Posted on 09/04/2011 9:07:32 AM PDT by SmithL
Washington -- Ending tax breaks for oil, corporate jets and hedge fund managers is nearly every Democrat's favorite way to reduce the federal debt. But one of the biggest tax breaks of all is heavily skewed to wealthy residents of San Francisco, San Jose and California's other upscale coastal cities.
It's the mortgage interest deduction, and its benefits are heavily concentrated in a handful of pricey cities, none of which votes Republican.
As the new super committee of Congress sets about finding another $1.5 trillion in deficit reduction by Thanksgiving, tax breaks of all kinds, including the interest deduction, are getting new scrutiny. Beloved by the public and the real estate industry, the deduction will cost the government more than $1 trillion over the next decade.
But few homeowners, even those claiming the deduction, know how skewed it is by region and by income. For young, affluent San Franciscans, it is tailor-made.
Just three metro areas - greater New York, Los Angeles and San Francisco - receive more than 75 percent of the subsidy, according to a 2004 study by economists Todd Sinai and Joseph Gyourko. Mortgaged homeowners in the San Francisco and San Jose region receive $4.6 billion a year from a tax break for what are known as McMansions, according to a study this year by John Burns Real Estate Consulting in Irvine.
The tax break is available to anyone who borrows up to $1 million for a mortgage - including for a vacation home - or takes as much as $100,000 in a home equity loan.
(Excerpt) Read more at sfgate.com ...
“and if you let the air out all at once”
But if you don’t let the air out all at once, we create uncertainty as people wonder what their home will be worth once the deduction is gone.
That’s where we are today. We all know there will have to be some sort of fix to the real estate problem, we just don’t know what or when it will be. We all know the banks are going to take loses from bad real estate loans, we just don’t know how much they will be or when they will be put on the books. We all know the SEC et. al. will come up with financial reform regulations, we just don;t know what they will be or when they will go into effect. And so on and so on.
I think the best thing to do would be to take the housing price kick in the shorts as quickly as possible so we can get back to building wealth.
Washington just needs to stop. It needs to overturn all the previous meddling and let us do what makes sense according to the natural state of the economy.
As I recall, that deduction was phased out over a period of several years.
In the case of homes, people made a purchase decision while factoring in the interest deduction. Phase it out gradually over 10 years or so and let the market adjust accordingly.
“...why should those who can afford a $300,000 home be able to while those of us who bought the under $100,000 not be able to.”
You seem to be completely ignoring the vast difference in home prices in various areas of the country. We live in NJ, it is impossible to buy a single family home here for under $250,000.00 Those numbers go higher the closer you get to NYC.
A home that goes for 250K here might well go for 100K elsewhere and 250K elsewhere might buy what would be considered a mansion.
Plus, as another freeper astutely pointed out on another thread on this subject a while ago, if people are not able to take the mtg. int. deduction they probably can’t take the rest of the schedule A deductions, such as taxes, charity, etc.
I don’t know why ANYONE on the right supports this at all. It is going to be nothing more than a huge tax increase on the productive middle class.
And, it is going to permanently ruin the real estate market, it will never recover.
The ignorance on this subject if frightening. I sincerely doubt that John & Cindy McCain or John & Teresa Kerry have EVER taken this deduction.
Let’s focus on the spending folks that’s where the problem is.
No that is not true you must have a minimum of $4000 per year,This knocks out most people who owe less than $100K on their mortgage.
I am not ignorant on it at all my family has been in real estate since I was a child.I just do not think it is fair that it favors people who buy expensive homes while penalizes those who don’t.It would be better to do away with it or le everyone have it no in between.
“It would be better to do away with it or le everyone have it”
There is an upper limit on the deduction, but no lower limit. If your interest is so low that it doesn’t help you to take the deduction (which I assume is what you are saying) how can the tax code help you with that?
You need Schedule A deductions that are MORE than the standard deduction, $11500 (I think) for a married couple $5500 for a single, in between for “head of household”.
The only reason not to take the deduction is if your interest payments and taxes, etc. are less than that. I mean, you could take it but it wouldn’t make sense.
That could well have been me as I have posted such and since I am a seasonal tax preparer.
It is well known amongst our profession that it is this line item that generally opens up the Schedule A (Itemized Deductions) for the tax payer. When you consider that there is a 7.5% of Adjusted Gross Income floor for Medical Expenses (ObamaCare takes that to 10%) and a 2% for such items like Employee Business expenses, the removal of Mortgage Interest can quite easily CREATE new tax liabilities where none existed before even if a general adjustment was made in the Standard Deduction.
Add to this what I consider to be the greatest unfairness of an elimination. It is one thing if this were a change of a recently added deduction but given the fact that the Mortgage Interest deduction has been in the code for generations, there are MANY taxpayers who have computed their budgets and made intelligent trade-offs based upon this 'certainty' in the tax code. It is hard to see how this tax deduction can equitably be removed unless we go to exclusive "Fair Tax" on some other equivalent consumption tax. I will be firm in my opposition in any other circumstance.
