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So, IRS lost a case from domestic partners regarding mortgage interest deduction. The interest can be deducted on upto $1.1million mortgage and home debt.

With domestic partners you do it for upto $2.2mm mortgage and home debt. So, you can co-own the property and deduct interest.

Why are rules against married couples? I guess once most people switch to "domestic partners" new laws will then Target "domestic partners".

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My guess is that we'll sooner see the mortgage interest deduction being rephrased to cover this case since that would ge... (more)

Shandril (Aug. 29, 2016 @ 1:34p) |

This would make a lot of sense for reducing how regressive that deduction is but I don't know about how likely it is whe... (more)

Shandril (Aug. 29, 2016 @ 1:47p) |

seems pretty easy: "The average deduction is $XXXX (excluding standard deductions), and 98% of total mortgage interest d... (more)

Bend3r (Aug. 29, 2016 @ 2:09p) |

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You might want to change the title to 'Another Reason for Rich People to not get married'. Considering I don't know too many ordinary people who have a 2.2 million property. (unless they inherited it)

Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.
 

  The NIMBY argument applied to tax deductions

SUB said:   
jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  The NIMBY argument applied to tax deductions

  why shouldn't mortgage interest be tax deductible, after all, if you rent, your landlord can deduct it

Nm off topic

rufflesinc said:   
SUB said:   
jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  The NIMBY argument applied to tax deductions

  why shouldn't mortgage interest be tax deductible, after all, if you rent, your landlord can deduct it

  I know you're trying to troll, but it's a business expense.

^Right. When my grocery store buys groceries, they get to deduct it. When I buy groceries, I don't get to deduct it. This is not an unfair double standard.

vranaco said:   ^Right. When my grocery store buys groceries, they get to deduct it. When I buy groceries, I don't get to deduct it. This is not an unfair double standard.
  Normally when you buy groceries, you consume them.  When the store buys groceries, they deduct the cost and pay tax on the income.  If the grocery store owner takes groceries home, he has to take them out of inventory, pay sales tax, and they aren't "deducted".

If you buy groceries from the grocery store and then go sell them at a farmer's market, you also get to deduct the cost against the money you receive when you sell them, to determine the net income you must pay income tax on.

stanolshefski said:   
rufflesinc said:   
SUB said:   
jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  The NIMBY argument applied to tax deductions

  why shouldn't mortgage interest be tax deductible, after all, if you rent, your landlord can deduct it

  I know you're trying to troll, but it's a business expense.

  wouldn't not having a mortgage interest deduction favor renters? 

rufflesinc said:   
  wouldn't not having a mortgage interest deduction favor renters? 

It would make things more fair for renters.
The deduction for the landlord is not the same as a "homeowner's" mortgage deduction. The landlord is deducting against INCOME generated from the property, while the homeowner is deducting against income unrelated to the property. Not the same thing. The landlord is also not really specifically deducting the "mortgage interest" as a special item but just all expenses related to the property, of which it may or may not be one of.... Profit = Income - expenses, that's how business income is taxed.

If you say the homeowner is needing the home to produce their W2 income so therefore it makes sense to deduct it from W2, that's a very convoluted argument and then you would also be arguing that people should be able to deduct everything else they spend on from income taxes and only pay taxes on net worth change (or "savings") for the year.  Sort of the reverse of a consumption tax.


You make a good point that renter's are currently being penalized significantly and the mortgage deduction works as a strongly regressive tax on renters (Since most renters are least wealthy, and rent rates are largely set by the landlord's expenses -- at least the lower limit is, exception being if there's a strong imbalance with much more demand than supply).
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

rufflesinc said:     wouldn't not having a mortgage interest deduction favor renters? 
  
Under the theory of a perfectly rational society, the mortgage interest deduction would be factored into rents the same way the employer portion of FICA is factored into wages. 

Bend3r said:   
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

  Whatever portion of the rent goes to pay for property taxes that would ordinarily be itemized deductions on an owner-occupied primary residence should be deductible to the renter.

Bend3r said:   
 
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

I think rent should be completely deducted.

rufflesinc said:   
Bend3r said:   
 
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

I think rent should be completely deducted.

