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Chuck the Home-Mortgage-Interest Deduction
At his blog for Conde Nast's newish publication, Portfolio, Matt Cooper raises a fair question:
Why do we subsidize mortgage interest?...it's a truism that a subsidy yields higher prices. Home sellers can charge more because buyers are effectively subsidized by their ability to deduct mortgage interest. The purpose of the deduction is to encourage home ownership even though the deduction extends to people who hardly need government largesse. Canada has no mortgage interest deduction and yet its rates of home ownership are comparable to those in the United States. In other words, if we phased out the deduction, it probably wouldn't reduce the rate of home ownership....The mortgage interest deduction now costs us close to $100 billion a year. We should have a debate about whether we really need it any more and how it might be phased out.
The Tax Foundation points out that the HMID is basically welfare for the wealthy here.
A related reform that worked out just fine: USA Today recounts that 1986 tax reform bill that got rid of the deduction for interest on credit-card debt--a move that was predicted to destroy the credit card industry (and had no next to no effect).
thoreau|8.13.07 @ 11:17AM|#
As somebody who's renting but hoping to save up money for a down
payment, I look at what a mortgage will cost and I shiver and then
everybody reminds me that the interest is tax deductible. This is
true, but the tax-deductible interest is a cost that I recover on
April 15. In the mean time, I have to make the big monthly
payments. And I have to save up for a bigger down payment because
the houses are more expensive than they would be without the
deduction.
So from my perspective, it seems to raise the up-front costs of
buying and then eases the pain once you've crossed that hurdle. The
lesser pain after the hurdle is great and all, but until I clear
that hurdle I'm not impressed.
So, yeah, I'm not sure this deduction is making it any easier for
me to buy.
|8.13.07 @ 11:19AM|#
How about this idea, get rid of the home interest deduction and then also get rid of the taxes on capital gains and savings interest. You want to know why home prices are so high? Because owning a home and the home interest deduction is the only real tax shelter available to the middle class. That drives up home prices and also lowers the savings rate because people spend money on their mortgages rather than saving and have most of their assets tied up in their home. Lose the mortgage deduction and stop taxing savings and capital gains interest and people might actually have an incentive to save and put some of their assets into savings rather than home equity. You think that would benifit the rich too much? Fine, give everyone a million dollar lifetime exemption to such taxes similiar to the life time estate tax deduction. Call it the everyone a millionaire program.
Brian|8.13.07 @ 11:24AM|#
I vote they stop using taxes as a way to control behavior. Oh, I guess that wasn't one of the options.
x,y|8.13.07 @ 11:25AM|#
I bought my first place just under a year ago, largely because of the mortgage interest deduction and the (property) tax abatement the city provided for new developments. As invidious as it is, tax policy sometimes works.
|8.13.07 @ 11:26AM|#
I'll agree that this is probably a tax deduction that we could do without, but at the same time there's simply no way to get rid of it after millions of people bought houses with the deduction in mind.
|8.13.07 @ 11:32AM|#
Dan T,
The economic adjustment to eliminating this tax would be huge. I
don't know how you get out of it to be honest. The best I could
figure would be to grandfather it out. Everyone who has a loan now
gets the deduction but no deduction on new loans. The problem with
that is though, is that people would refuse to sell their houses
and that would cause dislocations as well. It is just a mess.
thoreau|8.13.07 @ 11:33AM|#
Dan-
Yep, that's a good point. Removing it would wipe out a vast amount
of equity. I don't see any easy way to address that problem, let
alone to make the solution politically salable.
I guess you could give a deduction to renters too. But then that
would drive up rents.
OTOH, an across-the-board tax cut would give everybody more
disposable income, which would result in some prices rising. But in
that case, the products that became more expensive, and the rise in
each product's price, would be determined by market forces, i.e.
decisions of numerous buyers and sellers. If it's restricted to
rent and mortgage interest, OTOH, the effects are concentrated on
the housing market.
thoreau|8.13.07 @ 11:35AM|#
John-
If you wipe out the credit for new loans, then the new buyers will
insist on paying less. Which means that prices will drop, wiping
out a lot of equity.
