Here’s a story about the changes being discussed to the mortgage interest deduction. The $41 billion in savings over 10 years sounds trival – but could it have unintended consequences?
Would you change your plans about buying a house if the MID was lowered?
http://www.latimes.com/classified/realestate/news/la-fi-harney30-2009aug30,0,4745.story
Tops on the CBO’s hit list for housing: Slash deductions for homeowner mortgage interest from the present $1.1-million limit to $500,000, phased in with $100,000 annual reductions starting in 2013.
Taxpayers now can write off mortgage interest on their principal home debt up to $1 million and on home equity debt up to $100,000. Under the CBO’s option, that maximum mortgage debt amount would shrink yearly until it hit $500,000. Over a 10-year period, this change would boost tax collections by an estimated $41 billion.
The CBO offered up a second option if Congress wants to raise a lot more money: Replace the mortgage interest deduction with a flat 15% tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs tied to income tax bracket, every homeowner would get a credit worth 15% of mortgage interest paid.
Who would benefit? Primarily lower- and moderate-income taxpayers who don’t itemize on their returns. Who would pay more? People with big mortgages and higher-than-average incomes, who are more likely to itemize under current rules.
“People with big mortgages” sounds like they are putting more of the burden on the higher-cost areas like California. Once they get started, what’s next?
Other items on the CBO’s revenue-raising target list:
Get rid of all write-offs for state and local taxes, including property taxes. That would pump $343 billion into federal coffers from 2010 to 2014, and $862 billion by 2019.
Clamp a 15% cap on the value of all itemized deductions — not just mortgage interest and property taxes but also charitable contributions, medical expenses and casualty losses. The revenue windfall: $1.3 trillion over 10 years.
Revert to the capital gains approach that prevailed before 1987. Rather than taxing most gains at 15% as the current code does, the CBO plan would exclude 45% of gains from taxation and tax the remaining 55% at an individual’s regular tax rate. New money raised: $48 billion over the next decade.
Oh no, what’s the landed gentry to do? Capital gains taxed like work?
The MID is a huge reason houses cost so much and it should only be for the first 250k of mortgage .Tax incentives only drive the cost of anything up just as the 8000$ first time buyer program just ads the 8k to the price of the home.Rich people shouldn’t get a tax break unless renters get the same.By the way here in the Antelope Valley we only have 6 weeks of inventory left and prices are up 20% from a devestating crash in home prices.Theres nothing price won’t fix!
I read that article last night. The author is pretty clear which side he stands on.
“You might assume that during August, with the Senate and House on their summer break, nothing much happens on Capitol Hill. You know the old saw: Your money is safe when Congress is out of town.”
There is that sense of entitlement again, so pervasive in our society today. Just because the government has chosen to subsidize home ownership in the past automatically entitles home buyers to that deduction for eternity. If the government would stop subsidizing home ownership, prices would fall normally to a point where regular people could buy a home without exotic financing that makes them debt slaves and leaves them perpetually dancing on the edge of financial disaster.
I agree with several points in the first few posts. Bottom line–The MID already exists and this is NOT the time to mess with it.
What areas of the economy does the government subsidize like crazy? Agriculture, education, housing, healthcare. And what areas of the economy are screwed up? Hmmm.
I agree not the time to screw with the MID.
On a lighter note the state is too broke to keep the parks open:
http://www.sacbee.com/topstories/story/2148096.html
Goldilocks was seen running to the woods this morning.
Well off to the state fair in sacramento this morning.I wonder how busy it will be?
“Would you change your plans about buying a house if the MID was lowered?”
Absolutely. How could anyone thinking of buying in CA not take this into consideration? It won’t prevent me from buying a house, but it will change the type of house I’m looking at. It also makes me reluctant to buy before knowing how this plays out.
Funny how “paid off homeowner” is okay with this. If he/she were “first time buyer,” would they have the same opinion?
Who would have thought? Government needs money and to get it begins taking away golden entitlement programs.
The MID (Mortgage Interest Deduction) was put in place to allow low to upper middle income people access to the same deductions that the wealthy had by forming corporations to hold the house (thus making the mortgage interest an ‘interest expense’ on investments and deductible against any profit on sale).
Doug R. is right.
Oh noes, capital gains taxed at the same level as your secretary’s paycheck.
The apocalypse is coming, quick make some lies up to defeat it.