  Oh?  Why not car payments then? Why not opportunity costs of home equity if you own some or all of the house? (Set it at 8% of the whole amount to approximate market returns...)  Why not shoes to walk to work in, and clothes, and food and....
DTASFAB said:   
Bend3r said:   
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

  Whatever portion of the rent goes to pay for property taxes that would ordinarily be itemized deductions on an owner-occupied primary residence should be deductible to the renter.

 That would strongly favor renters (and thus landlords) who have higher LTV or higher rate mortgages over others. Unless it was a market average of some sort to calculate a ratio to use for all renters.
edit: OOPS I misread your post, thought you referenced the mortgage interest rather than property taxes.  Still probably some complications on how to split up a multi-unit property's between varying units of either same size different quality or different sizes.

jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  
And this is the PERFECT time to eliminate the deduction with interest rates as low as they have been in a generation. 

Bend3r said:    That would strongly favor renters (and thus landlords) who have higher LTV or higher rate mortgages over others. Unless it was a market average of some sort to calculate a ratio to use for all renters.
Why would mortgages have to be part of the calculation at all?  If I own a condo and rent it out, the property taxes owed on the condo each year aren't impacted by the mortgage rate, the percentage of equity, or even whether there's any mortgage to begin with.

Whatever total property taxes are for the year, divide by 12 to get the monthly average.  As long as rent paid per month is equal to or greater than the average monthly property taxes, the renter can deduct that amount for every month of rent paid.  If the rent paid is lower, the entire rent amount paid can be deducted.  That's all I'm proposing.

As a renter, I don't care about deducting my landlord's mortgage interest.

Bend3r said:   rufflesinc said:   
Bend3r said:   
 
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

I think rent should be completely deducted.

  Oh?  Why not car payments then? Why not opportunity costs of home equity if you own some or all of the house? (Set it at 8% of the whole amount to approximate market returns...)  Why not shoes to walk to work in, and clothes, and

Yes yes and yes

DTASFAB said:   
Bend3r said:    That would strongly favor renters (and thus landlords) who have higher LTV or higher rate mortgages over others. Unless it was a market average of some sort to calculate a ratio to use for all renters.
Why would mortgages have to be part of the calculation at all?  If I own a condo and rent it out, the property taxes owed on the condo each year aren't impacted by the mortgage rate, the percentage of equity, or even whether there's any mortgage to begin with.

Whatever total property taxes are for the year, divide by 12 to get the monthly average.  As long as rent paid per month is equal to or greater than the average monthly property taxes, the renter can deduct that amount for every month of rent paid.  If the rent paid is lower, the entire rent amount paid can be deducted.  That's all I'm proposing.

As a renter, I don't care about deducting my landlord's mortgage interest.

  Many, maybe even most, renters would see no benefit because their deductions won't exceed the standard deduction, or they pay no effective federal income taxes.

rufflesinc said:   
Bend3r said:   
rufflesinc said:   
Bend3r said:   
 
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

I think rent should be completely deducted.

  Oh?  Why not car payments then? Why not opportunity costs of home equity if you own some or all of the house? (Set it at 8% of the whole amount to approximate market returns...)  Why not shoes to walk to work in, and clothes, and

Yes yes and yes

  Troll troll and troll.

wizwor said:   
jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  
And this is the PERFECT time to eliminate the deduction with interest rates as low as they have been in a generation. 

  
Unfortunately no politician will get voted in for taking away entitlements (which lets face it, that's what the mortgage deduction is by now).  And that is the crux of the problem.  The majority of voters want a good story even if it's not attainable.

stanolshefski said:   
rufflesinc said:   
Bend3r said:   
rufflesinc said:   
Bend3r said:   
 
The other way to make it fair for renters would be to allow renter's to deduct some of their rental payments (in a similar amount to mortgage interest) and leave everything else as is.

I think rent should be completely deducted.

  Oh?  Why not car payments then? Why not opportunity costs of home equity if you own some or all of the house? (Set it at 8% of the whole amount to approximate market returns...)  Why not shoes to walk to work in, and clothes, and

Yes yes and yes

  Troll troll and troll.

  So you're against lower taxes for the middle class eh? Who do you think the deduction benefits?

