Hacker News Reader

Comment by arielweisberg | Hacker News Reader

When I crunched the numbers for the mortgage interest deduction it really didn't seem that compelling. It replaces the standard deduction so the first 12,500$ in mortgage interest does nothing for you.

After that it's just a minor reduction in taxable income and your tax burden is only reduced by a fraction of your mortgage interest. Not enough to cover the costs of maintaining a home and the tendency to consume more housing when owning vs renting.

At the high end sure we are talking real money. Maybe some day it will all be high end housing and then it will more substantial.

View on HN

Any itemized deductions have to add up and pass the standard deduction. Thats normal, but they add up.

With that said, as a lot of people said, in high cost areas, it goes really quick, especially if you add municipal taxes which can also be deducted. So if you have 500 bucks a month in municipal taxes (which is kind of low in high cost areas), you're already halfway there. Add the interests (often half of your mortgage payments), and you're well beyond.

If you're in an area with million dollar houses being quite common (we are talking about the rich poor gap after all), you're talking about a 30-40k deduction easy, and even more for super rich.

One thing beyond that (any accountant in the crowd correct me if I'm wrong), the mortgage interest deduction for your primary residence is special in that it is one of the deductions that can be applied to AMT. So again, it helps the ultra rich.

I'm no 1%, but I am affected by AMT, and my place is in a high cost area, and this tax deduction is the only thing saving me from crapping my pants every year when I file my taxes.

500 dollars/month for municipal taxes? Can you elaborate on those? I might be missing these deduction in the past.

Some places have city or county income tax, usually a few percent.

Property taxes. Can count on it being at least 1.5% to 2.5% in high cost of living areas. On an $800k house, that's in the $15k to $20k region per year.

I see. Isn't property tax collected by the counties go up to the state? I thought municipal taxes are the ones collected by the cities and used by the cities.

I'm assuming that shados was using the term "municipal tax" to refer to property taxes. If not, then I'm not aware of any other type of large common tax that could referred to as municipal tax relevant to this discussion.

Property tax is also for local use, such as schools, police, and city/county departments. Taxes for the state are mainly state income tax and state sales tax.

Correct. While I live in the US, english is absolutely my second language. I meant property taxes :)

For people in high tax states though it's pure gravy. California tax by itself blows away the standard deduction by a wide margin. With the Trump proposal if they remove the ability to deduct local tax though it becomes a lot less compelling though.

The MID barely cancels out my property taxes. Imagine if your investment accounts had to pay 1% tax every year based on its current worth even if you didn't realize any profits.

Sounds like a lot of mutual funds...

I thought with mutual funds you still pay taxes only on the profits. With property taxes you pay it on the current value.

Mutual funds charge you a percentage fee, with or without profits.

So when somebody says, "imagine if your investment accounts charged a percentage" that is precisely what mutual funds do.

Well, if you rent, you're paying the owner's property taxes anyway, and you're definitely not going to realize any profits.

It depends on the market. I have rented places in the Bay Area where my rent was less than the owner's mortgage. This was pre-2008, though.

Imagine other investments supplying roads, police, fire, parks, and education (or at least a place to store kids during work day) for 12 years.

That argument can be made about the usefulness of taxes on anything.

Yes, I know. Taxes and social constructs such as governments ARE useful.

Imagine the fact that property taxes pay for a lot of that. Now imagine house values plummeting because you removed the deduction and you've put the funding for all of that in peril.

That seems like the wrong way to think about things. That funding, then, is predicated on inflated, consequently inaccurate, housing/property values. When the bubble bursts for any reason the funding source will be reduced.

Critical services banking on a bubble to sustain themselves is just a terrible (though often done) idea. Eliminating the bubble earlier and getting accurate valuations before becoming dependent on the inflated amount (and suffering from austerity efforts later) would be a much better (and rarely done) plan.

MID pays for my property tax (bay area).

Without a property tax payment, my mortgage payments are very close to what rent should be.

In fact, a couple of years on, it's already less than rent for a comparable place.

Except that there are other tax deductions you can add on top of the mortgage interest. Also, there is no taxes on capital gains on your home ( $250K for single and $500K for married ).

Home ownership is a great deal in terms of tax treatment.

I dont believe you are taking into consideration appreciate and long term savings/planning. If you pay your home off in 15 years, then you also only have to worry about maintenance and taxes. If it appreciates greatly when it comes to retire you can move to a more affordable area and take the rest of your appreciation with you for the nest egg.

When I was thinking of buying a home, some people said "it's great because you can deduct your mortgage interest and property taxes." I haven't seen it help more than the standard deduction yet, and even if I do it may only reduce my taxable income by a few grand.

The only thing I can come up with as to why people think the deduction is so great is that people can be really bad at math and think removing tax on perhaps a few grand of income is a huge deal.. for the few thousand that are returned, I'm sure at least that much will be spent in home maintenance/repairs/tools/etc... I may sell soon and go back to renting.

The only part that makes it work out is home value appreciation, which is somewhat speculative and overall seems worse/equal to other standard investments.

Agreed. This article makes it sound like you can get a mortgage practically for free.

The couple of proposals to get rid of it still leave the MID in place up to $500,000 though which roughly matches what you found.

Sounds like we should increase it to make home ownership more attractive, resulting in greater civic engagement from the population ("skin in the game").

We should make it more attractive up to a certain amount and then cut off all subsidies.

Civic engagement is just fine in other countries where there are much lower rates of home ownership.

I think you forgot the /s

Seriously. The global financial crisis of 2007-08 wasn't that long ago...

One has nothing to do with the other.

The financial crisis was the result of expansion of credit. What I suggest is a reduction in the tax burden of owning a home.

There are many valid reasons to be against my suggestion; the subprime crisis is not one of them.

EDIT: There was definitely some sarcasm in my suggestion. This is a hot button topic for a lot of progressives because the impact of being able to right off one's interest payments is viewed as regressive. I see arguments both ways.

Isn't this kind of what happened in the 2008 collapse?

Laws were loosened to allow more people to get into more risky loans to get homes. It incentivized a lot of people to take on mortgages they normally wouldn't qualify for.

I'm not talking about low income earners either. I had several friends who are upper middle class earners who suddenly purchased mansions on the lake, only to lose their house months later when the market collapsed. I also had other friends who suddenly realized the value of their homes went through the roof and took out two or three loans against that value, only to take it in the shorts when the market collapsed. Sure, the low income folks were hit pretty hard, but the middle and upper middle class folks got hoodwinked as well.

While I agree, it would help, it feels like its the same huge mess that we just came out of.

> Isn't this kind of what happened in the 2008 collapse?

Not at all.

The housing crisis resulted from credit expansion. Specifically credit was extended to people that should not have been able to take on risk. A secondary cause was the structure of the debt (long term risk with short term volatility).

I'm suggesting reduction in one's tax base based on interest paid for existing debt, not the creation of new debt.

Reply on news.ycombinator.com