UCODEGEN
While i can see how a house LLC would be able to deduct interest,
the value of the housing provided to the Key owners would
be taxable as ordinary income, so it should be a wash.
the corporation either needs to be charging rent to the owners, paying
interest, and when it’s dissolved, it’s “Income” to the owners.
Most tax scams are by their nature scams, nothing more.
The HMID (Home Mortgage Interest Deduction) has been explained many times but here it is again.
The Home Mortgage Deduction is -not- a subsidy. The HMID serves to remove the difference between business and private property treatment. Were the HMID to be reduced for typical families it would only serve to push the rich into complex tax avoidance schemes involving shell businesses holding title and the rich merely occupying the residence.
As long as the home mortgage interest deduction is viewed as a subsidy and not as the extra tax anti-investment burden it truly is there can be no rational housing policy debate.
The implication behind all this is that there exists outside of stated and revealed preference data a “correct size” for a residence. I’m as unwilling to presume such an arbitrary number as I am to presume the correct number of children. Face it, the two differ only in degree not kind. This is the steep part of the slippery slope that started with CAFE standards and gas guzzler vehicle taxes. People don’t even blink at those anymore to the point that no doubt some will respond with anger.
McMansions are indeed a burden on previously constructed neighborhoods and oftentimes municipalities but they are burdens directly attributable to several new urbanist preferred outcome distortions and not some emotional gut response to any perceived excess. Tax policy isn’t the problem or solution. West Germany used to tax propety based on the number of rooms, this led to homes with no closets which were classified rooms. The same avoidance schemes are the only predictable outcome of trying to control housing form.
Housing is a hybrid of both a consumable product and an investment vehicle and thus defies absolutist claims of either characteristic. Any further attempt to seperate the two will also devolve into a game of tax avoidance. As much as the current no limits deduction is unfair it is also less unfair than any other possible alternative.
“Oh noes, capital gains taxed at the same level as your secretary’s paycheck.”
Try again; the secretary is in a lower tax bracket. Bleeding hearts often fail to recognize that “rich” people already pick up the vast majority of the country’s tax bill.
They really should get rid of the MID entirely (for everyone). Why does the US have such an obsession with pushing home ownership???
The one thing that we *will* suffer as a consequence of targeting “the rich” is capital investment. Speaking for myself, if these deductions are phased out I will simply liquidate other investments and pay off my mortgage entirely. Not only is my deduction limited, the upside of my investment activities will be limited by the prospect of higher marginal tax rates. It is much more optimal to take a passive route, pay off my mortgage and not worry about investments that carry risk.
If tax policy shifts aggregate investment down the risk spectrum the natural consequence will be lower growth and higher unemployment. Just the kind of hope and change that we all have to look forward to…
Funny how “paid off homeowner” is okay with this. If he/she were “first time buyer,” would they have the same opinion?
What I said was up to 250k allow it,this will give first time buyers that help to the first rung of the ladder.First time buyers should not be buying 500k houses unless they can truly afford it. All the MID is give people more leverage to buy more costly homes pushing housing further beyond the reach of first time buyers.Without first time buyers the market is toast! Since the advent of student loans look at the cost of a college education and look at the cost of health insurance,subsidizing anything puts many people out of the game as it makes it too expensive!
Further down in the article is the Congressional Budget Office discussing the effects of eliminating deductions for state income taxes. Living in a state with no income tax and we couldn’t get a deduction on Federal taxes for years, and being told to “get an income tax”, I feel this a great way to raise money. :->
If a flat tax was implemented, would MID still exist?
The interesting point is that the revenue gain would only be $130B/year. Where is the other $8T/10 years going to come from?
I smell higher state and federal taxes, less benefits, and higher inflation.
The real joke is allowing deduction on a second (vacation) home.
Put me in the camp of opposing tax credits for anything. I prefer an overall lower marginal tax rate, but still progressive, but no deductions. Kids, houses, and medical expenses are probably the biggest deductions for most people. All those need to go.
“By the way here in the Antelope Valley we only have 6 weeks of inventory left and prices are up 20% from a devestating crash in home prices.”
Paid off homeowner…
…”6 weeks of inventory left”? So no more homes are going to come on the market? …no shadow inventory? …and no more to be built? I guess it must be “it’s different here” up there in Antelope Valley.
…”prices are up 20%”? …so this housing bubble thing s a bouncing ball? …You’ve hit bottom so it’s only a bounce up from here?…
Please, report back to us in 6 months or so.
jd
We will never see peak bubble prices for at least 15 years but with that said those of us who snapped up REO over the last year or so are making a killing.To those in San Diego waiting to buy a home for 200k you missed the boat.I suggest you talk to Realtor Jim and buy something the train has left the station!
