possible limitations to mortgage interest deductions

[columbus]

Hi all,
With the upcoming election there is talk of limiting deductions. We have 4 rental properties and I was wondering if this would effect them or if that is considered a business expense.

[2017ish]

Take a look at your tax returns from prior years. Your interest on the rental properties should be on Schedule C (line 16), or Schedule E (line 12). The limitations presently being discussed are for personal interest, on Schedule A. Given the logic of the tax code (snort!), extremely unlikely that interest on rental properties and other business purchases would be put on the block. In the unlikely event that such limitations were applied to Schedule E, Schedule C should still be safe--as long as you are deemed to be "in the real estate business."

[samclem]

I think interest on income properties will be considered a business expense. The main talk among the politicians is about the mortgage interest deduction for personal residences.
Not to get political, but the approach seems to be: No politician can, right now, afford the political cost of eliminating popular deductions (mortgage interest, charities, school loans, whatever), even if closing these deductions is accompanied by a reduction in tax rates that leaves most folks at about the same total level of taxation. So, rather than eliminate the deductions, they will be capped: Probably limited to XX% of AGI and then with a hard cap at XX dollars. This type of limitation would likely affect higher income taxpayers more than lower income taxpayers.

We're a long way from any decisions being made on this.

[HFWR]

Quote:

Originally Posted by samclem We're a long way from any decisions being made on this.

FIFY...

[pb4uski]

+1 with others. The targeted deduction is mortgage interest on residences (home, vacation, etc.) on Schedule A, and I don't see them expanding the elimination to rental real estate interest reported on Schedule E or business interest reported on Schedule C.

I could see one of two extremes.

First, eliminate Schedule A deductions entirely and make a commensurate increase in the standard deduction and/or reduction of rates so it is revenue neutral for each tax bracket. This would make compliance easier and reduce games playing but the medical, real estate and charitable sectors would scream.

Second and more likely, preserve a handful of major deductions (medical expenses, real estate taxes and interest, state taxes and charitable contributions) along with limitations so the essence would be preserved but compliance would be simplified.

I would prefer the former because it is simpler but I think the latter is more politically viable. (The former would cause me to pay off my mortgage.)

[HFWR]

Theorectumly, the tax code is a steaming pile of mish-mash of crapola, and should be simplified, flattened, etc. IMHO, of course.

But, if a landlord gets a tax break, then I should get one too. After all, I bought a house, and I'm renting it to myself.

A better target is state, local, and real estate tax deductions. Assuming we consider the states as "laboratories of democracy" TM, then states with high taxes, for whatever reason, shouldn't get a federal tax break. After all, the purpose of federal-level taxes is to redistribute wealth reward campaign contributors and lobbyists fund the federal government...

[samclem]

Quote:

Originally Posted by HFWR But, if a landlord gets a tax break, then I should get one too. After all, I bought a house, and I'm renting it to myself.

No problem. But then the rent you pay yourself becomes income. A wash.

[Amethyst]

I always thought landlords got "tax breaks" because otherwise no one would be one, and people would have no one to rent homes to them.

Certainly no one in my region is a landlord for the joy of it, and profits aren't always easy to come by.

Amethyst

[pb4uski]

Landlords get the same tax breaks that any other business gets. They declare what they receive in rent as income and get to deduct certain costs of generating that income such as interest, property taxes, maintenance, depreciation just like a manufacturer would get to deduct similar costs of relating to their their plant and financing.

[pb4uski]

Quote:

Originally Posted by HFWR But, if a landlord gets a tax break, then I should get one too. After all, I bought a house, and I'm renting it to myself. :coolsmiley

Quote:

Originally Posted by samclem No problem. But then the rent you pay yourself becomes income. A wash.

And like a renter, you cannot deduct your rent on Schedule A.

[HFWR]

Death and taxes...

[eytonxav]

I doubt this will go away as long as we have a sub-par housing market.

[Midpack]

I am holding my breath awaiting substantial changes in our Fed tax code...

[pb4uski]

Quote:

Originally Posted by Midpack I am holding my breath awaiting substantial changes in our Fed tax code...

Oh, no............................ please don't even think about doing that - we like having you around.

[Original Wally]

***preserve a handful of major deductions (medical expenses***


Medical is already gutted - only deductible to the extent that it is over 7.5% of AGI. So if you make, say. $50,000 the FIRST $3,500 in medical is NOT deductible. Gone. Zip.

[scrabbler1]

Quote:

Originally Posted by AWeinel ***preserve a handful of major deductions (medical expenses*** Medical is already gutted - only deductible to the extent that it is over 7.5% of AGI. So if you make, say. $50,000 the FIRST $3,500 in medical is NOT deductible. Gone. Zip.

And that 7.5% is going to rise to 10% soon (2013 or 2014, not sure), making it even more difficult to deduct health insurance premiums if you are in the individual market. Those in group plans get to use pretax dollars to pay their part even if they do not itemize. So why can't those of us not in group plans get to do this, too?

[HFWR]

Quote:

Originally Posted by scrabbler1 And that 7.5% is going to rise to 10% soon (2013 or 2014, not sure), making it even more difficult to deduct health insurance premiums if you are in the individual market. Those in group plans get to use pretax dollars to pay their part even if they do not itemize. So why can't those of us not in group plans get to do this, too?

Given how much my deductibles and co-pays are, I'd have to have one gigantic pile of medical bills to reach 7.5%...