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Mortgage deductions

Posted by labrea 7NYC (My Page) on
Sun, Dec 9, 12 at 20:52

As long as everything is on the table should the mortgage deductions be eliminated or reduced. I think the time has come to look at this more closely at this as a source of revenue & overall fairness
Faze out the deduction over time!
I stopped being an owner at 30 & as a renter I might be inclined to being convinced that the mortgage deduction be done away with.
"The fiscal commissions of two different Presidents proposed eliminating it, first in 2005 and then in 2010. There's also a steady stream of research from such places as the London School of Economics and the Brookings Institution arguing that the deduction doesn't boost home ownership, but instead provides incentives for wealthier Americans to buy big houses and take on more debt."

I unloaded 70% of the real estate funds I had this week I think they reached their max and had a good run up the last 2 years & I'm not so sure that they can sustain double digit growth that I was enjoying for the last 2 & a half years.

Internal Revenue Service data show that only a quarter of tax filers claim the deduction!

I'm almost betting some of the fiscal conservatives and small government crowd might just be against this bit of ongoing stimulus!
Either faze it out over time or reduce it for houses over a certain level or as Romney proposed for 2nd homes or vacation homes.

Here is a link that might be useful: Faze it out over 10 years


Follow-Up Postings:

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RE: Mortgage deductions

I hope it is maintained for incomes under 100k since my daughter and SIL just bought a house and a whopping mortgage. I sure don't want to go back to busting my hump for extra cash to help them make the payments - they'll be totally scrawed if the deduction is eliminated.


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RE: Mortgage deductions

"Either faze it out over time or reduce it for houses over a certain level or as Romney proposed for 2nd homes or vacation homes."

The mortgage interest deduction should be on your HOME, not the luxury stuff, it seems to me.

Homeowners pay property taxes. Renters, on the other hand enrich only their landlords.

If the interest deduction were to be eliminated for home (steads) over a certain assessed value, say $1K, that would seem reasonable to me, mostly because I'm not one of those people. A deduction for second homes is just crazy. Where do they come up with this stuff?


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RE: Mortgage deductions

"Homeowners pay property taxes. Renters, on the other hand enrich only their landlords."

Then the homeowner pays property taxes using the money the renters gave him/her.


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RE: Mortgage deductions

Sorry I threw in the part about renting it's really not the main thrust of the idea.
many countries do not offer mortgage deductions but does that mean only people who really can afford a home buy them!

Ireland is considering a mortgage forgiveness plan (no tax deductions for mortgages there & many homes are 50% below their peak. The country went mad during it's Celtic Tiger days leveraging everything to buy property that's value wen't up up up like a big green balloon!~

The Irish government expects to pass a law this year that could encourage banks to substantially cut the amount that borrowers owe on their mortgages,no other country has done this on a big scale.
The initiative, which would lower a borrower's monthly payment, could prevent a tide of foreclosures, an uncertainty that has been hanging over the Irish housing market for years. If it works, the plan could provide a road map for other troubled countries.

The other idea is to permit years of stagnation to continue!

Here is a link that might be useful: Interesting or Interest


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RE: Mortgage deductions

Internal Revenue Service data show that only a quarter of tax filers claim the deduction!

If so little people use it, what is the big stream of revenue in eliminating it?


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RE: Mortgage deductions

I think that a tax deduction on your mortgage interest for your principle residence should remain. It's a very important deduction for working class families.


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RE: Mortgage deductions

Frank: "Then the homeowner pays property taxes using the money the renters gave him/her."

Perhaps that's how you pay your property taxes, Frank, but I have a feeling that the majority of us own one home, if that. There are only a couple of posters here I can think of who have stated they own more homes than just their homesteads.

-----------------

Esh: "If so little people use it, what is the big stream of revenue in eliminating it?"

Same question here. But it does seem kind of crazy that you can even claim your RV as a second home...true fact.


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RE: Mortgage deductions

whats a mortgage deduction? and do you have to pay capital gains tax when you sell investments?


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RE: Mortgage deductions

I've owned up to three houses and a cabin until last year. How is owning more property a burden on the economy or the IRS? If I didn't own them, someone else would and still use the tax deduction (like the new owner is). So what's your point? I also pay property tax on them, utilities, improvements, etc.

I suggest a mortgage deduction on houses purchased under $500,000.00. No deductions above that amount on any amount of houses.


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RE: Mortgage deductions

Flat tax anyone?


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RE: Mortgage deductions

Mortgage deduction how quaint! LOL

I'm not slamming anyone that posted on this thread but it is rather interesting to watch the arguments start when removing deductions means removing "my" deductions or raising tax means raising "my" taxes.

