Tax-Reform and the Housing Market.

[Gone4Good]

  I would like to see some data that show the median income of the group that would gain most if the AMT is abolished vs the median income of the group that would lose most if the deductions for mortgage interest and local tax go away. 

HH

Interestingly enough the AMT doesn't hit the super wealthy as much as the moderately wealthy.  If you're earning a regular income of $500K+, you probably wont get hit with the AMT because your "normal" tax under existing brackets is higher than the AMT 28% rate.  If you are "uber" wealthy and living off of investment income, rather than earned income, you can avoid the AMT by keeping your money in muni bonds and other tax dodges that escape the AMT.

Mostly the AMT hits the "moderately" wealthy folks, like doctors and lawyers, who have high earned income and large deductions (mortgage interest**, state taxes, etc.) that reduce their effective tax rate below the AMT rate. 

The mortgage deduction revision proposal I've seen was to reduce / eliminate the deduction for loans larger than $350K - so this would hit the wealthy folk more than everyone else.


** Edit: The mortgage interest deduction is one of the few that is still allowed under the AMT calculation

 

[Gone4Good]

Mine sank like a rock between 1990-93 and they went down even faster when I challenged the assessment.  They continued to drop until 1998.

Of course the RATE stayed at 3.65 mils, but the $$ AMOUNT was what dropped.

Hey Nords, didn't you post in another thread that you were paying something like $0.08 / kwh for power somewhere in TX? With property taxes going down and lower cost power than everyone else . . . are there any houses for sale in your neighborhood?

 

[REWahoo]

Hey Nords, didn't you post in another thread that you were paying something like $0.08 / kwh for power somewhere in TX? With property taxes going down and lower cost power than everyone else . . . are there any houses for sale in your neighborhood?

Since Nords lives in Hawaii, how the heck is he getting $0.08/kwh electricity from TX? Oh yeah, he's got his own solar system. With that kind of clout, he can do just about anything...

 

[Gone4Good]

Since Nords lives in Hawaii, how the heck is he getting $0.08/kwh electricity from TX?  Oh yeah, he's got his own solar system.  With that kind of clout, he can do just about anything...

Whoops . . . the hazards of being too lazy to research old threads before you comment on them is revealed.

 

[Nords]

Hey Nords, didn't you post in another thread that you were paying something like $0.08 / kwh for power somewhere in TX?  With property taxes going down and lower cost power than everyone else . . . are there any houses for sale in your neighborhood?

I wish.  The power prices on Oahu are about 16 cents/KWHr and rising with every monthly fuel surcharge.  Our PV array was a good idea at $50/barrel oil, at $65 it's looking even better.  

In 2006 (when the fed tax deduction kicks in above the state's deduction) we're building out our 1 KW array to its inverter's 3 KW capacity even if we have to pay retail.  That should knock our electric bill down to its $13/month minimum service charge (which includes a $3/month rebate for letting HECO turn off our water heater with their load-shedding pager system).  But I think I'm also suffering from "solar envy".

I just pulled some property-tax data out of Quicken.  Our home's appraised resale value bottomed in 1998 but assessed property taxes stayed flat until early 2002.  Since then (just three & a half years) the taxes have gone up 97.7%.  (So has the house's appraised value.)  I bet since 1989 (our arrival here) taxes have risen at an average rate of at least the CPI, but I have to go digging in tax files for that data.

BTW Oahu's median home prices are around $620K and median condo prices are about $280K.  I think Texas is probably cheaper, even if the property taxes are more expensive.

 

[Mr._johngalt]

Whoops . . . the hazards of being too lazy to research old threads before you comment on them is revealed. 

Yeah, I get caught in that one all the time

JG

 

[HFWR]

Ballpark, my taxes are $2.70 per $1000, with some homestead expemtions.

 

[ShokWaveRider]

Another big problem those on a fixed income are experiencing now (other than rapidly rising energy bills) is realestate tax increases. Many areas are seeing RE taxes go up and up due to the RE bubble.

I think this subject (Rising Real Estate Taxes) goes a lot further than us fixed income folk. All these Real Estate buyers snapping up homes at such high prices must experience some pain.

So you sell your home for $900k, you paid $300k for it 10 years ago. You were paying say $3500 in Tax yeaterday, today in your new upgraded home that you purchased, you are paying say $10,000. Almost tripple was you were paying in your old home. Not to mention the $100k Capital Gains tax.

