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is mortgage deduction fair when renters can't deduct rent


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I heard it recently stated that rent should be deductible if homeowners get a mortgage interest deduction.

 

My take:

No.

 

Reasoning:

I just paid cash for a home with after-tax dollars.  The price I paid is effectively the discounted present value of all future rent.

 

So if you allow a deduction for rent, then to be fair you'll have to let me carry forward an annual deduction in perpetuity for the present value of the rent that I had paid upfront.  I'm sure the thought of that would cool anyone's heels.

 

To get apples to apples with the mortgage interest deduction, I would agree to a law that lets you deduct the interest you incur if you borrow the money that you pay your rent with.

 

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I've even heard people talk about taxing the imputed rent earned for living in your own home (even though you already paid that rent when you bought the house).

 

Next somebody will suggest that we tax the imputed rent for driving your own car. 

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And if you are taking out a loan for renting, you have bigger issues than a tax break.

 

I would offer it as a populist gimmick if I were in the Presidential race, fully knowing that it could do no damage and would cost the Treasury nothing... because nobody will loan you money to make rent.

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It is not apples to apples.  First, rent is essentially principal + interest+ taxes + maintenance + profit.  Mortgage interest is just what it says - interest.  So making rent deductible would swing the pendulum beyond mortgage interest.  Secondly, the owner of the rental property is likely already deducting the mortgage interest.  You can't (or logically shouldn't) allow for something to be deducted more than once.   

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It is not apples to apples.  First, rent is essentially principal + interest+ taxes + maintenance + profit.  Mortgage interest is just what it says - interest.  So making rent deductible would swing the pendulum beyond mortgage interest.  Secondly, the owner of the rental property is likely already deducting the mortgage interest.  You can't (or logically shouldn't) allow for something to be deducted more than once. 

 

Sometimes the interest gets deducted twice.  A realtor could rent an office and yet still deduct it from his income.  The owner of the office building might be deducting mortgage interest.  So is it deducted twice?

 

It's always okay for a business (like the realtor in this case) to deduct these kinds of things a second time.  So the mere fact of it being a second swipe isn't really the issue.

 

Just seems to be that if you are paying for your primary residence, you get no deduction for that.  Whether you own it or rent it, no deduction.  (the price you pay for the home can't be deducted).

 

The law does allow for deducting the financing of your principle residence if you own it -- could probably do the same for people who need to borrow money to make rent (deduct the interest).  This wouldn't solve a real problem, but it may shut up a few people who think it's unfair that homeowners can deduct the cost of financing their primary home.

 

 

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Rents would sky rocket if they were tax deductible. People with less taxable income would be priced out of market fast. Unintended consequences with that.

 

Isn't the mortgage interest deduction itself full of unintended consequences though? Home buyers are able to afford more house or perhaps afford a house at all, thanks to it, "artificially" increasing demand. Ultimately, it's hard to look at a program like this as "fair" or "unfair" when it was implemented with a goal in mind - increasing home ownership. It exists to provide a pathway to home ownership for more Americans. Whether or not that is a reasonable goal, the effectiveness of the mortgage interest deduction in accomplishing it, or whether the government should use tax policy to promote home ownership are all better topics than trying to dig into the fairness of the mortgage interest deduction, it wasn't written to be fair.

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Can't argue with that.  In a sense higher rents would also benefit property owners by supporting higher prices if cap rates remain steady.  I would just feel bad for the low income renters because they aren't paying taxes as it is, any additional increase in rents is just pulling directly out of their remaining "wealth."  And they would find it nearly impossible to save enough to buy an overpriced real estate asset.

 

But stable home ownership has other benefits to society and low income earners.  Anyway, all fun stuff to think about but probably a waste of time.

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It is not apples to apples.  First, rent is essentially principal + interest+ taxes + maintenance + profit.  Mortgage interest is just what it says - interest.  So making rent deductible would swing the pendulum beyond mortgage interest.  Secondly, the owner of the rental property is likely already deducting the mortgage interest.  You can't (or logically shouldn't) allow for something to be deducted more than once. 

 

Sometimes the interest gets deducted twice.  A realtor could rent an office and yet still deduct it from his income.  The owner of the office building might be deducting mortgage interest.  So is it deducted twice?

 

It's always okay for a business (like the realtor in this case) to deduct these kinds of things a second time.  So the mere fact of it being a second swipe isn't really the issue.

 

Just seems to be that if you are paying for your primary residence, you get no deduction for that.  Whether you own it or rent it, no deduction.  (the price you pay for the home can't be deducted).

 

The law does allow for deducting the financing of your principle residence if you own it -- could probably do the same for people who need to borrow money to make rent (deduct the interest).  This wouldn't solve a real problem, but it may shut up a few people who think it's unfair that homeowners can deduct the cost of financing their primary home.

 

"Fairness" on tax deductions is really iffy.  On its own, why exactly is the mortgage interest deduction "fair"? Why is it more fair than if it did not exist at all?

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Just remove the home interest tax deduction completely. that will make it simpler and fairer. I see no reason why we need a home interest tax deduction. People say it's a middle class tax break, but really its a tax code benefit for the banking system not for the people.

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"Fairness" on tax deductions is really iffy.  On its own, why exactly is the mortgage interest deduction "fair"? Why is it more fair than if it did not exist at all?

