Like I said above, most people don’t understand how much (how little!) benefit truly accrues to people in the middle income range. The vast, VAST majority of benefit from itemized deductions accrues to the very wealthy. Very little benefit accrues to middle income or even upper middle income people, and nearly zero benefit accrues to lower income people from itemizing.
In this case, assuming the SALT cap is raised to 20k, the people in this example of yours would have Schedule A deduction of $17,500 (interest) + $7,000 (property tax) + $6,000 (state income tax) = $30,500 … WOW, that’s a big deduction, isn’t it? NO! It’s a nonsense deduction because the net benefit (additional cash in pocket) to that couple is $500 x 12% (their marginal rate), or $60. Yes, their total benefit from that HUGE deduction is only 60 bucks.
Absolutely. And most of the benefit of increasing the SALT cap from $10K to $20K.
However, I understood the question to mean whether increasing the SALT cap from $10K to $20K might affect rates of itemization vs. standard deductions, and thus affect the degree to which the 2017 TJCA reduced the tax incentive for owner-occupied houses. Nearly all of the very wealthy will itemize regardless; nearly all of the middle and lower income folks will take the standard deduction regardless. A $10K increase in the SALT cap is only going to affect a slice of people whose itemized deductions were small enough (with the SALT cap) to not itemize previously but were close enough to the deciding point that an extra $10K might make them switch.
I don’t think there’s an awful lot of those people - and I think the ones that do exist are probably not very wealthy people with large mortgages, who were itemizing from the get-go. I think it’s most likely to be people who live in states with non-trivial income taxes that have mortgages that are small enough to previously make taking the standard deduction attractive, but big enough that an extra $10K in SALT deductions puts them over the tipping point.
It was an amazing eccentric collapsing house that was originally an art gallery upstairs and cramped living quarters below. Notice no windows looking at the amazing views of Los Angeles, as all the wall space was devoted to paintings.
Various owners loved and abused it (cutting into structural wall components to install windows), and when we bought it at a big discount the upper floor had clearly begun collapsing into the lower. It was a bargain hunters great puzzle: is this place doomed or reparable?
Perhaps, as I was going through a period of pain and suffering as most of my closer friends died, it was the best possible therapy as well as a stunningly good investment of money and hard intense dedicated detailed labor.
criminals? Or do they merely have better law enforcement?
Or maybe you just get your impressions from unreliable and disreputable sources?
While not all UK public housing areas experience high crime rates, research indicates that statistically, crime rates tend to be higher in social housing areas compared to other housing types, with residents reporting more burglaries, thefts, and criminal damage, often linked to factors like socioeconomic deprivation and concentrated poverty within certain public housing estates; however, it's important to avoid generalizations as crime levels vary significantly depending on the specific location and housing complex.
Yikes. I draw the line at structural damage, mostly focused on livable homes in need of decades of deferred maintenance, that have a special factor to them that compounds the profit. Typically, it’s the yard and location. The great yards are the first to have structures on them, more prone to being held on to until the owners can no longer do maintenance. Our current property is on a small lake and under 6 miles to downtown. It is in an area that is constrained to new builds close to town, with most of the new construction further out and piled one on top of the other. Extensive deck repair, enlarging the lake view and dealing with the piles of forest debris that we inherited, adding insulation and neutralizing poor paint choices, have been the big projects. We were the labor for most of it, leaving the mess of insulating to a professional. Also paid a pro to regrade the driveway and put in a crush and run gravel base, but the extensive yardwork was for the most part done by the two of us. We consider doing our own work to be better than heading to a gym.
The most important factor in making money is recognizing a property you are buying is mis-priced. The diversity of assessment skills from listing agents never fails to astound me. They would rather minimize their client’s profit in exchange for a quick sale, and often do not even possess the skills to evaluate the property value in a statistically valid manner. It’s been a fun game, but I don’t see further fixer uppers in my future. Not even sure we will buy another place. The risk factor of rising taxes and insurance costs, environmental impact, are huge. We have come to love living a month+ here and there, renting furnished properties wherever we go. Utilities are paid, maintenance is done for us, and it’s easy to pick up and go elsewhere.
That was my point. And I forgot to add a sentence! That $10k increase in SALT cap, if it is passed, will cause the guy in your example to have an extra $50, and it’ll cause the wealthy guy to have an extra $3,500-$3,700.