I am not sure people consider these ongoing repetative costs in detail, when buying a home. They focus simply on the Mortgage monthly payment.

I think these costs can kill you over time.

Frankly I agree with reducing the mortgage interest deduction threshold. No-one should have a mortgage over $300 - $400k, I certainly could not sleep at night if I did.

SWR

 

[Mr._johngalt]

No-one should have a mortgage over $300 - $400k, I certainly could not sleep at night if I did.

SWR

You couldn't "sleep at night" so no one else should have one either?
That's like saying "I'm afraid of the water, so let's ban boats."
That's the kind of thinking that drives a lot of leftist PC thinking.
"No one should.............(fill in the blank) so let's not allow it".

Stinkin' thinkin'!!!!!!!!!

JG

 

[Gone4Good]

I am not sure people consider these ongoing repetative costs in detail, when buying a home. They focus simply on the Mortgage monthly payment.

Frankly I agree with reducing the mortgage interest deduction threshold. No-one should have a mortgage over $300 - $400k, I certainly could not sleep at night if I did.

High property taxes can be a killer - especially for someone looking to ER. It's tough to ER if you have $10K+ in property taxes you have to cover year-in and year-out. That is one of the reasons I'm not moving from my current place.

As far as $300-$400K being a lot for a property, it really depends on where you live. In my neck of the woods (New York City) $400K gets you a 1,000 square foot condo - not necessarily newly renovated, no parking, and no real outdoor space. $1 MM doesn't buy you a lot of real estate around here - even if you can tolerate a 2 hour commute to work.

 

[Mr._johngalt]

High property taxes can be a killer - especially for someone looking to ER.  It's tough to ER if you have $10K+ in property taxes you have to cover year-in and year-out.  That is one of the reasons I'm not moving from my current place.

As far as $300-$400K being a lot for a property, it really depends on where you live.  In my neck of the woods (New York City) $400K gets you a 1,000 square foot condo - not necessarily newly renovated, no parking, and no real outdoor space.  $1 MM doesn't buy you a lot of real estate around here - even if you can tolerate a 2 hour commute to work.

That house I posted about is still for sale here. !000 SF on a wooded acre with
a water view. RE taxes are $1650. Asking $85,000. My guess is $70,000
would buy it.

JG

 

[Gone4Good]

That house I posted about is still for sale here.  !000 SF on a wooded acre with
a water view.  RE taxes are $1650.  Asking $85,000.   My guess is $70,000
would buy it.

JG

In a few years you might just see me as a neighbor (if I could possibly convince DW). I still have to put in a few more at the salt mine, though, before I can make the move.

 

[Jarhead*]

N.Y.C., coastal California, same deal.

Overheard: Broker to Client. I have good news, and bad news on that property you've been looking at.

First, the good news. The inspection has come up with an estimated $400,000.00 in structural damage, and they have dropped their price from
$l,750,000.00 to $l,250,000.00.00 I figure (along with help from an engineer), that it could be corrected for much less than that figure.

The bad news is that the lender is going to require you to come up with $5,000.00 for a down payment.

 

[ShokWaveRider]

As far as $300-$400K being a lot for a property, it really depends on where you live. In my neck of the woods (New York City) $400K gets you a 1,000 square foot condo - not necessarily newly renovated, no parking, and no real outdoor space. $1 MM doesn't buy you a lot of real estate around here - even if you can tolerate a 2 hour commute to work.

My point exactly. I do not believe people should be buying million dollar homes unless they have at least $700k in CASH.

Certainly would keep home prices reasonable, and maybe just maybe people REALLY could afford what they buy.

SWR

 

[gasbag]

As far as $300-$400K being a lot for a property, it really depends on where you live.  In my neck of the woods (New York City) $400K gets you a 1,000 square foot condo - not necessarily newly renovated, no parking, and no real outdoor space.  $1 MM doesn't buy you a lot of real estate around here - even if you can tolerate a 2 hour commute to work.

Wow. This is pretty tough. How do young people ever get a house? A 2 hour commute would wear me out.

 

[Gone4Good]

  Wow.  This is pretty tough.  How do young people ever get a house?  A 2 hour commute would wear me out. 