Those who want to can argue that the equity in question was created
by fiat, so too bad for the beneficiaries. OK, fine, but the fact
remains that there will be repercussions, making the change
impossible to enact.
|8.13.07 @ 11:36AM|#
Since taxes are too high already, I have trouble feeling outraged that some fortunate people can get exemptions. The scandal is that other people have to pay high taxes, not that homeowners pay lower taxes.
uncle sam|8.13.07 @ 11:37AM|#
a similar effect occurs with rebates for energy saving, as in insulation and solar electic panels. Increase in demand raises the price that vendors can charge.
|8.13.07 @ 11:40AM|#
look at what a mortgage will cost and I shiver
Uh, thoreau? That's 'cause where you're living, a double-wide and a
lot for the sump pump runs you 400K. I'd shiver too.
thoreau|8.13.07 @ 11:40AM|#
Dan T.-
No! You're wrong! This is NOT a first! There must have been other
times that we three have been in agreement!
So you're wrong! I disagree with you!
:)
|8.13.07 @ 11:43AM|#
Uh... as the article points out, eliminating the tax deduction
on credit card debt didn't cause mass panic/rioting in the
streets/cats sleeping with dogs.
Just do it. We'll adjust.
CB
thoreau|8.13.07 @ 11:43AM|#
Mad Max-
I agree, but the issue is that this particular deduction places the
thumb on the scales of the market and thereby distorts prices. The
question is how to remove that thumb from the scales AND keep taxes
low for everyone without evaporating a lot of equity in the
process.
Ayn Randian-
Yeah, I know. But everybody tells me "Oh, it won't be so bad after
the mortgage interest deduction." And they're sort of right, but
first I have to make giant payments, THEN I get the tax refund.
It's a risky way to go through life, making big payments and
periodically getting a refund.
|8.13.07 @ 11:44AM|#
If my mortgage was about triple its current size I'd start
getting my mortgage interest deduction. Until then, I can't get
past the standard deduction.
Luckily, it looks like the mortgage interest deduction still
applies to the Alternative Minimum Tax. So when I start bringing in
the big bucks I might get back a little money off my house. God
bless tax breaks for the rich!
RonRon|8.13.07 @ 11:50AM|#
I've been in my first home for two years, I'm married, and our
combined income is about $50K, and for the last two years, the
benfit from the HMID has been less than the standard deduction for
me too. This is the case if we file seperately or jointly, and a
CPA friend confirmed I wasn't missing anything.
Soooo... Repealing it wouldn't affect me or my decision to own.
robc|8.13.07 @ 11:51AM|#
thoreau,
Lower the amount you have withheld each month to offset the
eventual refund. Getting a refund is bad tax planning.
Russ 2000|8.13.07 @ 11:54AM|#
as the article points out, eliminating the tax deduction on
credit card debt didn't cause mass panic/rioting in the
streets/cats sleeping with dogs.
It also didn't stop people from maxing out their credit cards are
running up huge debts.
I don't care one way or the other about HMID; but at this point it
really isn't changing anyone's behavior. People will still
over-extend themselves on home loans if the HMID goes away.
Average voter|8.13.07 @ 11:55AM|#
"Getting a refund is bad tax planning."
What do you mean? Isn't that a gift from my benevolent overlords? I
LOVE the free money they give me every May!
robc|8.13.07 @ 11:58AM|#
Avg V:
Yeah, I love the April interviews "I didnt pay taxes this year, I
got a refund!"*
*in some cases, with the EITC, this could be true.
|8.13.07 @ 12:02PM|#
The question is, "Would the increase in tax revenue result in a
reduction of other taxes"? Well, probably not.
At the risk of making taxes even more complex, I think a phase out
would probably begin with a cap. In the interest of fairness, the
cap could be tied to regional housing markets... because, frankly,
buying a place in New York City is a little more expensive than in
East Backwater Falls, Indiana. All the phasing plan would need to
do is lower the eligible deduction year after year... until it
disappears. On a side note, I am in favor of almost anything that
makes taxes simple. I have interests in small corporations and
despite a number of explanations, still don't know what all the
damn boxes mean.
|8.13.07 @ 12:02PM|#
Silly wabbits. The purpose of the deduction is not to encourage home ownership, it's to encourage homeowners to re-elect their Congresspersons.
Satan|8.13.07 @ 12:05PM|#
Is this a H&R first? John, thoreau, and myself in basic
agreement?
WTF is this? Solid water?
thoreau|8.13.07 @ 12:15PM|#
OK, point taken on withholding and refunds. Thus far in life my withholding has come pretty close to what I owe (plus or minus a bit) so I never paid much attention to the fact that I can give my employer input on how much to take out.
