Totally weird. If it came to pass, expect our vast machinery of financial engineering going overdrive to find loopholes. Then businesses will tie itself in knots to fit into that loophole so it can still deduct interests payment, by going thru some middlemen maybe. The net effect will be the bigger businesses can still deduct but smaller ones may not.
Some weird sort of “deregulation”… 
I just read the article and it seems ambiguous and in some places, seems that the author does not really understand the proposal and its impact to landlords.
The proposal was an old proposal from June, it has nothing to do with Trump. Trump has given no comment on this proposal yet. I guess this proposal was made in June intended as a starting negotiation point for the suspected first female president.
For landlord, there was never any deduction. Landlord have income and expenses. Property tax and mortgage interest is a business expense, not a tax deduction. Income minus expense/depreciation is the taxable income. It would makes no mathematical sense to use rental income minus building cost as the net income. What do you account for property tax and mortgage interest if they are not expense?
If that’s true, mortgage lenders will have to pay income tax on interest income minus operating cost. The interest they pay to their investors/lenders will not be counted as expense. That would makes all the lenders pay huge amount of tax and I think most of them would bankrupt.
The economy will freeze and no one will lend money and no one will borrow money.
I seriously doubt the author understands the proposal. Or it could be a purposeful misinformation to cause alarm so that people will start discussion and exert pressure on the House so that they can make a better proposal.
Most likely.
Most likely an unqualified journalist made a confusing article that makes everyone spinning their head.
Seriously, WSJ can’t afford a journalist who can understand tax law? I feel guilty since I never paid for WSJ and my free readership must have contributed to the deterioration of the journalism workmanship.
Let’s get an analysis of the 2 authors. Both are Ivy League educated journalists. Even Ivy League journalism graduates have a lower IQ?
Peter Grant (following Hillary Clinton, not Trump, most likely a liberal)
Deputy Editor, Real Estate
The Wall Street Journal
1999 – Present (17 years)
University of Pennsylvania
Laura Kusisto
U.S. housing and economics reporter at The Wall Street Journal
Columbia University - Graduate School of Journalism
Master’s Degree, Journalism
University of Toronto
University of Toronto
Master’s Degree, English Literature
Wow, it sounds almost like you deduct the mortgage interest expense from the income. What shall we call this? Subtraction? No, too obvious How about call it a “deduction”?
Here is a more detailed report which makes more sense than WSJ. It does not remove property tax and mortgage interest deduction for homeowners. It just makes the standard deduction very high so that many people would not need to itemize anymore. This would simplify the tax code and make people’s life easier. But it also makes the homeowner tax advantage nonexistent for most people. What should we ask for? Should we ask for a lower standard deduction and make renters to pay more tax than homeowners? I guess we have to ask for something else instead of angering renters.
It’s like you are paid $9 per hour and your buddy is paid $6 per hour. But suddenly minimum wage is increased to $10 and now you both makes $10 per hour. Are you going to be pissed off? I guess so, but what can you do? make the minimum wage $6 instead? Or ask your boss pay you $15 and pay your buddy $10?
But it looks more that WSJ is purposely providing ambiguity and confusion for some unknown reason. If the Ivy League produces such journalists, we need to close many journalism departments.
"Now it gets more intriguing: To simplify the tax system and wean more taxpayers from itemizing deductions on Schedule A of their returns, the Trump plan would boost the standard deduction for joint filers to $30,000 (up from the current $12,600) and raise it to $15,000 for single filers, instead of $6,300 at present. For people with very high income, there would be a limit on all itemized deductions of $200,000 for married joint filers and $100,000 for singles.
There’s no mention here of limits on mortgage-interest deductions, so strictly from the perspective of a homeowner or buyer, nothing jumps out as objectionable. Simplicity is good. In fact, the original Trump tax plan exempted the mortgage-interest and charitable deductions from the sorts of modest limitations contained in Hillary Clinton’s proposal.
But here’s a key question: With a substantially increased standard deduction ($30,000 for joint filers and $15,000 for single files), how many homeowners would want to file for mortgage-interest or property-tax write-offs, as they do today? I asked the chief economist of the National Association of Home Builders, Robert Dietz, and he estimates that the number of itemizers might drop from the current 25 percent of taxpayers to 10 percent or even just 5 percent."
Homeowners currently are favored over renters in tax code, but only 25% of tax filings are taking advantage of it. Most likely the policy only benefits higher income people and people in high cost regions. The proposed change will make the tax advantage of homeownership disappear for many people.
You will likely pay less tax, worse case the same tax. But your tax reduction might be much smaller than the reduction to renters.
If this proposal pass, you will have one less reason to buy a home. Your annual income tax will not be a reason to buy a home any more. But appreciation and tax free capital gain is still good reason to buy homes. Most of other countries have no tax deduction on property tax and property tax.
"Is that a problem? It depends on how you view the longtime tax-code preferences for encouraging ownership of homes over renting. One analysis, provided by Evan M. Liddiard, senior federal tax policy representative for the National Association of Realtors, maintains that if you raise the standard deduction dramatically, “itemized deductions become less relevant” and previously valuable and distinctive “tax incentives [for] home ownership evaporate even while taxes are not necessarily being reduced.” There’s less incentive to own rather than rent.
The Fed study did not address the type of tax plan contemplated by Trump or Capitol Hill Republicans, but it appears to agree with the broad conclusion of earlier researchers: When you diminish the value of a subsidy benefit from a favored asset category, the value of that asset to potential buyers or owners is likely to drop.