S197 said:   
wizwor said:   
jd2010 said:   Yet another example of why:

1) Mortgage interest shouldnt be tax deductible in the first place, and
2) Why marriage should be completely removed from the government's lexicon. It had been and should remain a purely religious ceremony.

  
And this is the PERFECT time to eliminate the deduction with interest rates as low as they have been in a generation. 

  
Unfortunately no politician will get voted in for taking away entitlements (which lets face it, that's what the mortgage deduction is by now).  And that is the crux of the problem.  The majority of voters want a good story even if it's not attainable.

  let's not get carried away here. the mortgage interest deduction is no more an entitlement than any of the numerous carveouts in the tax code. If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house

rufflesinc said:     let's not get carried away here. the mortgage interest deduction is no more an entitlement than any of the numerous carveouts in the tax code. If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
  Agreed it's not an entitlement.  Disagree that mortgage interest deduction "makes it easier for the middle class to afford a house".  it's just the opposite.  It inflates property values (causing larger down payments), and penalizes renters (relative to "homeowners") which makes it harder for them to afford the house.  Removing it would allow larger standard deductions across the board or shifting the tax bracket cutoffs or decreasing tax-rates with no net change in income tax revenue.

rufflesinc said:     If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
The mortgage interest deduction is a highly regressive tax deduction that makes it harder for the middle and lower middle class for afford a house. Rich Man's mortgage interest deduction saves him $29,720 on his $1,000,000 mortgage at 7% interest (jumbo loans tend to be high interest and people at at that high of an income bracket will have their state taxes exceed the standard deduction). Middle class man's mortgage interest deduction on his $200k house saves him maybe $1k or so. Part of the deduction is lost to what would have otherwise been his standard deduction. Poor man's interest on his $100,000 house saves him zero dollars because he won't be itemizing anyway. 

The mortgage interest deduction gets factored into housing prices which makes it harder for people who don't benefit as much from the deduction to afford a house. There is no reason for the mortgage interest deduction other than a gift to realtors and rich people (and that people factored it into their home buying decisions so it should be phased out rather than immediately eliminated). 

stanolshefski said:   
DTASFAB said:   Why would mortgages have to be part of the calculation at all?  If I own a condo and rent it out, the property taxes owed on the condo each year aren't impacted by the mortgage rate, the percentage of equity, or even whether there's any mortgage to begin with.

Whatever total property taxes are for the year, divide by 12 to get the monthly average.  As long as rent paid per month is equal to or greater than the average monthly property taxes, the renter can deduct that amount for every month of rent paid.  If the rent paid is lower, the entire rent amount paid can be deducted.  That's all I'm proposing.

As a renter, I don't care about deducting my landlord's mortgage interest.

  Many, maybe even most, renters would see no benefit because their deductions won't exceed the standard deduction, or they pay no effective federal income taxes.

Allow me to introduce you to a few of my neighbors...
vranaco said:   The mortgage interest deduction is a highly regressive tax deduction that makes it harder for the middle and lower middle class for afford a house. Rich Man's mortgage interest deduction saves him $29,720 on his $1,000,000 mortgage at 7% interest (jumbo loans tend to be high interest and people at at that high of an income bracket will have their state taxes exceed the standard deduction). Middle class man's mortgage interest deduction on his $200k house saves him maybe $1k or so. Part of the deduction is lost to what would have otherwise been his standard deduction. Poor man's interest on his $100,000 house saves him zero dollars because he won't be itemizing anyway. 

The mortgage interest deduction gets factored into housing prices which makes it harder for people who don't benefit as much from the deduction to afford a house. There is no reason for the mortgage interest deduction other than a gift to realtors (and that people factored it into their home buying decisions so it should be phased out rather than immediately eliminated). 

Exactly why I want a deduction on part of my monthly rent.  I don't believe in the socialist-esque philosophy that Robin Hood, or the federal government, or anybody else, should steal from the rich and give to the poor.  The mortgage interest deduction is no more regressive than a flat tax would be.  And that's only regressive in the eyes of those who want at least a mild, passive form of socialism to exist in this country.  I don't.

vranaco said:   The mortgage interest deduction is a highly regressive tax deduction that makes it harder for the middle and lower middle class for afford a house. Rich Man's mortgage interest deduction saves him $29,720 on his $1,000,000 mortgage at 7% interest (jumbo loans tend to be high interest and people at at that high of an income bracket will have their state taxes exceed the standard deduction). Middle class man's mortgage interest deduction on his $200k house saves him maybe $1k or so. Part of the deduction is lost to what would have otherwise been his standard deduction. Poor man's interest on his $100,000 house saves him zero dollars because he won't be itemizing anyway. 