By the way here in the Antelope Valley we only have 6 weeks of inventory left and prices are up 20% from a devestating crash in home prices.Theres nothing price won’t fix! – Paid off homeowner
That’s not right. It isn’t even wrong. Thousands of abandoned houses infest the AV. Some houses are running to years on market. Here’s a single neighborhood: Adelanto
DQNews for July:
Adelanto 92301 $82,000 median sfr -39.9% y-o-y
The Antelope Valley is such a mess it isn’t even worth refuting the claim of +20% pricing.
Adelanto is in Riverside Cty the same as Victorville,it is closely to tied to the Inland Empire.I am referring to Palmcaster Quartz Hill.We get the San Fernando Valley Santa Clarita spillover.There are less than 800 homes for sale in Lancaster now,2 years ago we had 3800.Cheaper REO are recieving multiple offers I heard of one with 43 offers.We crashed first we bottomed first and we are the first to recover.Over the last year I have seen many homes sell for less than 50k.The banks are beginning to list those same homes around 100k now.Even at 100k your payment is only 5 or 600 bucks a month and they will rent for 1100 to 1300.We have room to go up a bit from here,water always finds it’s own level.
Totally agree with MountainMan. I’m a renter waiting to buy a first home, and I’d love to see the MID go away.
RobDawg’s 11:25am argument sounds like, “there’s a problem with shell corporations, but let’s not address it directly… let’s address it by making another, bigger problem.”
FYI, Great Britain phased out interest deduction about a decade ago if I recall. They used similar strategy, if I recall. Eroded it bit by bit over a decade.
The issue is tax receipts, and Rob Dawg’s point is 100% irrelevant. Mortgage deduction is a popular “free lunch” which costs a lot and almost certainly drives up prices….it is not new or unusual that the wealthier owners can find loopholes.
That doesn’t change the fact that the US faces big tax shortfalls, and will look to middle income to make up the difference.
@Rob Dawg
I was going to reply to pat, but your reply seems to do a good job. Unfortunately not many seem to understand what you wrote and the implications of something different.
In general, businesses are able to write off the interest expense on loans that are a part of doing business. This means that a company that borrows money(revolving line of credit) to meet payroll can deduct that interest expense against their revenues. It means that apartment complexes can deduct the interest on the bank loan for the property against the rent revenue. It would also mean that banks are able to deduct the interest expense when they borrow money to loan out to a mortgage.
If the interest expense is not deductible in these cases; the employer might need to employ fewer people or tie up cash for future paychecks instead of using it to grow the business. It means that the apartment complex would have to charge higher rents because it can’t deduct the cost of their loan against rent revenue. It would also mean that banks would have to charge higher mortgage rates because they can’t deduct the cost of their borrowing money to make that loan.
.. everything is tied together.. before anyone states that ‘well banks and apartments are valid businesses but other uses of interest deduction aren’t valid’, realize that to implement that would mean a very intrusive government who would now specify what could be a valid business. It would also make a convoluted tax code even more convoluted. You don’t want to go there.
@anon9
FYI, Great Britain phased out interest deduction about a decade ago if I recall. They used similar strategy, if I recall. Eroded it bit by bit over a decade.
And Great Britain has this large group of landed ‘nobility’ that seems to be able to hang onto their positions despite not doing much for the economy, and not contributing much to the economy.. I wonder how they do it….
Myriad,
You asked “If a flat tax was implemented, would MID still exist?”
I heard a talk by economist Arthur Laffer quite a few years ago in which he discussed a flat tax. He said they would keep the MID and the charitable deduction, not because there was any philosophical defense for keeping them within a flat tax system, but because they were just too popular with the electorate.
Keep in mind that the CBO recommendations are from career staff members who don’t have to stand for election. The elected officials may be a lot less likely to risk cutting a popular deduction. It’s difficult for me to believe that Speaker Nancy Pelosi will be pushing for cuts in the MID when the median price for homes in her home town of San Francisco is close to $800,000.
Whether the MID is a good idea or not, I think you will see pragmatism trump ideology when Congress considers it.
