Keep mortgage deduction?

[commentator]

Everyone favoring a "simplified" tax code should keep in mind that your tax liability will increase with that simplification.

If you want a simple tax return now, simply take the standard deduction instead of itemizing and ignore all those tax breaks for child care, education, energy savings, etc.

[NastyWoman]

Dec 22, 2010 13:00:35 GMT -5 kent said:

Raging controversy on the radio this morning about whether or not the mortgage deduction should be abolished or modified.

I think all the "second home" interest (vacation homes, motor homes and boats that qualify) should be eliminated unless it truly is a "primary residence."

Continue allowing the deduction for property taxes but reduce the cap on interest deductions for a primary residence to "some" number - maybe $500,000? This one is kind of a mine field though because of HCOL vs LCOL disparities.What do you think?

They could overcome this problem by adjusting for the amount for COL. Didn't they do something like that for determining what was considered a "jumbo loan"? Come to think of it, the jumbo loan limit might be a good cutoff for the interest deduction

[TheOtherMe]

Dec 29, 2010 21:05:19 GMT -5 @commentator said:

Everyone favoring a "simplified" tax code should keep in mind that your tax liability will increase with that simplification.

If you want a simple tax return now, simply take the standard deduction instead of itemizing and ignore all those tax breaks for child care, education, energy savings, etc.

Figure your taxes without the breaks the law gives you and see what your tax liability is. Then calculate it with the breaks legally allowed and then see if you are in favor of a flat tax.

[TheOtherMe]

Dec 22, 2010 14:33:55 GMT -5 Bluerobin said:

No more mortgage deduction. Also eliminate the Home Equity Loan deduction. Half these loans are used to buy cars, etc rather than homes!!! Can you tell my mortgage is paid off?

Here is an article about the deduction limits on HELOCs:

www.bankrate.com/brm/itax/tax_adviser/20040520a1.asp

[phil5185]

If The Act had not passed, you and I would still have had sufficient deductions and Big Business would still pay taxes on windfall profits.
TWO things We the People can lobby for is-- abolish the Tax Reform Act so Big Business can pay through the nose for eliminating jobs just to make more on old imported inventory

Sorry, not buying your argument. I liked the Act, it simplified the tax code considerably - removed several deductions such as credit card interest, car loan interest, sales tax, gas tax, and replaced them with a simple standard deduction. That change was revenue neutral. ( the union bosses didn't understand it, they thought that it hurt the 'members'). At the time the mortgage was kept, too much public objection (I would like to see it removed and added to the standard deduction - revenue neutral).

And the simplified marginal tax tables were a big help - these changes cut hours from a 1040 preparation.

As for Big Business paying thru the nose - c'mon, Big Business doesn't pay taxes, taxes are a business expense that is a direct pass-thru to customers - ie, you pay the higher taxes. (And that's as it should be - ie, the consumer pays for all elements of what he chooses to consume).

[cpadvisor]

Dec 29, 2010 3:55:39 GMT -5 dancinmama said:

We still have a pretty hefty mortgage, but I would love ANYTHING that simplifies the tax code. I agree that IF congress would ever consider getting rid of it, it should be phased out over time.

Wouldn't it be nice if we could come up with something (a new way of collecting revenue) so that we could get rid of the IRS?

That sounds great in theory, but you will still have some sort of collection agency. You'll also have things that are exempt from the tax. There will still be complicated rules - just look how difficult the sales tax system can be in its current form.

Accountants will still be needed, and IRS agents as well. It will just be a different system that is modified over time to be as complicated as our current system. Only, at this point, it is an unproven system.

[ambellamy]

The tax deductions helped me out a whole lot. I bought my first property last year, and this was the first year i've ever been able to itemize, and it was because my condo costs put me over the threshold (add in my state taxes, charitable giving, property taxes, and then the mortgage interest).

Its a good incentive to get people into a home... I think HELOC should not be deductible... but your primary residence should be.

for 2011 I may not have enough to itemize because I'm getting married and then the condo deductions won't go as far as they may have... but I still think its a good and fair deduction.

if they are thinking of changing the rules, I say start with HELOC or eliminate multiple properties and only let people use the information from one property to write off (sans the property taxes, those should be deductable from all properties).

