New Tax Law affects Charlotte Development

[monsoon]

There is a plan in front of Congress to limit the mortgage deduction from the federal income to loan amounts of $350K or less. So if you had a $400K mortgage you could only deduct interest from the first $350K of the loan. While that won't affect the vast majority of people in the country, there is plenty of property in our center city and other areas where prices are much higher than this. . So this questions are how will it affect things? Should it even happen?

[ngp]

How are they justifying this law? What's it supposed to do, exactly?

[atlrvr]

I didn't really see my choice on there so I didn't vote, but I'll express my opinion. I'm not really supportive of this idea, unless there was some sort of assurances that a majority the additional money would be reinvested in the municipalities from which they are collected (for transit, roads, disaster response, etc).....seeing as this isn't likely to happen, I'm not sure that I can support dispropotionally taxing the rich yet again simply because they have more coins in their pockets to shake out.....also, it can never be a good sign when the government is trying to cash out of real estate speculation.

Will it affects prices? I'm not sure that the effect will be that noticeable affects, though it will likely slow appreciation to some degree in the hotter markets, and could lead some higher-income individuals to chose to rent rather than buy in transient business markets like, New York, Miami and Silicon Valley.

Will it slow down construction, probably not, though I can see future developers to configure floor plans and set pricing so that more units fall just under the $350k threshold, simply as a marketing ploy.

[monsoon]

How are they justifying this law? What's it supposed to do, exactly?

To raise taxes. The goverment is way out of money due to excessive spending.

[carolina_fan]

This would unfairly hit California, New England, Florida, et al. disproportionately.

[ElricSeven]

There is a plan in front of Congress to limit the mortgage deduction from the federal income to loan amounts of $350K or less. So if you had a $400K mortgage you could only deduct interest from the first $350K of the loan. While that won't affect the vast majority of people in the country, there is plenty of property in our center city and other areas where prices are much higher than this. . So this questions are how will it affect things? Should it even happen?

The legislation won't go through, it is politically untenable.

[SmellyCat]

I think I'm in favor of it. The haves vs. have-nots gap in this country has widened to an unacceptable level. Why shouldn't the rich get taxed more?

I don't think it would have a devastating long-term effect on the real estate market. Look at Britain...they don't allow a mortgage interest deduction and the increases in their housing prices have even eclipsed California and South Florida.

[tiblerbrit]

The housing situation in Britain isn't exactly great. Its gotten to the point where college grads have to return home and live with their parents because they can't find anywhere affordable to live. The bubble will have to burst there, and its gonna produce very negative effects. In england you'll pay the equivalent of $200,000+ for a pre-WWII row house with a sweet view of the highway.

[ilektronik]

I think I'm in favor of it. The haves vs. have-nots gap in this country has widened to an unacceptable level. Why shouldn't the rich get taxed more?

That is not fair at all. I grew up in a VERY "have-not" family and worked my tail off to get where I am now. Why is it fair that because I asserted myself and worked hard to achieve a degree of success that I should be penalized through higher taxes just because I crossed over to the "have" side.

[SmellyCat]

The housing situation in Britain isn't exactly great. Its gotten to the point where college grads have to return home and live with their parents because they can't find anywhere affordable to live. The bubble will have to burst there, and its gonna produce very negative effects. In england you'll pay the equivalent of $200,000+ for a pre-WWII row house with a sweet view of the highway.

Yeah, but my point was that the run-up in the UK through 2004 was not curtailed in any way by the lack of a mortgage interest deduction there. Has the recent decline in prices had anything to do with mortgage tax reform?

[monsoon]

On the other side of the coin, why should people get a tax break for borrowing money?

On the comment about it not being passed because the people won't stand for it, it can certainly happen as it has happened in the past. 20 years ago ALL Loan interest could be deducted from your income tax. That included ordinarly car loans, credit card interest, revolving credit, etc etc. In 1987, in the last tax simplification act, these very popular deductions were eliminated.

This present proposal is part of the study for the upcoming Republican tax simplification act.

[ElricSeven]

On the other side of the coin, why should people get a tax break for borrowing money?

On the comment about it not being passed because the people won't stand for it, it can certainly happen as it has happened in the past. 20 years ago ALL Loan interest could be deducted from your income tax. That included ordinarly car loans, credit card interest, revolving credit, etc etc. In 1987, in the last tax simplification act, these very popular deductions were eliminated.

This present proposal is part of the study for the upcoming Republican tax simplification act.

The rich should pay more taxes. That's why I'm for a flat tax with no deductions. 25% of $100K is more than 25% of $50K. Removing the deduction for mortgage interest, however, is politically untenable because so many people have their largest monthly expenditure adjusted to account for the tax deduction. Suddenly raising everyone's largest monthly bill by 25% would be very, very hard to sell. We'd have massive number of foreclosures.