Fluffy|8.13.07 @ 12:16PM|#
Well, one reason the deduction makes sense to me is that if I as
an incorporated person buy a piece of commercial property, I
effectively can "deduct" my commercial mortgage interest because it
comes out of the bottom line on my P&L. I can also deduct the
cost of taxes, insurance, and maintenance. So to me the real
question isn't why actual corporeal homeowners are allowed to
deduct mortgage interest - it's why they aren't allowed to also
deduct insurance and maintenance [they do get to deduct local
taxes].
I have been troubled for some time by the way the tax code treats
incorporated persons and nonincorporated persons differently, in
this and many other regards. Why can't I also deduct 80% of my
travel, meals, and entertainment expenses?
thoreau|8.13.07 @ 12:19PM|#
Why can't I also deduct 80% of my travel, meals, and
entertainment expenses?
Indeed. This brain of mine is what enables me to earn money doing
physics, and I need to keep it well fed. Dinner is a business
expense.
Larry|8.13.07 @ 12:29PM|#
The key to eliminating home mortgage deduction -- which I am a
beneficiary of -- is to phase it in.
Or out, rather.
Phase it out over a 30 year period and no one will notice.
Satan|8.13.07 @ 12:45PM|#
Eric S. & Bronwyn,
How can you "stick it to the government" if the government lets you
deduct it in the first place?
Propertyless in Podunk|8.13.07 @ 1:03PM|#
Your tax deduction comes off your federal debt but your property tax goes to local authorities, correct? Why does the federal government have its nose in your home in the first place?
|8.13.07 @ 1:06PM|#
All the phasing plan would need to do is lower the eligible
deduction year after year... until it disappears.
Sorry, but I don't see how this (or any phase out) wouldn't cause
massive economic chaos. For new homeowners, since the first 5-10
years of a mortgage is mainly interest, the government is in effect
"paying" 20-30% of the mortgage. Thus, phasing out the deduction
makes a gigantic impact on a family's budget, even if done
gradually.
This beast is here to stay.
thoreau|8.13.07 @ 1:10PM|#
The more simplistic Finance 101 model would suggest that the
rent on a property should be equal to the interest one could get if
the price of the property were invested in something with a similar
level of risk. Of course, that neglects upkeep costs and whatnot,
but it's a starting point.
How about letting renters deduct a percentage of their monthly
rent?
Of course, then rents would go up.
|8.13.07 @ 1:19PM|#
First, there is a cap if the value of the loan is $1 mil or more
or you're upside down on your loan.
A potential way to eliminate the exemption without seriously
messing up the housing market is to phase it in over 10-15 years.
By that time, the NPV of the tax advantage cash flow is a
relatively negligible portion of the value of the home and it also
eliminates the distortion caused by grandfathering. This is due to
the fact that the interest portion of the payments is a much
smaller percentage and the discount factor is so great. To truly
make it fair, you could even have a rebate to homeowners to
compensate for the lost home value.
Of course, this being a rational way to get out of our problem, it
will never see the light of day, even if the exemption is
eliminated.
P.S. t, a good rule of thumb re: how much mortgage you can afford
is 50% greater than your rent (obviously, tax bracket has an
effect. So if you can afford $1,600 in rent, you can afford a
$2,400 mortgage. Just make sure that you update your exemptions at
the place of work. They'll generally tell you to up them by one or
two.
|8.13.07 @ 1:21PM|#
The mortgage interest deduction now costs us close to $100
billion a year.
That sort of argument makes my blood boil. It doesn't "cost" us a
damned cent unless we assume that the gubbimint is required to
spend all of the money that it currently does.
If people lost their mortgage interest and child deductions, and we
got rid of withholding and required people to write a check to the
feds each month, you'd see the government go back to its
constitutional borders VERY quickly.
mith|8.13.07 @ 1:31PM|#
That sort of argument makes my blood boil. It doesn't "cost"
us a damned cent unless we assume that the gubbimint is required to
spend all of the money that it currently does.
Could be he meant 'we' to mean 'non-homeowners'.
Probably not though.
Gerg|8.13.07 @ 1:48PM|#
As someone who lived and paid taxes in Canada I can assure you
that not allowing a deduction on home interest, is most certainly
much more of a loophole for the rich than the American rule.
If you have the wealth to buy your home with cash, then you can
still deduct the interest from your home. You just have to cash out
enough savings to buy it with cash, then take out a mortgage and
invest that money. All the mortgage interest is just carrying costs
for your investments now.
But the poor shlubs who are buying their house as their first big
investment and don't have the kind of savings that would allow them
to buy it in cash are out of luck. They don't get to deduct
it.