The mortgage interest deduction gets factored into housing prices which makes it harder for people who don't benefit as much from the deduction to afford a house. There is no reason for the mortgage interest deduction other than a gift to realtors (and that people factored it into their home buying decisions so it should be phased out rather than immediately eliminated). 
 

hold on...you can't have it both ways. if the mortgage interest deduction on cheaper houses doesn't affect income taxes very much (like you said).....and housing prices reflect the MI deduction (your contention)....then for cheaper houses, the prices should be virtually unaffected. the housing market is very different at the low- and top-end.

and the homeowner MI deduction isn't a gift to realtors. it incentivizes home ownership for millions of Americans. the "1k or so" that the middle class man saves (it's quite a bit more than that, actually, for most) is still significant on his middle-class salary.

vranaco said:   rufflesinc said:     If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
The mortgage interest deduction is a highly regressive tax deduction that makes it harder for the middle and lower middle class for afford a house. Rich Man's mortgage interest deduction saves him $29,720 on his $1,000,000 mortgage at 7% interest (jumbo loans tend to be high interest and people at at that high of an income bracket will have their state taxes exceed the standard deduction). Middle class man's mortgage interest deduction on his $200k house saves him maybe $1k or so. Part of the deduction is lost to what would have otherwise been his standard deduction. Poor man's interest on his $100,000 house saves him zero dollars because he won't be itemizing anyway. 

The mortgage interest deduction gets factored into housing prices which makes it harder for people who don't benefit as much from the deduction to afford a house. There is no reason for the mortgage interest deduction other than a gift to realtors (and that people factored it into their home buying decisions so it should be phased out rather than immediately eliminated). 

Then the answer is to set a cap

vranaco said:   
rufflesinc said:     If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
The mortgage interest deduction is a highly regressive tax deduction that makes it harder for the middle and lower middle class for afford a house. Rich Man's mortgage interest deduction saves him $29,720 on his $1,000,000 mortgage at 7% interest (jumbo loans tend to be high interest and people at at that high of an income bracket will have their state taxes exceed the standard deduction). 

  The difference in interest rates between jumbo and conforming has been minimal for several years now and at certain points during that time jumbo rates were lower.

Bend3r said:   rufflesinc said:     let's not get carried away here. the mortgage interest deduction is no more an entitlement than any of the numerous carveouts in the tax code. If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
  Agreed it's not an entitlement.  Disagree that mortgage interest deduction "makes it easier for the middle class to afford a house".  it's just the opposite.  It inflates property values (causing larger down payments), and penalizes renters (relative to "homeowners") which makes it harder for them to afford the house.  Removing it would allow larger standard deductions across the board or shifting the tax bracket cutoffs or decreasing tax-rates with no net change in income tax revenue.

It no more inflates property values than does the government subsidizes mortgage interest rates

rufflesinc said:   
Bend3r said:   
rufflesinc said:     let's not get carried away here. the mortgage interest deduction is no more an entitlement than any of the numerous carveouts in the tax code. If you are concerned that the deduction is taken advantage of by the wealthy with $1M houses, then the answer is to limit it somehow, not to make it harder for the middle class to afford a house
  Agreed it's not an entitlement.  Disagree that mortgage interest deduction "makes it easier for the middle class to afford a house".  it's just the opposite.  It inflates property values (causing larger down payments), and penalizes renters (relative to "homeowners") which makes it harder for them to afford the house.  Removing it would allow larger standard deductions across the board or shifting the tax bracket cutoffs or decreasing tax-rates with no net change in income tax revenue.

It no more inflates property values than does the government subsidizes mortgage interest rates

true. i would say Fannie and Freddie inflate the RE market FAR more than the mortgage interest deduction does. take them out of the equation and watch the whole market tank. take away the other, and i imagine only higher-priced properties will take a (smaller) hit on resale.

