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View Full Version : U.S. Issues The Mortgage Interest Deduction: Should it stay or should it go?


healthpellets
03-28-2011, 10:32 AM
Just curious what the feeling is around here regarding the MID.

Does it unfairly benefit homeowners over renters? Or does it do exactly what it's supposed to do which is promote home ownership, something the federal government feels is in the best interest of the nation to promote?

Should we eliminate the MID and boost the US treasury by $130B per year assuming we'd use that money to pay down the debt instead of just more spending?

When you purchased your home (or if you're considering purchasing a home) did the MID play a role in your decision?

Poll coming.

FD
03-28-2011, 10:34 AM
It should definitely go. There is no economic justification for it, its simply a hand-out to middle-class and upper-income voters.

Rain Man
03-28-2011, 10:39 AM
The challenge is that eliminating the mortgage interest deduction would likely bankrupt millions of households. If everyone's housing costs went up $400 or $500 a month or more without warning, it would be disastrous.

That said, it is indeed a bizarre tax break. I think the biggest problem is that it encourages the construction and purchase of larger homes than a household needs. That also produces a disproportionately larger tax break for higher-income households - do we need Bill Gates to get a larger deduction for his million-square foot "home" than some factory worker gets for his 1,000 square foot home?

I'd lean toward capping the tax break at an amount that reflects the cost of a 1,500 square foot home or some such thing. Of course, before we do that I'd rather see the elimination of tax breaks that are used by corporations to completely eliminate their taxes.

Brock
03-28-2011, 10:47 AM
Ha ha, I want to meet the politician that supports this. "Hey voting middle class - **** YOU!"

healthpellets
03-28-2011, 10:51 AM
Ha ha, I want to meet the politician that supports this. "Hey voting middle class - **** YOU!"

kinda like telling old people that their SS or Medicaid is going away?

BucEyedPea
03-28-2011, 10:52 AM
It should definitely go. There is no economic justification for it, its simply a hand-out to middle-class and upper-income voters.

Yes keeping some of one's own money is welfareŚNOT! :rolleyes:
Collectivist thinking at its finest.

chiefsnorth
03-28-2011, 10:53 AM
I support this idea so long as Obama gets to wear it in the next election cycle.

BucEyedPea
03-28-2011, 10:53 AM
kinda like telling old people that their SS or Medicaid is going away?

You actually think Medicaid is comparable to mortgage interest deduction...or even SS?

I thought Medicaid was for the poor. Medicare for the old folks.

HonestChieffan
03-28-2011, 10:54 AM
What is a value....

Lets say you have a 100 grand mort and you pay say 500/month interest ( just an example not accurate). If you are in the 25% tax bracket, it will save the homeowner $125/month.

If the Homeowner bought and budgeted with that in mind, just doing away with it will be a hurt. On the other hand, doing away with it for future buyers would allow them to consider that cost in the purchase decision.

It does serve to incentivize home buying. Taking it away would bring the hammer of thor down from the realestate lobby and we know how much they pay congress.

BucEyedPea
03-28-2011, 10:54 AM
I love how our solutions these days is how to find more ways to steal from one group to pay for other groups.

mlyonsd
03-28-2011, 10:54 AM
Completely eliminating it will never happen. If the middle class can be coherced into more class warfare on the rich I could see it happening to those dang pesky cheating rich people.

healthpellets
03-28-2011, 11:01 AM
You actually think Medicaid is comparable to mortgage interest deduction...or even SS?

I thought Medicaid was for the poor. Medicare for the old folks.

in terms of angering a large block of the voting public? yes.

-aid / -care...whatever. i get (and will get) neither.

chiefsnorth
03-28-2011, 11:07 AM
Completely eliminating it will never happen. If the middle class can be coherced into more class warfare on the rich I could see it happening to those dang pesky cheating rich people.

Problem is, they keep cranking the definition of "rich" downward. Pretty soon just owning a home will qualify you as rich.

healthpellets
03-28-2011, 11:11 AM
What is a value....

Lets say you have a 100 grand mort and you pay say 500/month interest ( just an example not accurate). If you are in the 25% tax bracket, it will save the homeowner $125/month.

If the Homeowner bought and budgeted with that in mind, just doing away with it will be a hurt. On the other hand, doing away with it for future buyers would allow them to consider that cost in the purchase decision.

It does serve to incentivize home buying. Taking it away would bring the hammer of thor down from the realestate lobby and we know how much they pay congress.

that example doesn't seem all that realistic. for example, we paid $11k in interest on our mortgage.

with the MID, we then were able to itemize taking an additional 11k off our tax bill, for a total tax reduction of $22k of income.

we saved $5500 in taxes last year...er...got to keep an additional $5500 of our hard earned income. Tis a fair chunk of change.

that will decrease as the years wear on...but i wouldn't say that we're an atypical couple either.