The American system is actually much more fair.
thoreau|8.13.07 @ 1:52PM|#
And so would the value of rental property.
Making it harder for people to save the down payment to buy rental
property.
This is a lesson on the effects of tax breaks targeted to a
behavior/action vs. across the board tax cuts. If taxes are cut
across the board, then disposable incomes go up and people have
more money to spend on whatever they want. Prices will go up, of
course, in response to the income effect, but the magnitude of the
increase on any particular item will depend on the propensity of
people to spend marginal income on that item. With the price
increases spread out over many items, it's unlikely that you'll see
a significant barrier to any particular purchase or activity.
OTOH, if the tax break only attaches to mortgage interest, then
only housing prices go up, and so the required down payment goes
up, erecting a higher barrier to entry.
This is part of why I favor tax simplification: It removes the
thumb from the scales, and doesn't incentivize or disincentivize
any particular type of economic activity.
|8.13.07 @ 1:54PM|#
If you have the wealth to buy your home with cash, then you
can still deduct the interest from your home. You just have to cash
out enough savings to buy it with cash, then take out a mortgage
and invest that money. All the mortgage interest is just carrying
costs for your investments now.
WTF!?!? Anyone who goes through an ass-backward investment scheme
like that must've inherited their money because they lack the
financial acumen to earn that kind of dough. It makes no
sense.
Why not just take out a mortgage like normal? The cash that would
buy the house in your scenario could just be directly invested. No
need to do the hand-waving that you did, since it's the exact same
thing.
No matter what, people with more wealth are going to have an
advantage because they can generally invest at a higher long term
RoR than their mortgage payment. Doesn't matter if there is or
isn't a mortgage deduction.
Alice Bowie|8.13.07 @ 1:56PM|#
U C... Republicans believe in NO-NEW TAXES, No Tax
Increase.
But, they need the money for War and their so called "Less
Government Initiatives" like drugs,etc...
So ... what they do ... is eliminate TAX deductions...which is
basically increasing taxes.
|8.13.07 @ 1:58PM|#
Ah, again I agree with Thoreau. I would actually pay more taxes for a system I could actually comprehend (and one for which I did not have to pay handsomely for experts). The complexity of the current system is economic loss due to friction. The purpose of a tax should be to create a revenue for government, not to effect public policy. If you want to subsidize home buyers, write a check. Let everyone see what the check is and who gets it.
Alice Bowie|8.13.07 @ 1:59PM|#
To take away the HMID is effectively raising TAXES on
homeowners...and fleasing their biggest savings account (the Equity
in their home).
I believe that the French Bastille Day, the Rodney King
Riots in LA, an Al Sharpton Protest, the riots of the 60s and
70s would PALE ... compared to the RIOT that would
break out if you take away the ONLY savings account many people
have
thoreau|8.13.07 @ 2:03PM|#
In keeping with what Jose Ortega y Gasset said, keep in mind
that the income effect on prices from across-the-board tax
reduction will only be related to the AVERAGE propensity of the
population at large to spend marginal income on something. If you
have an above-average propensity to spend marginal income on
something, you're fine. In fact, if you are thinking about doing
something profitable that's related to your interest (e.g. invest
in real estate, open a business selling whatever you're passionate
about, etc.) then your marginal income will exceed the price
increase and you'll be better off.
But with the mortgage interest deduction, you only realize a
marginal increase in disposable income AFTER you've made the
purchase, and the purchase price has gone up. So the effect on the
small investor seems pretty obvious.
Alice Bowie|8.13.07 @ 2:05PM|#
The Very Very rich loose this deduction with AMT and other Tax
gotchas for the rich...people that are not that rich don't know
about these...
Only the middle class would be affected...and maybe in a bad
way.
I pay $2,400 in HMI...I get back $800 for that...I would really
hate to loose that $200 per week...just to spend it on more
prisons, more war...and none of it goin to the public good.
I u told me that I would loose the $800 per month...but it would be
used for health care...At least as good as it is now...I would give
up the deduction
|8.13.07 @ 2:42PM|#
I don't see why people think this deduction is so awesome. The
standard deduction for a single guy (like myself) is $5,350, and
mortgage interest is a deduction, not a credit.
Putting me in, let's say, the 25% bracket, I'd need $21,400 in
mortgage interest before itemizing makes sense. That can't be
right, can it? Can anyone tell me what I'm missing?
Alice Bowie|8.13.07 @ 2:48PM|#
Hi Son of A!