 

Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

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As one of my professor's said back in the early 1960's when I took my first tax class, "Tax laws are nor fair!" 

With the higher standard deduction most folks aren't getting much of a deduction for the interest paid on their house.  In 2014 the standard deduction was 12,400 so the only benefit would be IF the interest and taxes exceeded the 12,400. For example if the taxes and interest were 14,500 then the only tax savings would be 2,100 times your tax rate (14500-12400) as you get the standard deduction anyway.

Tax law reflects what lobbyist  or special interest group gets to congress.

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Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

 

Aren't you a libertarian?  If so, this is a pretty interesting perspective, that an increase in taxes is desirable to make things more fair.

 

I don't want to increase taxes, but reduce (actually abolish them or make them voluntary).

 

If you have a tax system deductions of any kind are inherently unfair (policy makers trying to help certain groups of people they prefer). Deductions highlight the limitations of a specific tax system. The more deduction options (and the more different taxes) the crapier the systrm.

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Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

 

Aren't you a libertarian?  If so, this is a pretty interesting perspective, that an increase in taxes is desirable to make things more fair.

 

I don't want to increase taxes, but reduce (actually abolish them or make them voluntary).

 

If you have a tax system deductions of any kind are inherently unfair (policy makers trying to help certain groups of people they prefer). Deductions highlight the limitations of a specific tax system. The more deduction options (and the more different taxes) the crapier the systrm.

 

They could get rid of the deductions and instead make income from mortgages tax-exempt, similar to muni bonds.  That would reduce the market interest rate and thus perhaps maintain affordability of mortgage credit.  Would that be unfair?  Or would it be fair because everybody could participate in tax-free savings options.

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Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

 

Aren't you a libertarian?  If so, this is a pretty interesting perspective, that an increase in taxes is desirable to make things more fair.

 

I don't want to increase taxes, but reduce (actually abolish them or make them voluntary).

 

If you have a tax system deductions of any kind are inherently unfair (policy makers trying to help certain groups of people they prefer). Deductions highlight the limitations of a specific tax system. The more deduction options (and the more different taxes) the crapier the systrm.

 

They could get rid of the deductions and instead make income from mortgages tax-exempt, similar to muni bonds.  That would reduce the market interest rate and thus perhaps maintain affordability of mortgage credit.  Would that be unfair?  Or would it be fair because everybody could participate in tax-free savings options.

 

Wealth tax should not exist. So dividend, capital gains, interest tax and mortgage tax should all not exist. These are the worst taxes.

 

Continuing with income taxes. Slightly less bad but still should be abolished. Everything government does should be possible from consumption taxes alone (VAT). If that is too little it's a clear signal government has become way too large.

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Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

 

Aren't you a libertarian?  If so, this is a pretty interesting perspective, that an increase in taxes is desirable to make things more fair.

 

I don't want to increase taxes, but reduce (actually abolish them or make them voluntary).

 

If you have a tax system deductions of any kind are inherently unfair (policy makers trying to help certain groups of people they prefer). Deductions highlight the limitations of a specific tax system. The more deduction options (and the more different taxes) the crapier the systrm.

 

They could get rid of the deductions and instead make income from mortgages tax-exempt, similar to muni bonds.  That would reduce the market interest rate and thus perhaps maintain affordability of mortgage credit.  Would that be unfair?  Or would it be fair because everybody could participate in tax-free savings options.

 

Wealth tax should not exist. So dividend, capital gains, interest tax and mortgage tax should all not exist. These are the worst taxes.

 

Continuing with income taxes. Slightly less bad but still should be abolished. Everything government does should be possible from consumption taxes alone (VAT). If that is too little it's a clear signal government has become way too large.

 

The moment you eliminate dividend taxes, there will be zero S corporations and a lot of new C corporations.  But I imagine that would all have to be amended or we'd see the total elimination of the employee as we know it (a whole lot of independent contractors as C corps).

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Indeed. It unfairly increases RE prices by direct government intervention. A socialist intervention method.

 

Aren't you a libertarian?  If so, this is a pretty interesting perspective, that an increase in taxes is desirable to make things more fair.

 

I don't want to increase taxes, but reduce (actually abolish them or make them voluntary).

 

If you have a tax system deductions of any kind are inherently unfair (policy makers trying to help certain groups of people they prefer). Deductions highlight the limitations of a specific tax system. The more deduction options (and the more different taxes) the crapier the systrm.

 

They could get rid of the deductions and instead make income from mortgages tax-exempt, similar to muni bonds.  That would reduce the market interest rate and thus perhaps maintain affordability of mortgage credit.  Would that be unfair?  Or would it be fair because everybody could participate in tax-free savings options.

 

Wealth tax should not exist. So dividend, capital gains, interest tax and mortgage tax should all not exist. These are the worst taxes.

 

Continuing with income taxes. Slightly less bad but still should be abolished. Everything government does should be possible from consumption taxes alone (VAT). If that is too little it's a clear signal government has become way too large.

 

The moment you eliminate dividend taxes, there will be zero S corporations and a lot of new C corporations.  But I imagine that would all have to be amended or we'd see the total elimination of the employee as we know it (a whole lot of independent contractors as C corps).

 

What's wrong with that? Sounds awesome and way closer to optimal than the current situation.

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