[Vitamin_N]

I'd like to eliminate all deductions on everything and have a tax code that is actually within the realm of human comprehension, but I don't see it happening anytime soon.

Does anybody think the current deduction scheme actually has a tendency to benefit the more well-off? Tell me if this makes sense: you can only deduct your mortgage interest if you itemize your deductions, and you only itemize when those deductions are bigger than the standard deductions. Therefore, if you take out a mortgage on a cheap house, the interest deduction may not be enough to outweigh the standard deduction, and only people with mortgages above $xxx will benefit.

[ElricSeven]

I'd like to eliminate all deductions on everything and have a tax code that is actually within the realm of human comprehension, but I don't see it happening anytime soon.

Does anybody think the current deduction scheme actually has a tendency to benefit the more well-off? Tell me if this makes sense: you can only deduct your mortgage interest if you itemize your deductions, and you only itemize when those deductions are bigger than the standard deductions. Therefore, if you take out a mortgage on a cheap house, the interest deduction may not be enough to outweigh the standard deduction, and only people with mortgages above $xxx will benefit.

Up with the flat tax and no deductions except for the first $20,000 in income! Easy to calculate and fair. The savings in transaction costs alone would be an enormous windfall.

[monsoon]

Suddenly raising everyone's largest monthly bill by 25% would be very, very hard to sell. We'd have massive number of foreclosures.

I would say the vast majority of people in the USA don't have a $350K mortgage given that the median house price even in Charlotte is more thann $120K less than this. It's going to affect far fewer people than it affected when they got rid of the deduction for credit card and car loan interest.

[ElricSeven]

I would say the vast majority of people in the USA don't have a $350K mortgage given that the median house price even in Charlotte is more thann $120K less than this. It's going to affect far fewer people than it affected when they got rid of the deduction for credit card and car loan interest.

Somewhere in that chain, though, someone suggested getting rid of it entirely. You might be able to get away with rejiggering the limits, but not banning it entirely.

Also note, though, that with the housing boom there are an awful lot of voters that live in houses costing more than $350K.

[monsoon]

Also note, though, that with the housing boom there are an awful lot of voters that live in houses costing more than $350K.

Indeed. The present administration and congress were not voted in by votes from the cities.

[carolina_fan]

I'm against a flat tax. In general, tax deductions are an efficient means for the government to encourage certain behaviors. For example, buying a house encourages stability and savings, and giving to charities is a noble thing. Tax deductions are a much cheaper method of encouraging behavior or disbursing funds, than the government setting up a bureaucracy to administrate benefits programs to do something similar. Where the debate comes for me, is what behaviors the government should encourage.

[UptownGrrl]

Those with lower incomes can pay their taxes at a lower rate and deduct all their interest - those with higher incomes pay their tax at a higher rate and can't fully deduct their mortgage interest -- its not equitable. A flat approach that affects everyone at the same rate is they only way to be fair.

If they want to 'penalize' those who can afford it, they should eliminate deductions for second homes before they lower the cap on your primary residence. That's more targeted to those who have the luxury of a second home and won't be as detrimental to those around the country who struggle and sacrifice to be able to afford a $400,000 house that's a dump 75 miles away from work because that's considered to be the bottom of the market.

Has the proposal discussed how the cap will be indexed to account for housing prices in the future? And, they're being really fuzzy on how long the 'transition' period will be.

In terms of affect on the housing market, I think this change would lead to more foreclosures, more people staying with rentals, and more people choosing not to move so they don't trigger a new mortgage that falls outside the transition period.

Overall, I find it hard to be in favor of any proposal that trys to level the playing field not by boosting the little guy, but by knocking down the people trying to make it. I don't like policy that creates disincentives to being successful.

[monsoon]

My guess is it would not be indexed, but will be the first step in getting rid of it all together. This is a way for the government to pull in more revenue without having to "raise taxes". Its similar to the locals here saying they have not "raised taxes" in the last 18 or whatever years it is, but they neglect to mention that because of re-evaluation, everyone is paying a lot more tax.

A federal government that is spending at rate this one is, is a scary thing and I expect we will see other kinds of "we did not raise taxes" increases coming down the pipeline.

If it passes, I think the people caught by it will probably just suck it in and pay the extra tax and they will still build the highend units. It might just push people down a tier or two in what they can afford. The luxury car tax didn't seem to keep expensive cars off the road in Charlotte.

[carolina_fan]

The luxury car tax didn't seem to keep expensive cars off the road in Charlotte.

That may be true, but the luxury boat tax devastated the entire industry. I think all the major yacht builders went bankrupt.

[monsoon]

CNN is reporting the mortage deduction my be eliminated in return for a small tax credit for home owners. This is part of the tax simplification plan being studied by congress (re: tax increase) and supported by the Bush administration.

They estimate that if this becomes law, it will have the effect of reducing home prices by the order of 20-30% with most of the loss being on the higher end.