Adelanto is in Riverside Cty the same as Victorville,it is closely to tied to the Inland Empire.I am referring to Palmcaster Quartz Hill.- Paid off homeowner
POH, before ripping into other people it is best to get your counties straight. San Bernardino not Riverside. Not to worry, those kinds of mistakes seem to creep in when people get territorial. So, now that we know you meant the other end of the Antelope Valley we can be more specific. Like this neighborhood? I blogged about this one a while ago. Care to tell me how many weeks inventory?
Any article that says reducing the mortgage interest deduction is “tops on the CBO’s hit list for housing” shows the author is ignorant or deliberately trying to be inflammatory. Looking at the author’s background (google him), I doubt he’s ignorant, so I conclude he’s trying to be inflammatory. The CBO doesn’t create “hit lists” for how to change taxes, it responds to congressional requests by analyzing what the effects of policy changes would be. That article appears to be a calculated attempt to misrepresent the situation as “those blasted career bureaucrats trying to take our money.”
Step back for a moment and look at the article’s title. Ideas to cut the federal deficit could cost homeowners billions. Now think for a minute … just how the heck can we cut the enormous federal deficit without costing homeowners billions? Of course cutting the deficit is going to end up costing homeowners billions, DUH!! Does anyone seriously think that cutting the federal deficit can be done primarily by the 32% of lower-income households that rent?
A bill to change the mortgage interest deduction would certainly be worth debating (in the positive sense, raising pertinent points and going over the pros and cons). For some of the reasons stated above, changing the MIB might be the wrong way to raise more money. But this article is a transparent attempt to goad people with foolish half-approximations to the truth.
“And Great Britain has this large group of landed ‘nobility’ that seems to be able to hang onto their positions despite not doing much for the economy, and not contributing much to the economy.. I wonder how they do it….”
What’s your point? Mine is that one country has, in recent history, done exactly what the LA Times article comments on.
Your point seems to be that there some people get by off old money?
Got that here, too, I think. Just no titles.
Still irrelevant. I think a relatively low flat tax with zero incentives would be best.
The interesting thing here is that, if state and local taxes are no longer deducted, effective tax rates would almost certainly go up (I’m leaving out the mortgage deductions for right now).
In CA, where we have high property values AND high payroll taxes, this would be pretty unpopular.
just how the heck can we cut the enormous federal deficit without costing homeowners billions?
You can always tell a liberal. They don’t even entertain the idea that cutting spending and entitlements might be a way to reduce the deficit.
Rob I wasn’t ripping into you but you quoted a city in a whole different COUNTY! The redfin you show is only 25 homes,Palmdale is selling 450 homes a month with an all time low inventory of less than 800 homes.When prices get so low people jump in and buy creating a supply and demand issue.Prices here have gone up alot over the last 3 months.They will level off when they find equilibrium.Alot of people dis the Antelope Valley but as a great place to invest it will always grow.Big price swings mean profits to those who buy low and sell high.Gotta go I need to water my vineyard of Cabernet Sauv.
You can always tell a liberal. They don’t even entertain the idea that cutting spending and entitlements might be a way to reduce the deficit.
That presumes that those entitlements don’t go to homeowners. The entitlements are mostly Social Security and Medicare/Medicade, so when you cut those, you are costing homeowners billions. Feel free to play shell games, but the thought that we can get out of our massive deficit without having people pay one way or the other is unsupportable.
You can always tell a liberal. They don’t even entertain the idea that cutting spending and entitlements might be a way to reduce the deficit.
All those republican administrations dominating the last thirty years: 1980-1992 2000-2008, how’d that cutting spending work for you again? We’ve already partied on the money, overwhelmingly during republican administrations. The money’s spent. The responsible thing to do is pay our bills and not saddle the kiddies with massive debt they had nothing to do with.
You can always tell a conservative. They love to yap about personal responsibility until it’s theirs to live up to.
Suffice to say put me down for killing or culling the MID. I prefer to participate in markets that function well, and that means fewer market distorters.
What’s with the politics this is a RE blog! The whole purpose of write offs and tax incentives is tax avoidence for those who write the laws and stand to benefit!
If you’re a big fan of Republican governance, then hope the present administration implements this.
I’ll get my popcorn.
As Mountain Man said, if we get rid of ALL the deductions then everyone has a level playing field. Low tax rate. No deductions for anything. That’s the way to go.
The dems have left no stone unturned in their political suicide march. But by the time the bloodbath arrives in 2010, will there be anything left to salvage?
How about both parties just spend less money. I guess I’ll settle for voting out every incumbent.