It should not be deductible. The government needs more money so THEY can do more for you.😳

It's already not as deductible as most people think. From the jump, the mortgage interest basically takes income off the books, and you only save the marginal rate you would have paid on that income relative to the interest you're paying. If you haven't hit the standard deduction before you apply your mortgage interest, you save nothing on the amount of your mortgage interest that it takes to get up to the standard deduction. Then there's AMT to calculate in some situations.

It absolutely is baked into what people are willing to pay for property, but it's even worse than that. Because people can convince themselves they're gaming the system just the way the rich folks do, it incentivizes people to buy too much house (and, yes, artificially subsidized interest rates do the same, to an even greater degree). It's great for real estate professionals and builders, but bad for everybody else. It could even be argued that encouraging overconsumption on major fixed costs is a destabilizing influence in the economy and that its role in the McMansion movement is environmentally appalling.

I'm not sure all the political third rails are as much third rails as they're generally thought. Cruz did manage to win the Iowa caucus running on killing Ethanol subsidies. The really insidious thing about things that sound good but make bad public policy, though, is that they can be set in motion in weeks but take generations to unravel if it's ever even possible. People are locked in to thirty-year notes on oversized houses now and you'd crash the market for them if you dropped the deduction abruptly, so it would need to be phased in, which is an extra layer of complexity to get to what would ultimately be a simpler system.

IMBoring25 said:   

It absolutely is baked into what people are willing to pay for property,

  Please explain. The lender certainly doesn't take it into account. Are you telling us the home buyers that do exceed standard deduction are sketching out how much more they can buy with the deduction?
People are locked in to thirty-year notes 
LOL what? there is no prepayment or refi penalty and the rate is fixed. seems like the lender is locked in.

If you think it has more effect on mcmansions, then the answer isn't to kill the deduction, but to cap the yearly interest that can be deducted and make it exception to the standard deduction

rufflesinc said:   
IMBoring25 said:   

It absolutely is baked into what people are willing to pay for property,

  Please explain. The lender certainly doesn't take it into account. Are you telling us the home buyers that do exceed standard deduction are sketching out how much more they can buy with the deduction?

  No.  Most people say they will get to deduct it though and assign an arbitrary value.  "Deduct" to most people is code for "free!"  That's the same reason why you always see people complaining (like in other places here, complaining a grocery store gets to deduct the cost of groceries and only has to pay taxes on the difference between cost and what they sell them for) about businesses deducting expenses and write-offs.  For most people they get a very marginal benefit, if at all, because it mainly just takes the place of the standard deduction they would get if they did not have the mortgage interest.  They don't have to understand how it actually affects them for it to influence their behavior.

Bend3r said:   
rufflesinc said:   
IMBoring25 said:   

It absolutely is baked into what people are willing to pay for property,

  Please explain. The lender certainly doesn't take it into account. Are you telling us the home buyers that do exceed standard deduction are sketching out how much more they can buy with the deduction?

  No.  Most people say they will get to deduct it though and assign an arbitrary value.  "Deduct" to most people is code for "free!"  That's the same reason why you always see people complaining (like in other places here, complaining a grocery store gets to deduct the cost of groceries and only has to pay taxes on the difference between cost and what they sell them for) about businesses deducting expenses and write-offs.  For most people they get a very marginal benefit, if at all, because it mainly just takes the place of the standard deduction they would get if they did not have the mortgage interest.  They don't have to understand how it actually affects them for it to influence their behavior.

  That's a problem of people not understanding how deductions work. IF that is the problem, then the answer is a line on the mortgage disclosures at application and HUD paperwork at closing about how the mortgage interest deduction work.

Moreover, in order for people to assign an arbtirary value, they have to at least run the amortization table and figure out how much interest they will be paying. Someone who does that isn't dumb enough to not understand deductions

rufflesinc said:   
Moreover, in order for people to assign an arbtirary value, they have to at least run the amortization table and figure out how much interest they will be paying. Someone who does that isn't dumb enough to not understand deductions

Wrong. If they did that then it wouldn't be an arbitrary value.

arbitrary
adjective
based on random choice or personal whim, rather than any reason or system.  

