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Monday, June 14, 2010
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26 comments:
My father sent me this one. What a nice thing to wake up to right after purchasing a new home. Thankfully I'm way short of that proposed cut off for means testing.
http://thehill.com/homenews/administration/101883-axe-may-fall-on-tax-break-for-mortgages
Sorry, forgot to set it into a link format for those who just want to click through.
http://thehill.com/homenews/administration/101883-axe-may-fall-on-tax-break-for-mortgages
Getting rid of the mortgage deduction would be pretty challenging politically.
I personally don't think the federal government should be encouraging people to take on extra debt, but this is one of those things that is almost impossible to eliminate once people have come to expect it.
For our Sunday breakfast discussion, the topic was tabled without the 'means testing'. Such action would be political suicide, since it waould absolutely destroy the housing market all over again--which given the billions they've just pumped in to support it would be a very stupid idea. No way it passes.
But starting with a $250,000 per year means test, and then strategically forgetting to adjust for inflation makes it much more manageable, and gives extra impetus for inflating the problem away. If it happens, that's my theory on how it happens.
http://franklymls.com/DC7226459
assesed at 327K, sat on market 80 Days, probably took 6 months to close
during the 8K buyers bribe and
sold for 189K.
almost 40% off and it's a pretty new
build, failed remodel.
Here's how I would kill the
Mortgage tax deduction.
1) Cap it on property
above the Median price for the county,
and cap it the Median price.
that allows you to maintain the deduction for entry level homes,
but, it stops rewarding the well off.
Xpovos, If they were going to get rid of it that would be how. (That or some variation anyways.)
xpovos,
It's more subtle even than that. It's not eliminated for those making over $250k it's just that instead of offsetting that portion of one's income that's taxed at the highest appplicable bracket, it instead offsets income that's in a lower tax bracket.
Wow, I can't explain this for peanuts, but it's really a very subtle shift in the deduction that's currently under discussion.
Suppose the tax bracket for $250k earners were 25%, and income above that were taxed at 30%. Then the $300k earner with their $10k yearly mortgage interest payment would pay $2.5k less taxes than if they had no debt. I.e. exactly the same amount less taxes than someone who earns $250k and has the same interest cost. As opposed to now, when the higher earner would get an additional $500 tax break for the same interest payment.
Substitute real tax brackets and interest payments of your choice to get more realistic numbers on the impact on the higher wage earners.
Most itemized deductions, including mortgage interest, are already reduced for many people well below the $250K+ adjusted gross income cutoff.
http://www.irs.gov/publications/p17/ch29.html#en_US_publink1000174193
"You are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) is more than $166,800 ($83,400 if you are married filing separately). Your AGI is the amount on Form 1040, line 38."
So the questions is one of limiting these MORE than they currently are.
Contrarian-
I agree that housing prices will fall, although I think ~10%, because they are no longer way over valued. In addition I think some of this fall will come through inflation, which is less painful than through price drops for new buyers. I also think that rather than only inflation adjusting I think they should also wage adjust (which would make prices look more affordable compared to 10+ years ago). Finally seeing that interest rates are at all time lows you would expect housing prices to be near an all time peak.
Housebuyer, 10% in addition to the ~8% or so appreciation from the tax credit? That's what I'm thinking at least.
Contrarian-
We had deflation for much of last year, then we had decent inflation. For the past six months the inflation has slowed significantly, but is still positive. With the drop in oil prices it is possible we will see some more signs of deflation, but I right now it is hard to say we have deflation.
Unlike many who think inflation will take off, I expect it to remain subdued (but positive) for a long time. Sure there will be some monthly numbers that are negative, but YoY I just don't have the same convictions you have about the world ending.
I don't know if it's a case of not wanting to extend the tax credit, but more a case of it being no longer politically viable.
Does anyone (housebuyer?) know what's being built behind Wilton House in Merrifield? It's next to Gallows in between 29 and Prosperity near Dunn Loring Metro. I'm wondering if it's another condo complex.
"contrarian said...
HB,
We are in deflation, not inflation:"
Not according to the charts YOU provided us with:
http://inflationdata.com/inflation/images/charts/Annual_Inflation/annual_inflation_chart.htm
Funny how you quit posting this chart once the deflation disappeared about 6 months ago. Still, that doesnt stop you from continuing to insist that we are in deflation right now.
Glug, glug, glug, glug, glug, glug....
Poppy-
Are you talking about the construction where the multiplex is? If so originally they were going to make something called the Mosaic district (nice condos, fancy stores and a really walkable areas. Similar to how Arlington is set up). These plans were made during the bubble and may be no longer happening, because building values are lower. I have heard a rumor that a Costco is coming to this area also, although I have never found anything online about this, so it may be a rumor.
mosaic district
housebuyer, the Mosaic plans look really interesting. I hope they go through with them--it would add a nice element to that area.
Ace-
I agree I think it would substantially help rejuvenate that area, which is slightly run down. They still have ads that change around the area, so I think they are still planning on doing it. In the year I have lived here they have made no vi sable progress, until about a week ago when they closed off the parking lots and access to the abandoned building. There is still no construction, but at least blocking things off is the first step to doing something. So I am not hopeful that it will benefit me while I live here, but perhaps a few years from now it will go through.
housebuyer,
Nope, not where the multiplex used to be. It's the area across the street from Merrifield Garden Center and behind the Marriott.
Poppy-
Sorry then I have no idea, although I live less than a quarter mile from that I never go that direction. If I remember during the weekend I will try and walk by and ask one of the construction workers.
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