Bipartisan Tax Plan Trims Mortgage Deduction

What do you think the expected hit to prices will be across the country? This can't help the recovery in the real estate sector.

and the AMT, and the new tax bracket, etc., etc.

I'm fine with eliminating all these perks for the middle classes, as long as the ultrawealthy benefit from the changes. God favors them because they are so Good.

alan you are sweet.

well, after all, alan, don't forget - they EARNED it, and besides...... the more of it they can keep in their own pockets, the more new businesses will be funded by their excess capital

"One proposal would lower the limit to $500,000 and exclude mortgage interest on second homes"...

sounds good to me.. even 500k is generous since the average US home is under 200k. Be interesting how they phase it out though

>sounds good to me.. even 500k is generous since the average US home is under 200k.

So your bias is against NYC where our average is substantially higher than $200k?

As the article states nothing specific came out. Further there are too many powerful interests who want to see the mortgage deduction continue to think they will take it away. Our country was founded by men who realized the Parliament will always attempt to sell the silverware, the chief executive will work to be king and the judicial to destroy the work of the other two branches. This will not change so you can be sure Congress will maintain the deductions.

In the 80's, credit card interest used to be tax deductible. Sacred cow at the time, the same should happen for mortgage deduction (lower the cap to 500k/second homes, I can't see anyway they could realistically remove the entire thing)

http://wiki.answers.com/Q/In_what_years_was_credit_card_interest_a_deduction_on_income_taxes

Bow, bow, ye lower middle classes!
Bow, bow, ye tradesmen, bow, ye masses!
Blow the trumpets, bang the brasses!
Tantantara! Tzing! Boom!

Let's see, lower the tax deductible to 500K/no second homes, lower conforming loan prices to the 400 K range,, raise RE taxes and carrying/maintenance charges. No, can't see how this will affect NY RE. There can't be that many second homes in NYC, right? And lowering the deduction threshold so only studios qualify == providing they are primary homes--wouldn't make a change in NY RE, right? People here are so rich, if you eliminated all benefits for pied a terres for retired/fixed income folks who get on whopping 1% on their fixed income investments, it wouldn't make a whiff of difference to NY prices.

Well it looks more and more that this will be a very mediocre decade at best in terms of economic growth. The U.S. companies doing best are making all their money overseas thanks to low dollar policy which again bites us in the rear in the form of higher prices.

Foolhardy economic policies. Thank you, Milton Friedman.

RS: You seem to have your economics backwards.

A low dollar, which we don't have, would cause US and foreign companies to want to produce here and sell abroad. It would mean that middle class Americans, especially those in industries that are not protected by trade barriers, would have more jobs at better pay. By reducing the trade deficit, it would reduce foreign holdings of US treasury bonds and thus reduce the proportion of our interest payments that go abroad. While prices of European vacations and imports would rise, the increase in US job growth would be overwhelmingly more important for ordinary Americans.

Some investors may disagree; the long standing high dollar policy makes it easy to profit by sending US jobs abroad.

no FS.
We have a low dollar policy and exports is one of the few areas experiencing some growth. And to put it in perspective today 0.70 Euros buys one U.S. dollar. Back in 2000 it was 1.20 Euros to one U.S. dollar. Same thing goes for Japanese Yen to the U.S. dollar.

Since December of 2010 the Dollar has fallen also fallen, So we have a ten year trend and a short term trend of dollar devaluation, which should be expected considering zero interest rates coupled with Quanitative easing.

interesting time period you selected.

some day in the future it will cost the same to produce our goods in the us as it does in emerging and third-world countries. when that day comes there will be no incentive to produce overseas. and our middle class will have virtually disappeared.

globalization. you may or may not love it, but the results are here to stay. more pork for them means less pork for us.

Riversider, you of all people need not worry about your tourist dollar not getting you as much in today's high-dollar environment. You'll still get just as much bang for your buck on your Branson holidays with the dollar high or low.

RS: It really isn't that difficult. A neutral dollar is when there is no trade deficit or surplus. We have been running a trade deficit for a generation. That's a high dollar, regardless of whether the price of the dollar is currently rising or dropping.

The dollar is still far above the level that would allow US-based production to compete internationally, other than those that benefit from internationally-enforced patent and copyright monopolies and US oil and corn subsidies.

A high dollar is economically equivalent to a tariff by all other countries against our exports, except that we've imposed it on ourselves. The dollar stays this high as a result of US government policy to weaken the bargaining position of US employees in order to promote the interests of multi-national corporations and their investors.

While we could unilaterally bring the dollar down, we cannot keep it high by ourselves. A high dollar depends on the willingness of foreigners to hold US currency or debt to finance our purchases of their goods or to maintain large foreign currency reserves to protect themselves from "hot capital" and the IMF.

The Chinese government in particular buys large quantities of US debt to keep its currency low relative to the dollar and ensure that its citizens continue to have jobs. Since these "investments" are guaranteed to lose money, this is a direct transfer of wealth from the Chinese to the US: in effect, they are paying US investors to ship US jobs to China.

Hey, more posts from communistguy

"I'm fine with eliminating all these perks for the middle classes, as long as the ultrawealthy benefit from the changes"

Alan -- the correct term is "job creators".

no, the correct term is pants-pocket manufacturers

What about getting rid of interest deduction as tax deductible and instead replacing it with mortgage principal repayment - incentivize Americans to pay down their mortgage instead of take on more debt...still helps home ownership, and should lower the overall cost of a mortgage with less defaults likely

It was mentioned in the WSJ that there is also talk of eliminating property tax deductions from income tax returns. That would surely affect manhattan apts and the surrounding LI and Westchester suburbs esp among wealthier communities where property taxes (thanks to the high school district taxes) can ran $25k/year and up.