The TV is full of "don't touch my Medicare ads" and "don't touch my dividends ads"

It's only human nature but no matter what someone is going to have to pay more....probably everyone!


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RE: Mortgage deductions

It's exactly why I posted it Chasse.


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RE: Mortgage deductions

Sorry Chase!


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RE: Mortgage deductions

I suggest a mortgage deduction on houses purchased under $500,000.00. No deductions above that amount on any amount of houses.

You would hear howls of protest from urban and suburban areas of California, and other areas where modest homes sell for more than that amount.


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RE: Mortgage deductions

The median price for a place i NYC is over a Million even the once blighted SOUTH BRONX is about $500,000


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RE: Mortgage deductions

Oh yea, everyone wants taxes going up on someone other than themselves!

No fair share, eh?


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RE: Mortgage deductions

"It's only human nature but no matter what someone is going to have to pay more....probably everyone!"

probably everyone.....


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RE: Mortgage deductions

yep!
Demi I'd like to point out you added nothing to the topic but a goad factor!
This fine by me as long as your aware of it! As you know I enjoy a good goading but I'm keeping score!


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RE: Mortgage deductions

Realtors have a pretty strong lobby they will fight it because it is their biggest selling point and their bread and butter.

I do not have a problem with that deduction gone. But it will not effect me. For my rentals the rent payment and flips are my benefit. There is no mortgage to write off. I do cash and carry you get a better deal.

It will affect young couples but home prices will have to come down to reflect the benefit lost. It will be a wash for the buyer.


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RE: Mortgage deductions

A hypothetical question - if the mortgage interest deduction wasn't there, would the price of housing go down?

IOW, is the fact that buyers can deduct that from their taxes incorporated in the price?

During the recent real estate bubble, I understand that one aspect of playing the 'flipping houses' game was not paying any income tax because all the mortgage interest was deducted.


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RE: Mortgage deductions

  • Posted by ohiomom 3rdrockfromthesun (My Page) on
    Mon, Dec 10, 12 at 11:22

So mortgage deductions are just another forum of IRS welfare right, except this welfare goes to those who are "deserving" of government handouts.

Got it!


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RE: Mortgage deductions

As I recall the deduction is a pittance in the overall budget of owning a home. Realtors exaggerate that benefit while ignoring the negatives of buying/owning.

Haven't we just seen too many people stretch too far when buying a home? Huh? If this is needed to push someone into buying... *Alarm Bell!*


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RE: Mortgage deductions

I dunno that much about it, but my understanding is that with a 'traditional' type mortgage, for the first few years, you're essentially paying interest, not principal, and you can pretty much deduct your entire mortgage payment.

So if you're paying rent at $1,000 a month, and can buy a house and get a mortgage for $1,000 a month, you deduct $11,900 from your income before taxes. Where as with the rent, you're out of luck.


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RE: Mortgage deductions

Just so we all understand the meaning of this "mortgage" deduction.

It is a deduction for the INTEREST paid on your mortgage. It is one of your itemized deductions. Itemized deductions can only be taken if you have enough other deductions to take you above using the Standard deduction (that is, why bother itemizing if your total will not exceed the standard deduction that you are already allowed?).

Standard deduction information:

Topic 551 - Standard Deduction

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. In general, the standard deduction is adjusted each year for inflation and varies according to your filing status. You cannot take the standard deduction if you itemize deductions.

Your standard deduction consists of the basic standard deduction and any additional standard deduction for age or blindness.

The basic standard deduction of an individual who can be claimed as a dependent on another person's tax return is the greater of:

An amount specified by law, or
The individual's earned income plus a specified amount (but the total cannot be more than the basic standard deduction for his or her filing status)

The additional standard deduction consists of the sum of any additional amounts for age or blindness. The additional amount for age will be allowed if you are age 65 or older at the end of the tax year. You are considered to be 65 on the day before your 65th birthday. For the definition of blindness, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information. The additional amount for blindness will be allowed if you are blind on the last day of the tax year. For example, a single taxpayer who is age 65 and blind would be entitled to a basic standard deduction and an additional standard deduction equal to the sum of the additional amounts for both age and blindness.

If you or your spouse were age 65 or older or blind at the end of the year, be sure to claim an additional standard deduction by checking the appropriate boxes for age or blindness on Form 1040A (PDF) or Form 1040 (PDF). You may not use Form 1040EZ (PDF) to claim an additional standard deduction.