A lot of people rent and a lot of young people share rentals - I did before I got married. You can find less expensive areas than what I mentioned but if you have kids it is important to get into an area with good public schools - and that costs $$$.

However, people here generally make more than the national average too, which offsets some of the higher cost of living.

 

[Mr._johngalt]

  Wow.  This is pretty tough.  How do young people ever get a house?  A 2 hour commute would wear me out. 

DW is spoiled. Her commute now is 10 miles one way. I stumbled
onto a lead for a similar position after we return from Texas in
March. The commute would be about 45 minutes. She said
"No way!"

JG

 

[Mr._johngalt]

My point exactly. I do not believe people should be buying million dollar homes unless they have at least $700k in CASH.

Certainly would keep home prices reasonable, and maybe just maybe people REALLY could afford what they buy.

SWR

This is almost unbelieveable! Have you people heard of free
enterprise?? There should NEVER be any limits on what people
can borrow or on what lenders can loan. Stay out of it and let
capitalism work for God's sake. Lenders should lend what they want,
when they want, to whomever they want, and charge whatever
they want in fees and interest. Borrowers can shop all they want for the best deal. Get a grip folks!

JG

 

[Michael]

There should NEVER be any limits on what people can borrow or on what lenders can loan.

At the same time, a free market demands that government should not be involved in lending, or subsidizing it through the tax code. The free market should also be the sole arbiter of how many homes are built, not the government through zoning regulations. The free market should set interest rates, not the government, etc...

It is already too late, there is no longer a free market with respect to housing. All decsions are now political.

 

[ShokWaveRider]

There should NEVER be any limits on what people
can borrow or on what lenders can loan. Stay out of it and let
capitalism work for God's sake. Lenders should lend what they want,
when they want, to whomever they want, and charge whatever
they want in fees and interest. Borrowers can shop all they want for the best deal. Get a grip folks!

JG

Again, my point exactly. Borrow as much as you like, lend as much as you like. Let Free market control it and DO NOT allow the government to subsidize the free market! People should buy homes because they can afford them, NOT because there is a benefit to do so. Up to a certain point of course. All a $1m mortgage deduction benefits is a very high earner. Not the less affluent Mr. and Mrs. avarage that need a reasonably priced home. It's the old Rich get Richer, and poor get poore scenarior. How about helping the middle class for a change.

The poor will NEVER be able to get ahead without complete subsidy from uncle same, they do not have the resources otherwise. The middle class (A Guess here, annual family income of say $40-65k) are being priced out of the housing market, in areas where they can get a decent earning potential. Those who have an income over that are the winners. So LIMIT Mortgage deductions to about $300k. This will help boulster the middle class. (IMHO).

Personally, I consider myself middle class. I have never had a morgage over $200k, and never will. Over the years we have accumulated house equity wealth. I never forget that it is house equity wealth! Not New car buying wealth, or expensive vacation wealth, 50" Plasma TV wealth or ? It is reserved for a home and will remain as such. The problems with a debt ridden society as it is here in the USA today (and other places I am sure), is it induces a boom and bust economy.

JG, we love you but, I stand to differ on this one, as a gentleman of course. (UK origin) When we were young, we saved and purchased, not purchased first then saved. We had no help from the governement to buy homes, or anything else for that matter, and we managed. Canada does the same. Their overall economies are doing a little better than the US right now, at least from a currency perspective.

This attituded of buy, buy, buy, go bankrupt, then after 7 years start buying again, is ludicrous. At least there is a movement to change that in the works, and it started with some minor reform on October 10th.

Off Soap Box.

SWR

 

[Danny]

This is almost unbelieveable! Have you people heard of free
enterprise?? There should NEVER be any limits on what people
can borrow or on what lenders can loan. Stay out of it and let
capitalism work for God's sake. Lenders should lend what they want,
when they want, to whomever they want, and charge whatever
they want in fees and interest. Borrowers can shop all they want for the best deal. Get a grip folks!
JG

I bet these these same lending institutions will come running to the government when it suits their interests, like bailing them out when they fail. Isn't that what happened with the Savings & Loan crisis in the 80's?

There is a role government can play, keeping poorly managed companies from creating problems and preventing problems from becoming a crisis.

These crisises can cause the economy and the markets to go into the toilet.