Schedule A on 1040 form is what's used to determine if u r above
the STANDARD DEDUCTION.
It includes the following:
Home Mortgage Intereste
Property Tax
State Income Tax Paid
Casualties and Losses
Charitible contributions
Medical Expenses over $7500
Alice Bowie|8.13.07 @ 2:49PM|#
And BTW... Son of a!...
It's not that hard (in NYC, New England, and California) to pay
much more that $21,400 per year in Mortgage Interest.
.|8.13.07 @ 3:04PM|#
I'd need $21,400 in mortgage interest before itemizing makes
sense.
Nope. You need $5,351 in interest for itemizing to make sense.
|8.13.07 @ 3:14PM|#
Alice Bowie:
Thanks! State income tax is the really big one I should have
noticed.
.:
I must be getting confused (about the tax code? pshaw!). I'm
thinking in two different directions at once. In particular, I was
thinking about how, as a deduction, you only get back part of what
you pay. I'm sure you're aware of this, but my friends who
encourage me to stop renting don't seem to realize they aren't
making out like bandits at tax time.
I'll just shut up now.
Bee|8.13.07 @ 3:45PM|#
Most things I've read on eliminating the MID flail when it comes
to the expensive housing markets. I rack up $5351 in mortgage
interest in a couple of months....in Los Angeles. I don't even know
whether, at the end of my 30-year loan, the yearly interest would
be less than $5K. I'll have to look at my schedule.
Don't think I've heard the 30-year phase-in idea before.
I would probably not have bought without the deduction. But I'm
paying a little bit more each month now than I was paying in rent
(rents are high here, too), and I feel somewhat less raped by the
IRS. The tax code is unfixably warped.
|8.13.07 @ 3:59PM|#
I would probably not have bought without the
deduction.
Sure you would have. You just would have paid 20% less. The tax
deduction is built in to the price of houses.
.|8.13.07 @ 4:01PM|#
but my friends who encourage me to stop renting don't seem
to realize they aren't making out like bandits at tax
time.
Geez, NOBODY makes out at tax time. At best your get SOME of your
money back, but you've still paid.
And if you have a mortgage, you've paid interest PLUS taxes; it's
just that you've paid a little bit less in taxes than if you didn't
have to pay interest. With the demand for mortgages over the last
few years, renting is actually a better deal in some locations.
|8.13.07 @ 4:15PM|#
For a single person, it would be difficult to not beat the $5350
standard deduction when you consider mortgage interest, state
income tax (or sales tax), and property tax. You'd have to live in
a very low-cost-of-living area where your income, home prices, and
taxes are all low.
Now for a couple, it might be a different story (The standard
deduction being $10,700).
|8.13.07 @ 4:27PM|#
Most things I've read on eliminating the MID flail when it
comes to the expensive housing markets. I rack up $5351 in mortgage
interest in a couple of months....in Los Angeles. I don't even know
whether, at the end of my 30-year loan, the yearly interest would
be less than $5K. I'll have to look at my schedule.
Yeah but the PV of that last tax deduction is very low. For a
$500,000 house, the total NPV on the tax deduction, assuming a 25%
tax rate (since SS isn't included) and an 8% fixed rate is $92,000.
Almost 1/5 the house's value! Of that, years 11-30 make up $27,000
of the NPV. So 2/3s the time only accounts for less than 30% of the
tax benefits. The last decade, years 21-30, only account for $4,760
of value, about 5% of the value.
What this means is that the problem could be solved by having a 20
year phase out and cutting a $5,000 check (on average*) to every
homeowning household and everyone is square. Actually, since the
median home value is nowhere near $500,000 the number will be much
smaller.
So while your deduction in 15 years may be worth something to you
then, it's not worth that much today. As one of my finance
professors said, "Two concepts that people don't understand well
are the time value of money and risk. And that is why the skyline
of every major city is dominated by banks and insurance
companies."
* In reality, you would have to prorate it to the value of their
loan. Especially since the cap is at $1,000,000.
Bee|8.13.07 @ 4:33PM|#
Sure you would have. You just would have paid 20%
less.
Well, right. =) I think I just betrayed my lack of faith in the
government not to meddle in housing. A clear-cut swing in values
equal to changes in the MID...as if it could be that simple.
I don't believe the value of my home is measurable in any real
sense. Land and zoning restrictions, tax distortions, transaction
costs...the list of obscuring factors is boggling. I gained an
appreciation for the word "pettifogging" when buying that damn
house.