Sure - but the wealthy guy with a big mortgage was almost certainly already itemizing anyway.
That’s my point. The people who are “on the bubble” between itemizing and taking the standard deduction probably aren’t very wealthy people with large mortgages. They’re the people who are close to the $29K line (MJF), but don’t get over it unless the cap is raised. That’s probably not the really rich guy. That really rich guy was itemizing from jump. The SALT increase puts more money in his pocket, but doesn’t change whether he itemizes or not.
Nearly all of the benefits of raising the cap will go to wealthier people, but nearly all those people were already itemizing. The people whose filing decision might be affected by this, at the margin, are probably upper-middle class people with above-average but not huge mortgages in states with material state income taxes.
Creating a situation where more people itemize will increase the income of accountants and other tax preparers. Heck, for many people it could end up being a net negative money-wise. Like the guy in your example that paid $50 less in taxes might pay $100 more in tax preparation fees!
One other potential positive could be increased charitable contributions by people in the years they itemize. Informed people in the middle range (“on the cusp”) will bunch as many deductions in alternate years (like pay 2025 property taxes in 2025, and pay 2026 property taxes in 2025, and make all of 2025/26 charitable contributions in 2025, then take an itemized deduction in 2025, snd skip the itemized deduction in 2026, same for 2027 and 2028, and so on.
But I still think that net-net, passing laws that cause more people to itemize is a bad idea.
I agree. But returning to the thread topic, part of the reason (IMHO) that you’re seeing more single-family detached homes moving into the rental market through equity purchases is due to the sharp decrease in itemized filing. Prior to the TJCA, more than a third of filers itemized - and you would expect that mortgage-holders were heavily over-represented in that group. But now, barely 9% will itemize. So the tax incentive for owning your own home, rather than renting, has disappeared for nearly 25% of filers.
That might indeed be a good thing - I think it is - but one consequence of that is that we should expect to see an increase in people choosing to rent rather than buy, even in the single-family detached space.
Interesting. It does seem we have prosecutors in cities who are reluctant to prosecute. Many realize leaving criminals on the streets to do more crime is a problem.
Yes, extremely sensible. I actually am an engineer who studied (amongst other wonderful courses) strength of materials and a glorous seminar entitled “Collapses and Catastrophes” that made me hungry for particular classes of problems, and I had done some real construction work.
I was curious about why this glorious historic house with some of the best views in Los Angeles was on the market at an oddly low price. The owners went on and on about how much they adored the house, but they wanted to move to Santa Monica. They had fired their realtor….
Turned out the price was not nearly low enough, but you had to look. When I looked (a level laid down on the floor in multiple locations), I understood their predicament. When they saw me with the level they understood that I understood. Fortunately, I had an immediate testable hypothesis as to the problem. The windows cut into the wall had cut support posts, putting far too much weight onto the remaining posts, and those posts were crushing the plate underneath and so sinking the flooring attached to the plate. The collapse was therefore not a runaway phenomenon, not yet.
We gave them a very low ball price contingent on an inspection I could make to (cutting a tiny peek hole into the ceiling on the lower floor so I could examine the post plate junction) and they accepted.
Stopping the collapse took one week of frantic work, as our biggest risk was of an earthquake occuring while we were jacking up the entire affected length of wall and roof (old cement and tile!) above. We got that done, slammed in new big posts erasing the badly installed windows, replacing them with robostly framed posts, and installing new openable windows with exterior verandas.
A realtor friend told us that in one month of work (me and two handymen I hired), we had effectively increased the value of the house by about 40%.
Once upon a time, I could calculate what the load was in each member of a structure, and whether it was in tension or compression…with a slide rule. One of my many since lost skills.
Neither do I. Put mine in one of mom’s garage sales, when she was moving to Arizona in the early 80s. Older woman bought both of them. Couldn’t believe they sold.
One of those Post wood things? Tell the truth, did you have one of those foot long models, with the case you hung from your belt, like a sword? I had a couple Picketts, which were metal.
Yeap, long K&E holster sliderule. Mostly I liked my circular one more for actual calculating, but it was impossible to holster and a pain in the azz to carry.
Seems the drafting machines I used in class were always K&E. Ever notice that drafting supplies and equipment were, almost always, either of German manufacture, or made by US companies founded by Germans?