None of this is happening yet. Months of committee hearings and debate — and lobbying — are guaranteed before any tax plan gets to the president’s desk. But you should at least know what’s on the line for real estate."
I think we can ask for unlimited amount of tax free capital gain for primary homes in exchange for approving a higher standard deductions for both renters and owners. When you sell your primary home with a $2M gain, there should be no capital gain tax.
This WSJ scare has deprived of my sleeping time. Will never buy a copy of WSJ!
According to the WashingtonPost.com,
"A new paper from an economist at the Federal Reserve estimates that eliminating the mortgage-interest deduction would cause the average household to lose “10.9 percent of the value of the house, with home owners losing 11.5 percent and home buyers 8.5 percent.”
In other words, those who put down less than 20% downpayment has to top-up or sell the property.
No. Homeowners will pay less or the same tax due to higher standard deduction.
You make $10 per hour and your buddy makes $6. When minimum wage rise to $15, you get $5 raise and your buddy gets $9 raise. No one will pay more tax, just that renters get more tax cut than the homeowners. Homeowners mostly get some tax cut as well. But your homeowner pride will be a little bit less since renters pay the same tax as you do. But both homeowners and renters get a tax cut.
It’s a tricky way to remove the enviable advantage of homeownership. But what excuse can we use to complain? Renters might be glad to hear this news.
Basically this tax cut benefits everyone, but it gives more tax cut to renters and lower middle class. Why is Republicans not favoring the rich and upper middle class? Is it because upper middle class lives in coastal cities such as SF and NYC?
This WSJ is a piece of fake news with political agenda, the purpose might be spreading misinformation about the tax reform and create troubles for the majority party.
The proposal is extremely landlord friendly. You can now deduct 100% of the building value from the first year, that mean zero tax for landlord.
I heard that many years ago, some tax changes caused a rental property price boom since many people buy rentals as a tax shelter and they do not really care about the low rental income. Anyone is familiar with that? This proposal could have the same effect.
Peter and elt1 may never need to pay a dime in federal income tax. Anytime you are facing a large tax bill, just go buy an investment property that cost more than your income in that year. Boom, you tax will become zero.
There are several proposals from Trump and the GOP, and the reporting is weak because the proposals themselves are weak on details. There are no draft bills at this stage, just hot air.
However, what effect will a larger standard deduction have? You are right it does not change the total deduction. But smart people buy a home after doing a “buy vs. rent” calculation. Buying came out over renting for me due to the large deductions. With a $30k standard deduction, renting would be financially advantageous (personally I do like to own, so that’t a consideration that has to be fudged into the calculation).
End result for bay area? More people rent. Homes go unsold and prices come down. Those homes are bought by landlords who rent out the homes instead of live in them. Higher renter percentage ends up passing more and more rent control. Maybe CA state goes rent control.
Personally, most of my neighbors are owner-occupied. One or two rent and you can tell who it is because they have trashy cars and loud parties. They are not good neighbors (I’m not saying all renters are bad, but the ones who rent houses near me are bad for whatever reason… maybe because they end up subletting individual rooms vs. a single family).
Renting is good for landlords, but not good for residents.
Canada has no mortgage interest deduction, but its homeownership rate is higher. Vancouver and Toronto is more expensive than most of the US.
There are plenty of details for the tax overhaul blueprint. House has approved a version. WSJ is purposely spreading misinformation and created fake news to waste people’s time. We should sue WSJ for our wasted time.
In Canada, I assume rents went up and home costs down to reach buy/rent equilibrium.
One thing that skews the buy/rent calculation is expected appreciation and inflation. High appreciation or inflation expectations can skew back towards buy. So if Trump is gonna give us high inflation, that pushes people back towards hard assets like RE
Anything that hurts homeowners is bad for landlords, period. At least in CA we landlords are mostly betting on appreciation, and there are not enough landlords in the world to bid up real estate prices. So if people shy away from buying homes we landlords are screwed.
Isn’t this whole thing avoided by paying a couple hundred dollars to register a LLC? The interest and property tax would be considered business expenses. The lack of property tax deduction would really only impact primary residence. That should be more than offset for 99% of people by the increase in standard deduction. The bay area being one of the outliers where our property taxes are so high we might lose.
The republicans are now the tax and spend party. And the dems are for state rights. We live in a tipsy turvy world.
The proposal will keep all the deductions as is, no change to mortgage interest and propert tax deductions. Only change is a larger standard deduction.
It’s a tax cut for everyone. Some get bigger cut and some get smaller cut.
It’s amazing that WSJ started creating fake news. It’s even more amazing how difficult it is to correct misinformation once the fake news spreads from WSJ.
A tax code that favors debt over equity set us up for crashes like 08 (and likely the next crash given all the debt corporate America has taken on to buy back shares). Debt defaults have cascading effects which are worse than share price declines. Also, deductabilty of debt encourages malinvestment; that is investments that are made for tax purposes rather than sound economic reasons. Reducing or eliminating the deductability of interest on debt would be a welcome change and plus for the economy as a whole. It wouldn’t eliminate the use of debt; it would just stop subsidizing it. It would also do a lot to address wealth disparities. The mortgage deduction is worth MUCH more to the rich than the middle class or poor and it assists them in pulling away even faster.