DOes anyone honestly think that the teabaggers are going to agree to eliminate deductions for rich people? Anyone? Raise your hand.

5thGenNYer,

I'm not familiar with this but I thought when you hit AMT, you can no longer deduct property taxes. Most of these wealthier communities are probably hitting AMT?

"even 500k is generous since the average US home is under 200k."

How many $200k houses are in NYC?

5thGenNYer,

I'm not familiar with this but I thought when you hit AMT, you can no longer deduct property taxes. Most of these wealthier communities are probably hitting AMT
---
Possible- I actually was not aware of that rule re: AMT and property taxes.

stevejhx, if they reduce interest deduction then you'll pay more rent. If more people choose to rent instead of buy then you will be competing with those people and wind up paying more rent. It's not rocket science here sir.

So u lose brother. LLs will make their money whether people rent or buy. Higher rents(liquidity) would certainly be a nice plus to cashflow needs. Over the longterm the only way a LL could lose is if they stop making babies.

"Alan -- the correct term is "job creators"."

... How do you say that in Mandarin?

I think that ultimately it depends on how and when the deduction is eliminated. It only affects interest on the first million of a loan, so at 5% interest with 35% taxes, it's only $17,500 of "savings" each year offsetting paid interest. This is a help, admittedly, but usually not a primary driver of a purchase. Though I think this will have an impact, it probably will be washed out by the larger effects of supply and demand in general.

the mortgage deduction is yet another subsidy bought by industry via lobbyists--no more legit than would be a subsidy for leverage used to buy old masters' paintings, stox, cars or anything--i love republicans--all laissez faire but for when then can rig things to benefit themselves

i hope they kill the mortgage deduction altogether

"What about getting rid of interest deduction as tax deductible and instead replacing it with mortgage principal repayment - incentivize Americans to pay down their mortgage instead of take on more debt...still helps home ownership, and should lower the overall cost of a mortgage with less defaults likely"

Are you serious? Then people will take out loans simply to pay off the loan. For example, suppose I have $1M and make $100K. I take out a $500K mortgage and pay down $100K a year to avoid all taxes. Then in year 5, I take out a new $500K mortgage.

Besides, the govt is working extremely hard to maintain leverage (i.e., debt) in the system. A large part of the economic issues we're having is that there is deleveraging across the board. Disincentivizing proper debt is bad economics.

"I'm not familiar with this but I thought when you hit AMT, you can no longer deduct property taxes. Most of these wealthier communities are probably hitting AMT"

Correct, but they are also talking about getting rid of AMT entirely. Along with a maximum tax rate below 30%.

$17,500 per year for a few years is a rather large chunk of change and would certainly change the value of a house. Think of it has raising maintenance by $1,450 per month...how would you value the same apartment differently if maintenance was increased by $1,450. That being said, the seemingly reasonable alternative to $500K, would only have half the effect...and it makes complete sense to eliminate it for 2nd homes, since the original point is to increase home ownership, not dual home ownership

jsw..you're probably right. It's amazing how there is a salary limit(106.8k) to social security tax but then you can deduct up to a million. Should raise that SocSec to a 300k limit. Why stop at 106.8k and just hurt the middle class. Johhny Gluttony will do just fine without the yacht and 12 baths.

"I think that ultimately it depends on how and when the deduction is eliminated. It only affects interest on the first million of a loan, so at 5% interest with 35% taxes, it's only $17,500 of "savings" each year offsetting paid interest. This is a help, admittedly, but usually not a primary driver of a purchase. Though I think this will have an impact, it probably will be washed out by the larger effects of supply and demand in general."

That's almost $1500 a month. Let's look at a $1.25M place with a $1M morgtgage that rents for $5000. Taking away a $1500-a-month tax benefit shifts on that $5000 by $1500. Not a small portion.

What steveF said.

What steveF said has no positive net effect. If you raise the SocSec limit, max monthly payout amount also goes up faster in time, netting zero in the long run.

Someone making $1M a year pays the exact same social security tax as someone making $106.8K. That cap should be considerably raised.

Eliminated. The only thing that should be capped is monthly benefit amount.

Social security was not designed to be a tax. It was a forced retirement plan for the masses who were incapable of saving for themselves. Someone who contributes the max amount each year gets higher payouts in retirement (unless the fund is insolvent). So the whole idea about effectively taxing all income above $107 thousand to make the system solvent goes against the original ideals of social security.

Good, nice, fine. Interesting history. And now it's past time for it to evolve to become a tax, as it should be.

Correct.

alanhart, if it becomes a regular "tax", then the funds can be used for defense spending.

Like they're not already?

I've enjoyed watching the transition of stevejhx as he's made more money. Not so long ago, he was pro tax, talking about how states and cities with higher taxes had better quality of life.
Now, he's contemplating a move to Florida where he can still operate his business, but with lower direct and indirect (through the general cost basis) taxes. He's making more, but wants to pay less. Makes total sense.

No they are not. The gov borrows from the social security fund and use it for defense spending and other programs, but interest is paid. The general fed gov deficit would not be so big if it did not have to pay interest.

Any attempt to mess with social security other than raising the retirement age gradually would likely result in a disaster.

I am amazed that they don't just announce the gradual raising of the retirement age for ss. It is a necessary step . I wish they would just bite the bullet.

Where is that NYC real estate crash that you have been calling for 5 years now steve?

Oh, right- a steve prediction fails. Shocking.

I'm still waiting for all the foreclosures in prime Manhattan

I would love to see the mortgage deduction lowered if that means they remove AMT too.