Another one that has the potential to become a bailout by government is the drastic underfunding of pension obligations.

 

[Mr._johngalt]

I bet these these same lending institutions will come running to the government when it suits their interests, like bailing them out when they fail. Isn't that what happened with the Savings & Loan crisis in the 80's?

There is a role government can play, keeping poorly managed companies from creating problems and preventing problems from becoming a crisis.

These crisises can cause the economy and the markets to go into the toilet.

Another one that has the potential to become a bailout by government is the drastic underfunding of pension obligations.

I am not talking about economic meltdown of biblical proportions.
Even I would agree the government should do something in that
case. Otherwise, they should stay out of it. People will go broke
and so will lenders. That's the way capitalism works..............
winners and losers. You take that away and what have you got?
Rampant "Big Brotherism", like the sport events where a winner
is never declared because someone's self esteem might be injured.
Liberal/PC/leftist/do-gooder thinking.

JG

 

[Mr._johngalt]

Again, my point exactly. Borrow as much as you like, lend as much as you like. Let Free market control it and DO NOT allow the government to subsidize the free market!  People should buy homes because they can afford them, NOT because there is a benefit to do so. Up to a certain point of course. All a $1m mortgage deduction benefits is a very high earner. Not the less affluent Mr. and Mrs. avarage that need a reasonably priced home. It's the old Rich get Richer, and poor get poore scenarior. How about helping the middle class for a change.

The poor will NEVER be able to get ahead without complete subsidy from uncle same, they do not have the resources otherwise. The middle class (A Guess here, annual family income of say $40-65k) are being priced out of the housing market, in areas where they can get a decent earning potential. Those who have an income over that are the winners. So LIMIT Mortgage deductions to about $300k. This will help boulster the middle class. (IMHO).

Personally, I consider myself middle class. I have never had a morgage over $200k, and never will. Over the years we have accumulated house equity wealth. I never forget that it is house equity wealth! Not New car buying wealth, or expensive vacation wealth, 50" Plasma TV wealth or ? It is reserved for a home and will remain as such. The problems with a debt ridden society as it is here in the USA today (and other places I am sure), is it induces a boom and bust economy.

JG, we love you but, I stand to differ on this one, as a gentleman of course. (UK origin) When we were young, we saved and purchased, not purchased first then saved. We had no help from the governement to buy homes, or anything else for that matter, and we managed. Canada does the same. Their overall economies are doing a little better than the US right now, at least from a currency perspective.

This attituded of buy, buy, buy, go bankrupt, then after 7 years start buying again, is ludicrous. At least there is a movement to change that in the works, and it started with some minor reform on October 10th.

Off Soap Box.

SWR

I have no problem with what you have done, just object (strongly)
to anyone imposing limits on others. Example............if someone
has an income of 10K per year and a net worth to match, and they can convince
someone else to give them a million dollar mortgage; I think that is just fine.
A bit hyperbolic, but you see my point. (BTW, in thinking about it, this could
actually be done. Can you figure out how?)

JG

 

[Mr._johngalt]

At the same time, a free market demands that government should not be involved in lending, or subsidizing it through the tax code.  The free market should also be the sole arbiter of how many homes are built, not the government through zoning regulations.  The free market should set interest rates, not the government, etc... 

It is already too late, there is no longer a free market with respect to housing.  All decsions are now political.

Well, I pretty much agree that it is "too late". Thus, when I rant about
capitalism and free markets, please keep in mind that I know we don't
really have that any more. It's just me wishing.

JG

 

[ShokWaveRider]

I have no problem with what you have done, just object (strongly)
to anyone imposing limits on others. Example............if someone
has an income of 10K per year and a net worth to match, and they can convince
someone else to give them a million dollar mortgage; I think that is just fine.
A bit hyperbolic, but you see my point. (BTW, in thinking about it, this could
actually be done. Can you figure out how?)

JG

John:

I am not desputing that. It is the amount of tax deduction I am talking about. I AGREE the government should keep out of it. RIGHT OUT OF IT. Unfortunately, one cannot simply remove the mortgage deduction as most people with high mortgages would simply loose their homes.

I think we are saying the same thing, just in different ways. I am taking about the deduction not the mortgage itself. Go at you if you want a $1m loan. Just don't expect the government to subsidize it.

SWR