The guy who wrote the article is a NAR cheerleader. There cannot be enough government subsidies for housing buying as far as this guy is concerned. So what if it drives up the government deficit, drives up house prices and transaction fees? So what if it favors one class of people (mortgagees) or another (non-mortgagees)?
Rick – the Dems have a big base of folks who pay little or no taxes, and another group (old people) who live off government checks. They (the old folks and non-tax payers) don’t care if the country is BR, since it has no short term impact on them. The old folks love their grandchildren, but love their government checks and medicare even more. We are an entitlement culture across all political parties.
And we are stupid. The MID does not “benefit” anyone. The “tax break” someone gets is more than offset by the higher price they had to pay. Should I blame the schools or the parents or [fill in the blank]?
OK. Vent over. Back to my “homicidally hoppy” Lagunitas IPA…
Smithers your argument makes no sense as the OLD people as you like to call us folks who paid all of our lives not to mention died in many wars so you could get your blessed MID don”t need the write off. WE own our homes free and clear so we don’t care either way. And the poor people you refer to who get free subsidies don”t have a mortgage anyway so blame your own self for not working hard enough to get ahead.JIM was showing people for the last year homes for 200k or less in Oceanside where your house payment would be cheaper than rent and you all scoffed at him saying you wanted a million dollar house for your first home! Us baby boomers have spawned a spoiled entitled class of lazy children who if they took their I Phone off for 2 minutes and worked might just get ahaid in this world!
How ’bout them little leaguers! Going to the parade?
Love little league, i was clocked with a 89 mph fastball at 16 years old by a Dodgers scout. I threw a no hitter that day but the ump called an error on my center fielder a hit to ruin my game.His son played on another team.I got him back though as a few games later I called a meeting on the mound and instructed my cather not to catch a fastball aimed right at at Mr Umpires face. Needles to say I was suspended!
Reducing the MID as proposed will not bring in the revenue expected, here’s why …
Those with a 500K to 1M mortgage would consider converting their primary into a rental and rent a similar place. Rental property is treated on Schedule E, as a business. Assuming they had some positive cash flow (or could add equity by diverting some investments into the property), you can effectively get the same results from a tax perspective.
Aspiring homeowners who rent should also consider what happens in the long term if the MID is removed.
Although, in the short run this would reduce prices, in the long run it would create a wider spread between owning and renting. Without the MID, the price point where owning versus being a renter becomes favorable would be signficantly higher than price point at which the property makes sense as an investment.
RobDawg and ucodegen
Paid off homeowner,
It’s funny that you think the children of boomers are the ones not working and getting all the benifits. The truth is the boomers are the most entilement driven me first generation the USA has ever known.
Boomers have lived for “free” for years off false homeownership equity. And boomers through the federal reserve have spent money like mad stealing from generations that will follow them.
As one last kick in the nuts boomers are now starting to hit retirement age and have nothing saved to live off. Who do you think is going to have to pay for all their Medicare and social security checks?
Btw I wrote this comment on my iPhone.
In the end, this downturn is good and part of the cycle. Generation me – American in their teens, 20s and 30s who display very healthy levels of ‘esteem’ even if they haven’t accomplished much to earn it will learn to cope.
btw, I have no iphone and wrote this on my 5 yr old laptop =P
As a good liberal, I predict that the MID limit will die. The original proposal to limit all deductions to the 28% bracket might happen, but the limit to 500K won’t. Why? Look at the most expensive housing areas by metro: NYC, Boston, Miami, SF, LA. What do you notice about these areas? All pretty liberal.
POH is in a much different environment in the Antelope Valley (or whatever county that is – can’t follow the argument/not interested.) Out here in SD, we see a different group of baby boomers. Not all, but many have as much a sense of entitlement as anyone. I don’t see entitlement as a generational issue.
As for, “blame your own self for not working hard enough to get ahead,” I can only say “wow.” Smithers can speak for himself, but let me say I work very hard, and I’m very smart and responsible with my money so I can hopefully one day get ahead. Instead of following the herd and buying an overpriced home I maybe couldn’t afford, I’ve invested my money in a timely and profitable manner. Now the current administration, which perpetuates free rent and loan modifications for deadbeats, wants to increase my capital gains tax bill and make my first house even less affordable by withdrawing MID, so they can continue to support the deadbeats. Of course I’m pissed.
And, with all due respect, please spare us your “we fought in wars” generational BS. Most of the readers on this blog work hard and aspire to do more than retire in Palmdale.
I guess I notice that all of these Liberal areas are the economic engines for this country. Anyone notice how red states are receiver states of federal aid and blue states are senders?