HonestChieffan
03-28-2011, 11:14 AM
that example doesn't seem all that realistic. for example, we paid $11k in interest on our mortgage.

with the MID, we then were able to itemize taking an additional 11k off our tax bill, for a total savings of 22k.

we saved $5500 in taxes last year...er...got to keep an additional $5500 of our hard earned income. Tis a fair chunk of change.

that will decrease as the years wear on...but i wouldn't say that we're an atypical couple either.

what tax bracket are you in? The gross amount of the Interest times the bracket% is what you saved in taxes actually paid....

Rain Man
03-28-2011, 11:17 AM
What is a value....

Lets say you have a 100 grand mort and you pay say 500/month interest ( just an example not accurate). If you are in the 25% tax bracket, it will save the homeowner $125/month.

If the Homeowner bought and budgeted with that in mind, just doing away with it will be a hurt. On the other hand, doing away with it for future buyers would allow them to consider that cost in the purchase decision.

It does serve to incentivize home buying. Taking it away would bring the hammer of thor down from the realestate lobby and we know how much they pay congress.


I'm not so sure it incentivizes home buying in the long run. I think it's well-known enough that it inflates home prices. Without it, home prices will go down and home buying will remain similar in terms of volume, but lower in terms of aggregate dollars.

In the short run it might inhibit home sales as current homeowners decline to take the big losses in revenue they'd endure if home prices dropped XX percent overnight.

Rain Man
03-28-2011, 11:19 AM
Good point by healthpellets too on the fact that mortgage interest allows a lot of people to itemize who otherwise couldn't. I hadn't thought about that.

HonestChieffan
03-28-2011, 11:21 AM
I'm not so sure it incentivizes home buying in the long run. I think it's well-known enough that it inflates home prices. Without it, home prices will go down and home buying will remain similar in terms of volume, but lower in terms of aggregate dollars.

In the short run it might inhibit home sales as current homeowners decline to take the big losses in revenue they'd endure if home prices dropped XX percent overnight.

I suppose it can be seen either way.

Rain Man
03-28-2011, 11:25 AM
I think implementation would have to occur over a long period of time, and be inched into place. Something like this:

Year 0 - Cap it for houses over $xxx,xxx in price so that the total deduction is no more than the houses that cost $yyy,yyy below it.

Year 5 - Cap it for houses over $yyy,yyy (and $xxx,xxx) so that the total deduction is no more than the houses that cost $zzz,zzz below it.

Year 10 - Ratchet it down again to the next level.

Year 15 - Ratchet it down again to the next level.

Year 20 - Eliminate it.


I agree with those who say it's essentially a way to lower taxes for everyone, and I'm in favor of that. However, it lowers taxes disproportionately for the wealthy, and it encourages a wasteful economy where people are encouraged to buy homes that are bigger than they need. When you consider energy costs, maintenance costs, urban sprawl, and other issues, I think the interest deduction is a false benefit.

Rain Man
03-28-2011, 11:27 AM
I suppose it can be seen either way.

It'd definitely make the real estate industry a lot less lucrative. You might then see larger commission percentage charges as they try to make up that lost money. Which would bounce housing prices back up a bit, I guess?

It's interesting to think about all of the downstream impacts of something like this. It'd be enormous, and would affect all sorts of things.

HonestChieffan
03-28-2011, 11:31 AM
It'd definitely make the real estate industry a lot less lucrative. You might then see larger commission percentage charges as they try to make up that lost money. Which would bounce housing prices back up a bit, I guess?

It's interesting to think about all of the downstream impacts of something like this. It'd be enormous, and would affect all sorts of things.

Im not sure what the downstream impact would be. Its a marginal amount unless you are talking mega mortgages. And in may cases where its a megamortgage, if the owner has any business interests they could make the loan a business loan in one way or another if they are not already.

Rain Man
03-28-2011, 11:33 AM
Im not sure what the downstream impact would be. Its a marginal amount unless you are talking mega mortgages. And in may cases where its a megamortgage, if the owner has any business interests they could make the loan a business loan in one way or another if they are not already.


Is business real-estate mortgage interest deductible? I have no idea.

ClevelandBronco
03-28-2011, 11:35 AM
Is business real-estate mortgage interest deductible? I have no idea.

It sure is for rental homes (plus depreciation, which is one of the bigger scams ever). I'd be surprised if it's not for business property, but I'll check.

Yeah. It seems to be just another business expense.

"#
Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
#
Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
"

Can't deduct rent if you're on the title, but it appears that you can deduct interest.