I'm looking into starting a small business (run from the house,
natch) and I may have found my next quagmire. Good God.
robc|8.13.07 @ 5:08PM|#
joe,
Amazing advice. You would think someone would have given that
advice as much as EXACTLY 5 hours earlier.
|8.13.07 @ 5:18PM|#
Ending the mortgage interest deduction is a great idea. Let's do it right after we end the deduction on corporate interest expense. If that one goes smoothly the mortgage one should be a piece of cake.
|8.13.07 @ 5:19PM|#
What this means is that the problem could be solved by
having a 20 year phase out and cutting a $5,000 check (on average*)
to every homeowning household and everyone is square.
It's a much bigger hit than 5K. Your leaving out the NPV that's
been factored into the price of the house.
Russ 2000|8.13.07 @ 5:39PM|#
A related reform that worked out just fine: USA Today
recounts that 1986 tax reform bill that got rid of the deduction
for interest on credit-card debt
Why is this called a "reform"? Its proper term is "ripoff". And why
is an itemized deduction EVER considered a subsidy? Since the
introduction of income tax, ALL interest was deductible. Little by
little, the government has been taking small parts of the deduction
away, whenever more people (read: the middle and lower classes) are
able to take advantage of it. And thanks to the average American's
stupidity and socialistic brainwashing, the interest deductions
that remain are now considered subsidies.
In other words, if you think interest shouldn't be deductible, you
are on the socialist side of the equation.
free|8.13.07 @ 6:55PM|#
In other words, if you think interest shouldn't be deductible, you
are on the socialist side of the equation.
You're the Socialist there should be NO deductions. Deductions are
subsidies.
Lower rates and no deductions.
|8.13.07 @ 7:06PM|#
It's a much bigger hit than 5K. Your leaving out the NPV
that's been factored into the price of the house.
MP,
Did you miss this part of my analysis:
What this means is that the problem could be solved by having a
20 year phase out
That's why it's only $5K. The rest was actually received. If you
cute the 5 grand at the beginning of the phase out period, you
already to take into account the last 10 years of NPV.
|8.13.07 @ 7:31PM|#
If by phasing out you mean giving everyone the tax credit whether they buy a home or not...sure i can support that.
|8.13.07 @ 7:42PM|#
What have you done with the real Nick Gillespie?
The wealthy pay most of the taxes, and therefore get the most
benifit from ANY deduction without an income phase out. Where'd you
get "welfare for the wealthy," John Edwards?
Credit card interest is only weakly related. Millions of people
have used the mortgage interest deduction to make decisions
involving multiple decades and hundreds of thousands of dollars.
Nobody considers the deductibility of finance charges at the
grocery store. The impact of changes is incomparable.
The Wine Commonsewer-Reg US Pa|8.13.07 @ 9:07PM|#
I'm sure everyone's gone and moved on, these threads have a half
life of a half day.
I would remind y'all that Reagan tried to eliminate the deduction
for mortgage interest and was run over by the Real Estate
lobby.
And, there are upward limits on how much mortgage interest can be
legally deducted, which kind of means that the deduction isn't
really welfare for the wealthy although many people we consider to
be wealthy do actually benefit, in part, from the mortgage interest
deduction, even if they can't deduct it all.
Although I agree with CB that we'll all get over it, abolishing the
deduction will play heck with the RE market.
The Wine Commonsewer-Reg US Pa|8.13.07 @ 9:10PM|#
And Russ is right--See medical expense deductions, where the reality is that you don't get to deduct medical expenses but Congress is too chickenshit to abolish it altogether. So they set all the rules to make it impossible to deduct medical expense.
|8.13.07 @ 11:11PM|#
That's why it's only $5K. The rest was actually received. If
you cute the 5 grand at the beginning of the phase out period, you
already to take into account the last 10 years of NPV.
No, I didn't miss it at all. Whatever you purchase a house for
today has the tax deductability factored into the house price. Your
phase out plan only ensures that the present owner captures the
full expected benefit of the deduction. However, when they go to
sell the house to someone who can't obtain the deduction, that
factor gets subtracted from the asset value. Thus, even though the
present owner retained the deduction benefit, they suffer a capital
loss upon the sale of the house.
|8.14.07 @ 8:25AM|#
MP,
Ahh, I see. What I intended was the phase-out to include current
and new homeowners. So if I buy a house 5 years after the phaseout,
I get 15 years of the tax benefit, and will pay appropriately. This
would end up having the home retaining the majority of its
value.
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