Certain taxpayers are not entitled to the standard deduction. They are:

A married individual filing a separate return whose spouse itemizes deductions;
An individual who was a nonresident alien or dual status alien during any part of the year (note that residents of India may be able to claim the standard deduction if they meet certain criteria. Refer to Publication 519, U.S. Tax Guide for Aliens, for more information);
An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period; or
An estate or trust, common trust fund, or partnership.

For more information, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information.

Here is a link that might be useful: irs.gov


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RE: Mortgage deductions

A hypothetical question - if the mortgage interest deduction wasn't there, would the price of housing go down?

It will affect demand. Mortgage is issued according to ability to repay according to income. The income level will be adjusted accordingly the price to sell will also be adjusted.

Flipping during the boom was the ability to purchase low and sell high. You did not need to mortgage if you brought low enough. The crash was also good because you could purchase even lower and depending on your State, City it was easy to sell high enough to make a good profit.

Ex: In Pa in the 80s when the steel mills shut down there were a lot of "Father Knows Best" suburban 3 bedroom homes lost. The banks had houses that were almost paid off. The banks were selling homes for mortgage balance. You could pick up these houses for 18 thou and flip for a couple hundred thousand. There was nothing wrong with the houses. You could purchase a house on a credit card and pay it off before the month was out.

They were updated, and well maintained. You only had to go in paint maybe install new carpet and put up a for sale sign. Some were selling before you could get one room painted.

Some states did not go through the big boom and stayed pretty steady in the housing market. But there were enough houses purchased at a unaffordable price and were lost due to job loss and divorces.

As they say Real Estate is Location, Location, Location.


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RE: Mortgage deductions

Nancy, I've seen those half million dollar dumps. What a disgrace.


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RE: Mortgage deductions

Regarding property taxes and renters, renters are effectively paying property taxes via rent, but many are paying very little as property taxes in multi-unit dwellings are shared with numerous other tenants.

This is huge positive for renters in areas with very high property taxes. Many couldn't afford $8,000 per year in property taxes on a single family home, but they can easily afford $2,000 per year (embedded in the rent) renting one unit in a 4-Family home.

Generally speaking, the more units, the lower the embedded property tax costs.

It's also more attractive for today's mobile workforce to rent as they'll have the freedom to relocate without getting stuck with home they can't sell.


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RE: Mortgage deductions

When we buy foreclosures, tax auction and distressed sale properties, it's seldom due to the credit bubble.

It's generally due to a combination of factors - job loss(es), separation, divorce, age, health, property taxes, maintenance/repair costs etc.

Many regions were unaffected by the credit bubble, some property values even dropped a little during the credit bubble.

Lately we've seen a lot of seniors and others on fixed incomes that simply can't afford property taxes, heating oil, electric, maintenance and repair costs.


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RE: Mortgage deductions

you actually provided with the personal details of the former owners (interesting)


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RE: Mortgage deductions

It's possible they're non-immediate family members... you know, the ones whose unfortunate circumstances are probably known and get bandied about at the dinner table.


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RE: Mortgage deductions

I was certain we would hear from a home builder on the subject


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RE: Mortgage deductions

Posted by labrea 7NYC (My Page) on
Mon, Dec 10, 12 at 10:34

yep!
Demi I'd like to point out you added nothing to the topic but a goad factor!
This fine by me as long as your aware of it! As you know I enjoy a good goading but I'm keeping score!

*

Oh so cognizant.

Please tell me Johnny Olsen what I've won which I reach the magic number !


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RE: Mortgage deductions

you actually provided with the personal details of the former owners (interesting)

Often buyers know the personal details when the properties are still occupied.

When they're unoccupied, it's anyone's guess what happened...


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RE: Mortgage deductions

The mortgage deduction should be eliminated. It was not wise to have created it in the first place.

"Lately we've seen a lot of seniors and others on fixed incomes that simply can't afford property taxes, heating oil, electric, maintenance and repair costs."

This is why we moved back home a few years before my mother died. Property taxes + heating + utilities + insurance just about equaled her Social Security income. We took over everything so that she could save money for her final expenses, buy groceries and other inexpensive amenities that make life enjoyable. Even though her house had been paid off for years, she couldn't afford to live in it.

Which leads me to politicians. If you think they care about you - ever! -- you have to be doing some good drugs. They don't care about you; they care about your money and how much of it they can force out of your pocket for their grand schemes. The electorate re-elects these same sorry buffoons over and over again. I don't get it.

Every election cycle these creepy, smarmy politicians crawl out from the sewers and tell you how awful it is that property taxes are so high and that people on fixed incomes can't afford to stay in their homes. As soon as the election is over, what changes? Nothing. Instead, they increase property taxes at a rate that far outpaces inflation. Lather, rinse, repeat.