[mwcpa]

"we could get rid of the IRS"

then who would administer this new tax system everyone seems to want....that is a big flaw in those who propose the supposed "fair tax".... they all say no more IRS, then who will administer this national sales tax, some new organization that is like the IRS, but just not the IRS?

it's funny.... everyone wants a simpler tax system, but no one wants to give up their EIC, their mortgage deduction, their personal exemptions, their tax credits, etc, etc.....

[TheOtherMe]

Should there ever be a tax on just income, the IRS would need to hire more agents as unreported income is one of the biggest problems it faces.

[commentator]

Good posts by taxpro, mwcpa and cpadvisor.

[happytraveler]

Dec 22, 2010 17:50:28 GMT -5 8 Bit WWBG said:

Eliminating it entirely is a terrible idea. Some idiot politician was on NPR talking about how "all options need to stay on the table". Of course someone said it well that this is just more fear mongering and he wants credit for "making the tough choices" but won't actually follow through with it.

Why is it a terrible idea?

[happytraveler]

Jan 22, 2011 12:15:46 GMT -5 mwcpa said:

"we could get rid of the IRS"

then who would administer this new tax system everyone seems to want....that is a big flaw in those who propose the supposed "fair tax".... they all say no more IRS, then who will administer this national sales tax, some new organization that is like the IRS, but just not the IRS?

it's funny.... everyone wants a simpler tax system, but no one wants to give up their EIC, their mortgage deduction, their personal exemptions, their tax credits, etc, etc.....

I would actually be willing to pay more in taxes in return for a simpler tax code. From a selfish perspective, it would reduce my filing costs and assoicated headaches, and I think a simpler code would be good for the country in terms of allocating resources to more productive purposes (e.g. eliminate the dead weight costs of complying with a comlpicated tax code). I also think the simplification would lead to people making more sensible decisons--e.g. buying a home based on what they can afford based on their income; not on what they can afford because other tax payers are subsidizing their interest costs.

[Deleted]

"Prior to the passing of The Tax Reform Act in 1986, housing appreciated at a consistent rate and was a "house" not an investment vessel."

So not true. You don't remember the mid to late 70s with double-digit housing appreciation?

My folks' house in San Diego sextupled in value from their initial purchase price in 1963 to 1979. Then doubled again from 1980 to 1990 and doubled again from 1990 to 2000. Had my brother cared for the house it would have popped up over a million dollars (close to doubling again) and then settled for between $750k-$800k today. My experience in the real estate market over the last 30 years is that the cycle is about 10 years. As one wag said, that's about how long it takes for the average human to forget the last bubble.

I agree with Phil that the 1986 tax reform was a good one. Not only did it eliminate encouraging a lot of stupid debt it also limited the tax deduction for passive losses over a certain amount of income.

I haven't made up my mind about the mortgage deduction for a personal residence. I'm not convinced that it will keep people from getting into stupid debt. England phased out its mortgage deduction over a period of time (I'll look it up; I thought it was over a 5-10 year period of time) and they got caught up in a property bubble as well. And we already know of lots of stories about folks who get themselves over their heads in CC debt (and it's no longer tax deductible).

[happytraveler]

[quote author=bonnap board=taxes thread=399 post=80021 time=1295799303I haven't made up my mind about the mortgage deduction for a personal residence. I'm not convinced that it will keep people from getting into stupid debt. England phased out its mortgage deduction over a period of time (I'll look it up; I thought it was over a 5-10 year period of time) and they got caught up in a property bubble as well. And we already know of lots of stories about folks who get themselves over their heads in CC debt (and it's no longer tax deductible).[/quote]

Two things---first, any impact about changing behavior would be on the margin--it would certainly not change everyone's behavior. Second, even if it did not change behavior at all, atleast other people are not subsidizing the behavior. People can make bad decisions---I would rather not encourage them to do so.