Bend3r said:   
rufflesinc said:   
Moreover, in order for people to assign an arbtirary value, they have to at least run the amortization table and figure out how much interest they will be paying. Someone who does that isn't dumb enough to not understand deductions

Wrong. If they did that then it wouldn't be an arbitrary value.

arbitrary
adjective
based on random choice or personal whim, rather than any reason or system.  

  What evidence then, do you have that people are just randomly increasing the amount of house they can afford based on the mortgage interested deduction?

Moreover the disclosure says clearly how much interest they will start out paying each month. Are you saying people are so dumb they won't even use that as the top line?

Further, in order for people to afford these mcmansions to start, they have to be making some decent money (six figures HHI) , most of those people aren't dumb. If they were that dumb, they would be buying at the limit of whatever mortgage LTV is so what good would the deduction since IIRC the fannie mae LTV limits don't take that into account?

You seem to think that people equate "mortgage interest deduction " with "ONE MILLION DOLLARS!!!!!!!!!"

rufflesinc said:   
Bend3r said:   
rufflesinc said:   
Moreover, in order for people to assign an arbtirary value, they have to at least run the amortization table and figure out how much interest they will be paying. Someone who does that isn't dumb enough to not understand deductions

Wrong. If they did that then it wouldn't be an arbitrary value.

arbitrary
adjective
based on random choice or personal whim, rather than any reason or system.  

  What evidence then, do you have that people are just randomly increasing the amount of house they can afford based on the mortgage interested deduction?

Moreover the disclosure says clearly how much interest they will start out paying each month. Are you saying people are so dumb they won't even use that as the top line?

Further, in order for people to afford these mcmansions to start, they have to be making some decent money (six figures HHI) , most of those people aren't dumb. If they were that dumb, they would be buying at the limit of whatever mortgage LTV is so what good would the deduction since IIRC the fannie mae LTV limits don't take that into account?

You seem to think that people equate "mortgage interest deduction " with "ONE MILLION DOLLARS!!!!!!!!!"

The world isn't an Austin Powers movie, and bend3r isn't saying people necessarily have a specific dollar amount in mind when they think of their mortgage interest deduction.

People's subconscious behavior is very nuanced and influenced by many factors.  If someone is buying a little more house than they should, the deciding factor might be a rationalization of, "At least I'll be able to deduct the mortgage interest, and since I'm borrowing more, the deduction will be bigger."

But if that person's ONLY deductions are property taxes and mortgage deductions and that total expenditure is only 110% of the standard deduction, you have an ignorant clown who just bought more house than he can afford in order to get a 10% increase on his standard deduction. That will probably save him $200-500 a year.  And that's only in the first year.  Since mortgages are front-loaded, the amount of deductible interest in subsequent years should decrease slightly each year.  Our buyer might be locked into a 30-year mortgage and only end up itemizing for the first 4-5 years.  The specific numbers never went through the buyer's head, yet the IDEA of tax deductions was somehow a deciding factor in influencing the purchase.  That was bend3r's point.

Skipping 21 Messages...
Shandril said:   
rufflesinc said:   
IMBoring25 said:   

It's wildly regressive and class envy is big right now. The issue is ripe for anyone who can make the case and unlike most class-envy plays it would actually be an improvement in public policy.

  Then limit the amount of interest that can be deducted, then make it deductable on top of the std dec

  This would make a lot of sense for reducing how regressive that deduction is but I don't know about how likely it is when politicians are constantly looking at ways to take away that deduction without committing political suicide for their party.

Unless you could make it tax-revenue neutral - which would mean setting a low limit on the deduction -, that'd increase the budget deficit significantly. And lowering the deduction limit would not be without pissing off upper middle class who are main campaign contributors, especially at local level... That's where all the political goodwill disappears usually. 

  seems pretty easy: "The average deduction is $XXXX (excluding standard deductions), and 98% of total mortgage interest deductions go to only X% of filers!  So, we'll instead eliminate this deduction for the rich and increase the standard deduction by $XXXX for everyone."
That's mostly tax-revenue neutral already, plus simplifies the tax code. *(It would actually be tax-revenue positive, because most of the deductions for mortgage interest are from people with the highest marginal tax rates, and distributing down the deduction to everyone's standard deduction would be at a lower average marginal tax rate)



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