I see where Fannie and Freddie are going to assess more fees on NYS foreclosures due to the high property taxes. They have to pay those property taxes each year if the building doesn't sell. In turn, they will assess NYS additional fees to cover the additional expense of carrying high property taxes. And so the death spiral continues.


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RE: Mortgage deductions

"I'm not slamming anyone that posted on this thread but it is rather interesting to watch the arguments start when removing deductions means removing "my" deductions or raising tax means raising "my" taxes."

BINGO, Chase!

I said this same thing a couple of years ago.

We had planned to have our mortgage paid off in about 4 yrs. If the deduction is disallowed, we will speed up the payoff in order to fully maximize the ability to deduct any/all interest.

Without knowing the details of what will be deductible, it's impossible to say how the rent vs own advantage will swing. Interest deductions on rentals may very well change, too.


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RE: Mortgage deductions

I hope it is maintained for incomes under 100k since my daughter and SIL just bought a house and a whopping mortgage. I sure don't want to go back to busting my hump for extra cash to help them make the payments - they'll be totally scrawed if the deduction is eliminated.

Unfortunately, it sounds like they might have bought a house they can't afford. They should be able to comfortably own this house without the Mtg Int. deduction coming into play. The mortgage deduction is not taken into account when one applies for a loan, so they should have been quite comfortable paying PITI without concern for the deduction.


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RE: Mortgage deductions

Is it a good for the economy move & a good for society move or is it a form of economic favoritism that suggests a strong middle class is what we are willing to maintain this deduction for.
Whats wrong with a small middle class & a large underclass?
The nations been there before which was better ideological politics or progressive reform?

This post was edited by labrea on Tue, Dec 11, 12 at 9:55


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RE: Mortgage deductions

But it does not hurt only the ones that do not want the tax relief. It will effect all property owners in value. As I said it will not hit me as a tax deduction because I do not have a mortgage but most middle class biggest asset is their home value. Your home value will go down because values will be adjusted to reflect demand.

Wealthy people used it as an investment, tax asset also. Romney is an example. During the campaign they showed a modest suburban house he was renting to a couple.

If you do not feel a lower value of your home is detrimental then it is fine. If you consider your home part of your investment then be aware it will be necessary to lower your expectations.

Home ownership has long been considered as a investment and a place to live. Attitudes will need adjusted as will price.


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RE: Mortgage deductions

Do you folk pay
capital gains when you sell your residence?


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RE: Mortgage deductions

As for capital gains... individuals can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of two years - not necessarily two consecutive years. The home must have been your principal residence.

That's nutshell - there are other considerations that might apply in the calculations.


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RE: Mortgage deductions

OH no principal residence we saw that shell game during the election!


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RE: Mortgage deductions

Yes, but there wasn't any selling - just mail collection.


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RE: Mortgage deductions

So you get it two ways. A deduction on the money you borrow for a capital investment and exclusion from capital gains for the most part

Neat deal.


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RE: Mortgage deductions

Neat deal.

Yes it is a good deal especially as part of what seniors use as their end of life care. Many children have to use the parents home to afford the expensive senior care. The parents homes are used as payment for the care. If the value is lower that will be the amount of care or should I say the least amount of care the Seniors will be able to afford.

If you are looking at a couple thousand dollars a month for 24 hour care for your parents the more valuable the property the better care you can afford.


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RE: Mortgage deductions

Yep that is true my parents stopped being renters 10 years before my father died. They had an opportunity to buy their rental apartment. I sat down with them & calculated average yearly rental increases over 10 years vs a 5 year guaranteed maintenance fee current trends in market sales for the area which was growing at that time & the return they had been getting on their invested capital.
Purchasing at the insiders price was the best deal as it was generally about 30 to 40% of the going market rate for apartments in their area.
They paid all cash so there was no mortgage!
The apartments sales proceeds were turned over to a nursing home that was half a block away!


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RE: Mortgage deductions

Yes Joe that is my point. Lower the value of your parents home will lower the care they can afford.

It is going to be interesting how this country develops as the years progress. Maybe there will be a bridge seniors can live under. Since we cannot afford to repair our bridges many of them will have collapsed and buried a couple of our children. The parents can live out their final days under the collapsed bridges.


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RE: Mortgage deductions

Slightly OT......here in Ontario extended care for the elderly is administered by the Province.

The cost for care is standardized, X for private, Y for semi private . Residents are means tested and pay all, some, or none .....based on assets. If you sell your home and eventually use that all up in care expenses the same level of care continues as when you wetter paying the full ticket.

The standard, level and degree of care is not linked to what you pay.

