18 Oct 10
Originally posted by sh76Most homeowners are married. The standard deduction for a married couple is $11,400.
Why would someone with a mortgage not itemize? The standard deduction is less than $6,000. Even on a small mortgage (say, $150,000), the mortgage interest alone is going to be more than the standard deduction.
18 Oct 10
Originally posted by no1marauderNevertheless, if you take out a loan to buy something, especially when you use that something as security for the loan, then you don't really own it till you've paid off the loan - you are just living in a borrowed house.
The bank doesn't own your house in the US; a mortgage is a loan secured by the property. Foreclosure is merely the enforcement this lien because of nonpayment; the bank cannot foreclose any time they please.
If you then use your credit card to pay of your mortgage, or confuse yourself even more by using your salary to pay of your mortgage and your credit card to live on, you end up actually owning even less.
Now if the banks didn't really own the houses, why did the banks go bust when the house prices dropped?
18 Oct 10
Originally posted by twhiteheadYou don't understand the concept of ownership if you really believe that.
Nevertheless, if you take out a loan to buy something, especially when you use that something as security for the loan, then you don't really own it till you've paid off the loan - you are just living in a borrowed house.
If you then use your credit card to pay of your mortgage, or confuse yourself even more by using your salary to pay of your mortgage a ...[text shortened]... banks didn't really own the houses, why did the banks go bust when the house prices dropped?
18 Oct 10
Originally posted by no1marauderI don't 'believe'. I am merely looking at it from a particular angle.
You don't understand the concept of ownership if you really believe that.
I think it is foolish to borrow a whole lot of money, buy a house, then say 'I am now wealthy because I own a house'. Until you pay off the loan, you don't really own the house.
I am not against mortgages and I know perfectly well that they often make financial sense (especially as the bubble is growing).
18 Oct 10
Originally posted by twhiteheadRed herring as I never stated any of that. But you own the house whether the loan is paid off or not; you are looking at it from a fallacious, non-legal standpoint.
I don't 'believe'. I am merely looking at it from a particular angle.
I think it is foolish to borrow a whole lot of money, buy a house, then say 'I am now wealthy because I own a house'. Until you pay off the loan, you don't really own the house.
I am not against mortgages and I know perfectly well that they often make financial sense (especially as the bubble is growing).
18 Oct 10
1 edit
Originally posted by no1marauderEven so, most mortgages generate interest payments that are higher than $11,400 per year.
Most homeowners are married. The standard deduction for a married couple is $11,400.
With a 5% 30 year fixed rate mortgage, you're paying about $500/mo in interest (at first) for every $100k you take. Assuming an average home price of over $250k (http://usgovinfo.about.com/od/consumerawareness/a/avghomeprice04.htm), and thus a $200k mortgage (a conservative assumption), that's already $12k per year in just mortgage interest.
Add to that property tax and all the other schedule A deductions (charitable donations, etc.), it's hard for me to imagine that most homeowners take the standard deduction.
Do you have a link to these statistics in terms of how many homeowners itemize?
18 Oct 10
3 edits
Originally posted by sh76As stated before, your imagination is limited by your elite viewpoint. Most mortgages are nowhere near $250,000 present home prices notwithstanding.
Even so, most mortgages generate interest payments that are higher than $11,400 per year.
With a 5% 30 year fixed rate mortgage, you're paying about $500/mo in interest (at first) for every $100k you take. Assuming an average home price of over $250k (http://usgovinfo.about.com/od/consumerawareness/a/avghomeprice04.htm), and thus a $200k mortgage (a conserv eduction.
Do you have a link to these statistics in terms of how many homeowners itemize?
EDIT: A bit dated but: In 1996, about 27 million tax returns are expected to show a deduction for mortgage interest. That compares to about 64 million home-owning families.Thus, more than half of all homeowners get no tax reduction at all from the mortgage interest deduction.
http://www.ctj.org/hid_ent/part-3/part3-1.htm
EDIT2: It appears both our statements are correct; my statement that most who own a home don't claim the deduction is accurate. But as you said, most who have a mortgage do (though a substantial minority do not):
Nevertheless, the vast majority of mortgage interest is deducted because home-owning taxpayers are much more likely to itemize their deductions than renting taxpayers (63% for home-owning taxpayers vs. 36% for all taxpayers)
http://www.nahb.org/generic.aspx?sectionID=1010&genericContentID=98440
EDIT to EDIT2: From the same source: 32% of all owner-occupied homes have no mortgage
So somewhere in the low 40% of homeowners would have actually used the mortgage deduction in 2005 which is consistent with the 1996 data.
