Pres Panel May Make Ownership Less Sweet
Amid yesterday’s chaotic server switch, we neglected to raise one burning issue for discussion: the proposed changes to the tax code that may include a significant roll-back of the deductibility of mortgage interest as well as a reduction in the amount of tax-free capital gains an individual or couple may take. It seems like strange…
Amid yesterday’s chaotic server switch, we neglected to raise one burning issue for discussion: the proposed changes to the tax code that may include a significant roll-back of the deductibility of mortgage interest as well as a reduction in the amount of tax-free capital gains an individual or couple may take. It seems like strange timing to spring this on the market now, with talk of the impending bursting of the bubble splashed across every front page. Depending on the scale, meaningful cutbacks on either measure would have to hurt the market, we’d think. What do people think about a) the likelihood of significant changes and b) the potential impact of such changes?
Mortgage Deduction Changes on Table [CNN Money]
To anon at 4:49: I think the “wealthy” george bush is not worrying about are those who own their home outright (i.e. don’t need the tax break and don’t need the mortgage for that matter). I think sometimes the psychological million dollar mortgage make some believe those with it are, “wealthy” when really in nyc at least you’re just middle to upper class and as you point out are most likely democrats.
If I recall correctly, when the law was changed in 1997 (previously you could avoid primary home sale profits only if you re-invested within a certain amount of time), there was no grandfathering. Now, if the tax laws are getting less generous, then maybe that would be a different thing.
But I think the main point to remember is that this is the Bush administration–they will not be raising taxes on the wealthy anytime soon. Hell, they want to get rid of capitol gains and inheritance taxes entirely. Why would they turn around and add new ones? Disgusting, but true.
As Tony Kushner recently pointed out, what we saw in New Orleans is the Republican Dream realized: no safety net, no public services, and everybody carrying guns.
It really is amazing to think that, given our druthers, the vast majority of us Blue Staters would really prefer raising taxes, against our own (short-term) best interest. God bless the Democrats.
Sorry about the grammatical errors in the above post, typed it quickly…
I think it seems a bit antithetical to Bush’s “ownership society” if his administration proposes to scale back or eliminate what is a real incentive to own your primary residence. This is not about capital gains taxes on investment property or stock sales, rather on your primary residence. Everyone who owns their home is entitled to the deduction, whether its a $70K house in Hometown, USA or a $1.5 million brownstone in Brooklyn. If you are a high income earner, then your deduction is greater because it is based on your marginal tax rate. Why is that unfair? If you make a higher salary, you pay a higher tax rate. Shouldn’t you be able to take an equivalent deduction for your interest on your mortgage just like someone who earns less than you? It is proportional.
Also, the $250,000 limit per person on tax free gains is no automatically realized, you actually have to have a piece of property that appreciates that much.
I’d be surprised if this get changed drastically, but if it does, surely their will have to be a grandfather provision so that the “rules of the game” are not changed mid-stream. Overall it could very likely affect prices of homes (drive them lower) though not in the long term. So again it is more of a short term remedy to a tax revenue issue. How about repeal the Bush tax cuts, that would make more sense.
Sammy no argument
BUT
the time till that was realized would be truly chaotic
Anon at 12:05, I see your point, and I had certainly considered the deduction something of interest when I was looking for a house (temporarily taking a break from that now) but in reviewing other people’s comments, I think that (in the oversimplified easy world we often live in in comments) if the tax break didn’t exist, housing prices would be lower (as you said) and then, it wouldn’t make much of a difference. You yourself said it’s beneficial because your mortgage payments are so high – if they weren’t because your house has cost less, it would probably be a wash. So when I do buy a place, if there is no more tax break, I would think prices would come down, my mortgage wouldn’t be as high as it would be now and in the end, my payments without the break would be similar to what they would be with it had I paid more money for a house.
Basically, I don’t want to use the tax break as a reason to buy a place I can’t really afford.
To anonymous at 10:27, I think it’s absolutely valid to factor in to your monthly payments the effect of the tax deduction. On our three family in CH, where we live in half the building, the deduction results in about $1800 a month in gain for me and my partner together. Granted, I benefit from a high tax bracket and the reason the deduction is so high is b/c our mortgage payments are so high (and, also, we can each take a deduction as an individual). Nevertheless this number factors in AMT and, together with solid rental income (taxes on which are offset almost fully by depreciation), is the reason we bought our three family. We, too, of course love owning a home, but the tax break certainly makes it more affordable. I think it would have a very palpable effect on prices should this deduction be rolled back for new purchases.
Look at who benefits the most from the mortgage deduction. Bush is not going to get any more votes from the blue states anyway, so the political price is low for him. Since they are contemplating eliminating the AMT, they have to look somewhere for money. Unless you prefer to pay AMT, one way or another you are going to pay…Death and Taxes…
As someone looking to buy, while the tax break has often been touted to me as a great reason to buy, I just don’t see it as THE reason to buy when having my own home to raise a family in is really what I’m looking for. While it would be a nice thing to have, if prices come down and rates rise, if someone has saved a nice downpayment, maybe the lack of a tax break won’t make that much of a difference. I also think a lot of people used it as an excuse to purchase more than they could really afford (as in, sure it’s a high monthly payment, but after the tax break…)