In it she proposes a pretty controversial idea. Why not get rid of the mortgage interest deduction and replace it with a tax break for paying down principal on a mortgage. This is a very interesting question. What are we really incentivizing with a mortgage interest deduction?
As Bair says, we are incentivizing homeowners to use their homes like a credit card because even interest on second mortages is tax deductible. As Bair writes, "A dirty little secret of the crisis is that the majority of toxic mortgages were not made to expand home ownership. They were refinancings aggressively marketed as a tax-advantaged way to pull cash out of a house."
So if we really want to encourage homeownership, give consumers more of a reason to "own" more of their own home by paying down the principal faster instead of giving them a reason to hold on to a mortgage as long as they can. I've heard people say that they don't want to pay off their mortgage because they would lose the tax break. Ultimately that seems to benefit banks more than homeowners.
There are plenty of other tax breaks you can take advantage of including depreciation on a rental property (http://novarealestateinvestor.blogspot.com/2011/06/basics-of-depreciation.html)
I would like to see some economic studies on this idea but benefiting consumers for paying down principal seems like an idea with a lot of merit.
maximum breaks involved in rental property and there is no tenstion about paying tax each time sale it ahead
ReplyDeleteGreat article on mortage tax. Thanks for sharing.
ReplyDelete