HonestChieffan
03-28-2011, 11:39 AM
Is business real-estate mortgage interest deductible? I have no idea.

Interest is, the loan would need to be structured in a manner that works. Borrow against a different asset and pay cash for home thus moving the interest into a deduct position. It can be done but takes some effort and may not be worth it in the long run. Every situation is so different you cant blanket say one way or the other

HonestChieffan
03-28-2011, 11:41 AM
No, borrowing to buy a home as a home mortgage is not deductible against a business unless the home is part of the business. My point is there are other ways to structure borrowing and debt, not just home mortgage loans.

King_Chief_Fan
03-28-2011, 11:43 AM
Just curious what the feeling is around here regarding the MID.

Does it unfairly benefit homeowners over renters? Or does it do exactly what it's supposed to do which is promote home ownership, something the federal government feels is in the best interest of the nation to promote?

Should we eliminate the MID and boost the US treasury by $130B per year assuming we'd use that money to pay down the debt instead of just more spending?

When you purchased your home (or if you're considering purchasing a home) did the MID play a role in your decision?

Poll coming.

like paying down the debt is going to happen......

Garcia Bronco
03-28-2011, 11:43 AM
I bought as much house as I did because I could deduct the interest.

Rain Man
03-28-2011, 11:47 AM
It sure is for rental homes (plus depreciation, which is one of the bigger scams ever). I'd be surprised if it's not for business property, but I'll check.

Yeah. It seems to be just another business expense.

"#
Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
#
Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
"

Can't deduct rent if you're on the title, but it appears that you can deduct interest.


Oh, yeah. I guess it makes sense that it's an expense and should be deductible for that reason.

On a different not, I love your photo celebrating Smokin' Hot Teenage But Over 18 Valerie Bertinelli Appreciation Month. Do you mind if I promote it in a new thread aimed to increase awareness and participation in the holiday?

ClevelandBronco
03-28-2011, 11:49 AM
Oh, yeah. I guess it makes sense that it's an expense and should be deductible for that reason.

On a different not, I love your photo celebrating Smokin' Hot Teenage But Over 18 Valerie Bertinelli Appreciation Month. Do you mind if I promote it in a new thread aimed to increase awareness and participation in the holiday?

You must. Smokin' Hot Teenage But Over 18 Valerie Bertinelli is a national treasure that must be shared among the people.

JimBaker488
03-28-2011, 11:53 AM
It's another example of intrusion into the markets by the government which can play a role in creating bubbles in credit markets (mortgages), real estate, etc.

Baby Lee
03-28-2011, 11:58 AM
It should definitely go. There is no economic justification for it, its simply a hand-out to middle-class and upper-income voters.

Yeah, nothing will fix the divide between have and have nots better than to make real estate ownership further out of reach. Let's set up a system where those with means can simply take ownership of our residences and they'll 'earn' their living the rest of their lives by our purchasing the right to inhabit their structures.

healthpellets
03-28-2011, 12:39 PM
what tax bracket are you in? The gross amount of the Interest times the bracket% is what you saved in taxes actually paid....

sorry, can you break this down for me? to me it seems like the MID plus the other deductions that come from itemizing would result in the taxes actually saved. is that not accurate?

we dropped from 25% to 15% via the MID+itemized deductions.

HonestChieffan
03-28-2011, 12:47 PM
sorry, can you break this down for me? to me it seems like the MID plus the other deductions that come from itemizing would result in the taxes actually saved. is that not accurate?

we dropped from 25% to 15% via the MID+itemized deductions.

Ill try...i think my math is correct...

The interest paid gross is deducted from taxable income.

So say we made 1000 dollars that was taxable. And we paid 100 in interest that we can deduct...that leaves taxable net of 900. and if we pay 10% tax rate. we will pay $90 tax. The savings gained from the deduction is $10. There may be cases where the deduction will move you from one bracket to another increasing the value. If we were in a 15% and the deduct moved us to 10, then we would pay 90 instead of 150.

BUT....never forget, to save the 10 or the 60....as the case may be...we paid 100.

A case can be made that incurring any expense as a way to save taxes is a fools errand.

MID is taken from the taxable line not the tax due line.


Hope that is right and makes sense.

Taco John
03-28-2011, 12:50 PM
I wouldn't touch this deduction until we started cutting the stuff we do overseas, including our costly military adventures.

Garcia Bronco
03-28-2011, 12:52 PM
I wouldn't touch this deduction until we started cutting the stuff we do overseas, including our costly military adventures.

I wouldn't touch it until we remove all deductions across the board.

BucEyedPea
03-28-2011, 12:58 PM
I wouldn't touch it until we remove all deductions across the board.