18 Oct 10
Originally posted by KazetNagorraIf you take the Standard Deduction, it means you don't have enough actual deductions to reach the SD. Therefore, you are able to deduct from your taxable income more than you would be otherwise. How that is "regressive" is a bit hard to understand.
Why is that?
18 Oct 10
Originally posted by no1marauderThe issue in this discussion is the extent to which the mortgage interest deduction impacts home purchasing.
As stated before, your imagination is limited by your elite viewpoint. Most mortgages are nowhere near $250,000 present home prices notwithstanding.
EDIT: A bit dated but: In 1996, about 27 million tax returns are expected to show a deduction for mortgage interest. That compares to about 64 million home-owning families.Thus, more than half of all home ...[text shortened]... would have actually used the mortgage deduction in 2005 which is consistent with the 1996 data.
Plainly, according to your numbers, the facts and common sense, the vest majority of people who purchase homes subject to mortgages today are going to itemize. The average home price int he US is about $264,000 (see previous link) and people who take out mortgages are often going to take out 80% (or more) of the purchase price.
The ability to take the mortgage interest deduction is an enormous incentive to homebuyers and a factor that inflates housing prices throughout the country. This is common sense and is not subject to dispute.
This has nothing to do with anything "elite." I am talking about average prices, not the million dollar mortgages that are routine in and around NYC. If anything, the "elites" are those who can afford to pay cash for their homes and thus don't need to take out mortgage loans.
18 Oct 10
1 edit
Originally posted by no1marauderI think KN means that richer people spend more on things that are deductible on Schedule A, such as mortgage interest, charity, etc.
If you take the Standard Deduction, it means you don't have enough actual deductions to reach the SD. Therefore, you are able to deduct from your taxable income more than you would be otherwise. How that is "regressive" is a bit hard to understand.
Therefore, deductions themselves are regressive taxation tools. I do not think that KN was comparing the itemized Schedule A with the SD.
So far as it goes, KN's point is correct, but it misses the point of tax deductions.
Schedule A deductions are meant either to further public policy (e.g., the charitable and mortgage interest deductions) or to avoid what is perceived to be unfair taxation of income that is being paid to satisfy other taxes (e.g., the state income tax deduction and the property tax deduction).
18 Oct 10
Originally posted by sh76Plainly, if you're going to be discussing what effects the mortgage tax deduction has on the current housing market (which we weren't BTW), it might be better to use more current numbers on the price of new housing than October 2004 (your link).
The issue in this discussion is the extent to which the mortgage interest deduction impacts home purchasing.
Plainly, according to your numbers, the facts and common sense, the vest majority of people who purchase homes subject to mortgages today are going to itemize. The average home price int he US is about $264,000 (see previous link) and people who take ...[text shortened]... who can afford to pay cash for their homes and thus don't need to take out mortgage loans.
The present median price is less than $180,000. (http://www.realestateabc.com/outlook/overall.htm), so your argument is considerably weakened. The figures say a significant minority of mortgage holders do not itemize and benefit from the deduction; I'll take actual figures over your "common sense" any day.
Contrary to your bald assertions, it is hotly disputed by economists whether the mortgage interest deduction is an "enormous incentive to homebuyers" (historically changes in it do not correlate well with changes in homebuying) and that it inflates housing prices. Again the fact that you believe something is "common sense" does not make it "not subject to dispute" if the actual evidence is to the contrary.
18 Oct 10
1 edit
Originally posted by no1marauderYou got me on the link (wasn't paying attention to the year, sorry). But even assuming average mortgages of $150k and this interest payments of $9k per year, with other Schedule A deductions (and there are lots of them), it makes sense that most would itemize.
Plainly, if you're going to be discussing what effects the mortgage tax deduction has on the current housing market (which we weren't BTW), it might be better to use more current numbers on the price of new housing than October 2004 (your link).
The present median price is less than $180,000. (http://www.realestateabc.com/outlook/overal does not make it "not subject to dispute" if the actual evidence is to the contrary.
You already conceded earlier that most people with mortgages to itemize. If so, wouldn't the deduction be an incentive to buy? I don't see why it would not be. It was certainly a huge incentive for me when I bought a house. In calculating your monthly budget, you factor in the benefit of the deduction and you adjust how much you're willing to pay as a purchase price accordingly.
historically changes in it do not correlate well with changes in homebuying
There are too many uncontrolled variables for me to take that statistic seriously until someone does a study that corrects for other variables.