“most homeowners don’t have that choice, as evidenced by how many homes have mortgages.”
No, most have bought into the notion that they need a lot more home than they really do.
I assume that means you do not take the mortgage interest deduction. Or do you, like Windbag Warren, say one thing and do another?
What about a 10% import tariff? NOBODY EVER CONSIDERS THAT? WHY?
Do they still allow deductions for second homes? If so, that should be the first to go.
If they do eliminate the mortgage deduction, it should be phased out in 20% increments or so - five years to give some people time to adjust.
My boy still has 25 years of working/taxing life ahead of him but is down to a five year payoff with his mortgage. He well understands the lunacy of paying $10,000 in interest to get a $3,000 tax deduction.
“I will be firm in my opposition in any other circumstance.”
Me too. I do taxes too and I’m also a bookkeeper, it is amazing how little even well-informed people are about the tax code and how little the media, even the conservative media informs them about it.
The payroll tax reduction that is currently in effect, that is stupid, it would have made more sense to reduce the employer’s share. At my firm we’ve already gotten hit up for extra taxes to replenish the state and fed’l unemployment insurance funds. Nobody realizes this, heck my bosses wouldn’t even realize this if I didn’t point it out to them.
In NJ the employee’s share of Unemployment maxes out at about 20k (I forget exactly how much, thank goodness I haven’t had to file one of those forms for years). For most of our staff this is around mid-year. I have people ask me year after year why did their net pay change.
I think it was your post I saw before, I was very happy to see it too.
And I’m one of those people. We just bought a house 3 years ago, I lived in rental apts for the first 50 years of my life. I don’t know how the loss of this deduction would effect me, I’ve tried to run the numbers a little bit, but I don’t have enough info.
Huntsman plan, for example, they talk about the 3 rates, but they don’t say what income level they’d kick in at. If I’m in the 14% bracket I think I’m OK, if I”m in the 24% bracket I’m screwed royally.
I’m getting very tired. I miss Bill Clinton even, at least Clinton remembered where he came from. What happened to work hard and play by the rules? I don’t think Obama even knows that people like that exist. Either you’re some victim, or you’re rich, in his mind. What an insult he is to everyday working people. He says he’s got “more money than he needs” and then he goes away to the tune of 50K a week; I guess he DOES have more money than he needs. So, as I asked the WH when I called to b*tch and moan, why does he take the salary? Kennedy didn’t take it, Bloomberg doesn’t take it, I don’t think Corzine took it. The man is just insulting.
I also really resent it when I read that elimination of the mtg. deduction will mostly effect people who live in the wealthy coastal “blue” states. Well I live in one of those states too, along with MILLIONS of conservative, patriotic tax payers.
I pay enough in taxes, not one penny more, that is what they’ll get from me.
It's the spending, stupid!
Do they still allow deductions for second homes? If so, that should be the first to go.Good for your boy, for he is wiser than many of us.If they do eliminate the mortgage deduction, it should be phased out in 20% increments or so - five years to give some people time to adjust.
As far as that second home deduction goes, our congresscritters (of both parties) count on that deduction in order to have a nice place to live in Washington, while supposedly looking out for our best interest. I don't envision that deduction ever going away.
"No, most have bought into the notion that they need a lot more home than they really do."
While factually true, that's not a fair statement relative to the prevalence of mortgages. Yeah, if the house is a bit bigger than necessary, the mortgage will be too. But, most people who buy up buy perhaps 25% more house than they need. However, the mortgage downpayment is typically under 10%--sometimes a lot lower. So, typically over 90% of the house price is being financed.
If people bought smaller houses that they could more readily afford, their mortgages might drop by a quarter, but most of them would still have mortgages.
Congratulations for saving until you could buy. But, my comments are based on the behavior that is out there, not the behavior that would be more ideal and more thrifty.
—”I assume that means you do not take the mortgage interest deduction. Or do you, like Windbag Warren, say one thing and do another? “
Nice try, but I stated that I WOULD VOTE TO REPEAL THE MORT DEDUCTION.
Until everyone doesn’t get the deduction, I see no reason to treat myself differently.
I want ALL people to NOT have the deduction because I don’t think it’s the place of the FED to meddle with the markets.
Yes, I could prove a point by not taking the deduction, but in the current system, I’d be disadvantaging myself against all others.
No hypocrisy there, but nice try.
I have a large mortgage as well. I would be happy to give up the interest deduction as long as the rest of the country paid the same tax rate that I do. In fact, I would give up all deductions as long as everyone paid the same tax rate I do. The second American revolution would start the day everyone else got their tax bill!
Who owes less than $4000 a year? I pay more than that a month
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