I favor more deductions until the income tax was in name only. :thumb:

healthpellets
03-28-2011, 01:16 PM
I favor more deductions until the income tax was in name only. :thumb:

lolz. but den how wud da gubmit functin?!elevens!??! it's der moneiez anywayz. :banghead:

Rain Man
03-28-2011, 01:21 PM
A case can be made that incurring any expense as a way to save taxes is a fools errand.



You'd be surprised how often I have to explain that to people.

"We should go to this conference (or buy this equipment or whatever)."

"I don't think you'd get much value out of it."

"But it's a deduction!"

HonestChieffan
03-28-2011, 01:29 PM
You'd be surprised how often I have to explain that to people.

"We should go to this conference (or buy this equipment or whatever."

"I don't think you'd get much value out of it."

"But it's a deduction!"


THAT mentality has broken many a business. Buy something because it adds value and you need it. NEVER for a tax deduction.

patteeu
03-28-2011, 01:41 PM
I need a mulligan. I answered the first question in the title instead of the completely opposite question in the poll. *sigh*

I voted "No", but that's because I assumed I was voting for "No, it's shouldn't stay". If I'd read the question in the poll more carefully, my answer would be

Yes, but only if tied to a lower marginal tax rate.

patteeu
03-28-2011, 01:43 PM
The challenge is that eliminating the mortgage interest deduction would likely bankrupt millions of households. If everyone's housing costs went up $400 or $500 a month or more without warning, it would be disastrous.

That said, it is indeed a bizarre tax break. I think the biggest problem is that it encourages the construction and purchase of larger homes than a household needs. That also produces a disproportionately larger tax break for higher-income households - do we need Bill Gates to get a larger deduction for his million-square foot "home" than some factory worker gets for his 1,000 square foot home?

I'd lean toward capping the tax break at an amount that reflects the cost of a 1,500 square foot home or some such thing. Of course, before we do that I'd rather see the elimination of tax breaks that are used by corporations to completely eliminate their taxes.

I agree that eliminating it would be disruptive. Any change of that magnitude would probably require some kind of transition period with rules that help everyone deal with the impact in a gradual manner.

alnorth
03-28-2011, 09:31 PM
Yes, but only if tied to a lower marginal tax rate.

Ditto. I'll trade that deduction for a lower rate.

Getting a deduction for a mortgage seems about as silly as getting a deduction for going to Idaho for your summer vacation. Its totally random and I don't see the point. Take the deduction out and lower the rate to compensate.

petegz28
03-28-2011, 09:47 PM
I see no problems with the deduction. It encourages home ownership which benefits the economy. The better idea is in the other thread, which is to raise the down payment req's.

shirtsleeve
03-28-2011, 11:22 PM
I voted Yes, but only tied with a lower marginal rate, because you do not have the real true answer posted.

I say eliminate all deductions, flatten the individual rate completely, including capital gains, for ALL income levels, eliminate the corporate tax completely (all that really comes down to is a tax on all of us for the end product. The companies just pass this cost on to the consumer and drives jobs offshore) and eliminate the IRS.

Garcia Bronco
03-29-2011, 10:02 AM
I voted Yes, but only tied with a lower marginal rate, because you do not have the real true answer posted.

I say eliminate all deductions, flatten the individual rate completely, including capital gains, for ALL income levels, eliminate the corporate tax completely (all that really comes down to is a tax on all of us for the end product. The companies just pass this cost on to the consumer and drives jobs offshore) and eliminate the IRS.

this right here. We'd have to find jobs for all those IRS workers, but yes

BucEyedPea
03-29-2011, 10:07 AM
How do you get rid of the IRS if there is still a flat tax? I'd just get rid of the Income Tax.

donkhater
03-29-2011, 10:19 AM
Personally, it think it should go, but a good start would be to eliminate deductions on home equity loans.

Keep the initial interest on the home purchase deductible, but eliminate the ability of people to deduct interest for things purchased by using their home as collateral.

Deducting interest for your home is bad enough, but to be able to buy a boat with a home equity loan and deduct THAT interest is beyond ridiculous.

shirtsleeve
03-29-2011, 01:40 PM
How do you get rid of the IRS if there is still a flat tax? I'd just get rid of the Income Tax.

The treasury dept could easily handle it. Fill out a post card every year and mail it. Done. We dont need yet another giant beaurocratic behemouth to handle a freakin index card (and possibly a check made out to the treasury).

Cut out the middle man completely.

wazu
03-29-2011, 09:00 PM
The treasury dept could easily handle it. Fill out a post card every year and mail it. Done. We dont need yet another giant beaurocratic behemouth to handle a freakin index card (and possibly a check made out to the treasury).

Cut out the middle man completely.

I don't think you'd even need that. Flat tax. No deductions. No returns. What's to mail?