I should note that there are rigid rules on property transfers etc to ensure that people don't divest themselves of assets in order to avoid paying.


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RE: Mortgage deductions

Slightly OT is not a problem. This will never go over 150.

The care for elderly is covered under Medicare. I am not aware of how other states operate as far as the Medicare cost only facilities level of care but in this state it is not a place if you care for your parents you would want them to end their last days on this earth.


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RE: Mortgage deductions

Medicare does not pay for long term care. It may pay for care in a nursing home but only for a restricted period of time and only directly after discharge from a hospital.

Medicaid will pay for long term care after all of one's assets are used to pay for care. There are strict rules on divesting oneself of one's assets to qualify for Medicare. There is an area of estate planning is direct towards planning for qualifying for Medicare.


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RE: Mortgage deductions

This is why we moved back home a few years before my mother died. Property taxes + heating + utilities + insurance just about equaled her Social Security income. We took over everything so that she could save money for her final expenses, buy groceries and other inexpensive amenities that make life enjoyable. Even though her house had been paid off for years, she couldn't afford to live in it.

Last night I quoted a boiler and hot water heater for a senior customer paying $6,900 per year in property taxes and around $5,000 per year in heating costs to stay in their 150 year old home that needs tens of thousands of dollars in repairs and upgrades.

They were doing well when their kids lived with them and helped with bills, but their kids moved since they didn't like the school system and couldn't afford tuition and transportation to send their kids to better schools.

Many of our customers that own homes in the high property tax regions are in a catch 22 situation. Many can't afford to maintain, repair and make improvements to their homes since they're spending so much on property taxes and heating costs.

Many can't sell their homes since they need tens of thousands of dollars in repairs and upgrades, (which they can't afford due to property taxes), plus sky high property taxes, poor school systems, small lots, limited parking etc makes if tough, if not impossible for them to sell.

Many of our senior customers have exhausted much of, or all of their life savings staying in their homes. Their fixed incomes don't cover expenses, so many have to live extremely frugal lifestyles, plus apply for numerous welfare benefits to survive.


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RE: Mortgage deductions

Mark it sounds like some have to follow Kenny Rogers song. You have to know when to fold'm and when to walk away.

I do not know why I lived my life planning from the time I got married I started with the what ifs and what to do. It has served me well. I have adjusted a lot of my plans one was where I was going to live after retirement. The cost of living, and health facilities was the biggest consideration of the decision. It is harder once you get to old to move.

I wonder if a reverse mortgage would help the couple you are working with to help.


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RE: Mortgage deductions

My opinion would be that if the mortgage deduction is eliminated, it needs to be handled smartly. It would have the potential to further destabilize the housing market. While it is ridiculous to think that the deduction makes that much of a difference for that many people, it is perceived to be a great thing. When one looks at the amount of interest paid in a year, which is often truly disgusting to contemplate, it is easier to swallow if it is helping with your tax bill. My fear would be if that is taken away too quickly, it would cause further decline in housing prices. This of course would be a great thing if you are a buyer but would add further difficulties to those trying to sell their homes and would likewise hope to be buyers again. If it needs to be gotten rid of, fine, do it, but do it slowly.


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RE: Mortgage deductions

Speaking of knowing when to cut and run, we told many people to sell during the bubble, plus told many to sell when property taxes were less than half of what they are currently.

Unfortunately many have such an emotional attachment to their homes that they'll stay in them until they lose them to foreclosure, tax seizure, or they go into a nursing home or die.

I treat most of my properties as investments I can live in, rent, sell, flip etc.

If I have an opportunity to make a large profit I'm taking it. If I see disaster coming, I'm punching out before the market is flooded with properties for sale.


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RE: Mortgage deductions

I treat most of my properties as investments I can live in, rent, sell, flip etc.

You are speaking my language. I have so many friends that think I am crazy. They have told me they do not understand that thought. But I think I make the home the home does not make me. If it will make me more money I can make another home. I enjoy taking a diamond in the rough and making it sparkle. After it sparkles I get bored with it anyway.

The longest I have ever lived in a house was 10 years and I was ready to bulldoze it just to have some fun again. I knew at that point I had stayed to long.


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RE: Mortgage deductions

We've known many that wanted to sell, build, flip, buy, relocate etc, but one or more members of the household were too emotionally attached to a home, region or school system.

During the bubble when we sold a vacation home for a 400K profit, our neighbor wanted to do the same (they probably would have made an easy 300K profit as there were bidding wars on lakefront homes), but his wife and daughter said no way.

When they sold several years later, they barley broke even.

Many people in the high tax areas that could have sold their homes for 200K to 250K during the bubble would be lucky to get 100K for them currently.


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