Will the 220-mph train become a Silicon Valley Express for droves of millennials and others who can barely afford to rent, let alone buy, a Bay Area home? Will high-tech companies begin moving some of their operations to a part of the state where a family can still buy a nice three-bedroom house for $300,000, triggering a monumental population shift in California?

“Why not build new communities, well-designed communities, sustainable communities in the Central Valley?” asked Jim Wunderman, president and CEO of the Bay Area Council, a business-sponsored public policy group. Why not “have more folks live there and have an efficient and pleasant train commute into the Bay Area?”

http://www.santacruzsentinel.com/article/NE/20170723/NEWS/170729869

Now the problem with all of this, for us preparedness minded folks, is that they are all happy about paving over this countries major agriculture region for housing ! We have already begun sliding down the slope, as the  country now imports more than it exports, if I recall correctly. There are other issues too, like water....

so, here is a map http://www.hsr.ca.gov/docs/newsroom/maps/Business_Plan_Map_2016.pdf  The part from SanJose to sanfrancisco is the already existing CalTrain line. So, you can see how far away these places are
« Last Edit: August 06, 2017, 10:07:16 PM by mountainmoma »

Offline Carl

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Re: talk of reducing the mortgage deduction
« Reply #28 on: August 07, 2017, 05:03:48 AM »
  With housing so costly and in short supply...Why does California welcome so many low income fruit pickers in and provide them with housing?

Offline mountainmoma

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Re: talk of reducing the mortgage deduction
« Reply #29 on: August 07, 2017, 08:43:55 AM »
  With housing so costly and in short supply...Why does California welcome so many low income fruit pickers in and provide them with housing?
agriculture is very big business in some parts of the state, including my county. Produce needs to be picked. You either raise the pay of those working, which is also done, at least one farm by me pays $15/hour, with benefits, or you bring in illegals and provide housing. Or, more usual, the government section 8 program, or migrant farm worker housing, subsidises the housing. But, this is off track for this thread. This is a very large state, in general, the agricultural counties are geographically removed from the industrial counties, so 2 way different housing markets. However, these barriers are being removed by enhanced commuting transportation. So then the non-ag industry tied housing area is going to expand. We will lose farmland ( that exports fruit, nuts and produce to everyone outside the state) and we will have some amazing political water wars