These schemes are here to generate business activity. Home ownership is encouraged because it fosters stability and a sense of ownership of our society.
We’ll get out of this deficit, (inherited from fiscally conservative Republicans when they controlled congress and the white house), when the economy grows and there are profits that are not taxed to allow more investment.
Paid(?) Off Home Owner:
I admit I wrongfully over-generalized about OLD folks. No doubt, there are some who view the future for their grandchildren as important as their government checks. I like to think that is true of my own parents. I wonder if that will be true of myself if I live long enough and if the government can still borrow money from China in order to send out the checks.
The fact that half the country pays little or no taxes means half the country has a corresponding little or no stake in where the money comes from. However, we all have a stake in the eventual outcome of the country being tapped out and cut-off by its lenders.
Will ending the MID make any difference? No, because the government is destined to borrow to the end. Some new revenues will just prolong the inevitable.
“Oh noes, capital gains taxed at the same level as your secretary’s paycheck.”
Try again; the secretary is in a lower tax bracket. Bleeding hearts often fail to recognize that “rich” people already pick up the vast majority of the country’s tax bill.
The Blur | August 30th, 2009 at 11:31 am
You do know the source of this meme is Warren Buffett? He’s stated that in 2006 he paid 17.7% of his income (of $46 million), while his receptionist paid over 30%. And that’s without using any particular tax shelters or other gimmicks to avoid taxes, which he doesn’t use.
If you’re a big fan of Republican governance, then hope the present administration implements this.
I’ll get my popcorn.
Mr. B | August 30th, 2009 at 6:03 pm
Obama’s stated that he won’t increase taxes on people making more than $250k a year. Lowering the MID to loan values just double that would violate that, IMHO.
This is a CBO wish list. They are giving logical ways to balance the budget. In the real world, there’s no way this happens.
Most will have moved on to newer posts.. but keeping things relevant.
@anon9
My point in mentioning the landed wealthy in Briton is that they get by through wrapping up their property in corp.. possibly tying it in with historical property preservation.. and my even get paid in the process. The ‘unlanded unwealthy’ do not have that option.
If the politicians care at all about home ownership, they’d eliminate ALL interest deductions and write-offs for residential real estate, especially SFHs. If “investors” want to get rich, they should play the stock market. Housing is a finite resource in areas where there are jobs and other amenities. Therefore, it’s too easy to monopolize a limited resource (land and housing). With the current tax laws, wealthy people have a huge advantage over people of modest means who want to own a house. No, “owning” is not a right, but neither is “making a profit” or “getting tax benefits” as a landlord.
Dropping the MID would NOT make housing less affordable. Instead, it would make it more affordable because prices would have to fall in order to offset the loss of the MID.
I agree with the other posters, it would be great to see an end to all manipulations in the housing market.
The mortgage interest deduction is not a distortion or manipulation of the housing market. All interest expense should be deductible, as it was prior to 1986. Ending the MID is a horribly regressive action. If you want the middle class to pay twice as much tax as the wealthy for the same house, then get rid of the MID.
For a full explanation of this, see my blog post here.
David,
Thank you for your input and link to your post. This is completely subjective, but some of us believe housing should be viewed not as an asset, but as housing/shelter for families.
IMHO, ALL mortgage interest should not be deductible — not for landlords, nor owner-occupiers. Personally, if we want to encourage home ownership, we would eliminate the distortions that benefit landlords or investors over o/o buyers. No MID, no Prop 13 protection for second/investment homes, etc. unless the LL agrees to abide by strict rent control in exchange for these benefits.
CA renter, I appreciate where you’re coming from, but you should read my post. Taxing any interest expense is regressive. For clarity, let’s take housing out of the argument for a minute.
If your refrigerator dies and you have cash, you take $2,000 to the store and buy a new one. You are taxed on that $2,000 of your income. But let’s say you are broke and borrow the $2,000, at 8% for 3 years. You’ll pay tax on $2,256 of your income. Should you have to pay more tax because you had to finance the refrigerator? It’s a tax on being broke. That’s why I say credit card interest should be deductible too, like it was before 1986.
If you think eliminating the MID will level the playing field between investors and o/o buyers, consider that the owner will likely need to finance over 30 years while large investors might finance over 15 years or less. Homeowners will then be taxed 42% more than investors. Should you pay 42% more tax because you’re not a large corporation?
Making all interest expense deductible for all is the best way to achieve the fairness you seek.