AMT vs HMID

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effenheimer_IHB

effenheimer_IHB

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<p>Is there really talk about fixing/eliminating AMT in exchange for phasing-out the household mortgage interest deduction?</p>

<p>The impact? Let's discuss. </p>
 
Hmm... I don't think that would qualify as progressive taxation. The AMT tends to hit those with higher incomes and/or investment income. There are a greater number of folks who own homes.
 
<p>I'm gonna risk tar and feathering and state that HMID elimination, in a revenue-neutral fashion, might not be a bad thing.</p>

<p>Why? It levels the playing ground between renters and homeowners. As a renter and future homebuyer, instead of making big contribs to my 401k, I'm saving after-tax dollars for a d/p and I'm paying rent with even more after-tax dollars. It's a helluva hurdle to climb. Eliminating the HMID would reduce home affordability and therefore hammer home prices down even further.</p>

<p>You don't make an asset more afffordable by increasing the aggregate demand for that asset. The HMID does just that. It creates an economic distortion by artifically boosting housing demand from tax avoidance seekers. </p>
 
Actually, I agree with you, Eff. They can get rid of it, but to trade it for a program to benefit those who are better off is troublesome to me.
 
Sounds like a good idea to me. Eliminating both the HMID and AMT would simplify the tax code. I don't think the HMID would decrease the desirability of homeownership, though it would decrease the attractiveness of mortgage debt.
 
Girl in the OC,





The AMT is the alternative minimum tax. It was created (from fuzzy memory) in the 70s. It is an entire system of income taxation that rides paralell to what we normally think of. It was designed to tax a small group of people - like 2000 in the 70s based on their gross income. The number (again from fuzzy memory) is something like 270K/ year. (Would have been nice to make that in the 70s, huh? =). Well, that number never adjusted for inflation and more and more couples are running up against it. One of the major differences is the deductions that can be taken - for AMT, they are rare.





The HMID - housing mortgage interest deduction - allows homeowners to stash away money in their home for retirement and deduct up to 500K (with provisions) once they sell.





For some perpsective, in 2002 (might have been 03, but the idea is the same), the Fed government had the authority to tax 1.6 Trillion dollars, instead 900 billion was deducted and 700 billion was recieved.





How and why does all this happen? The tax code is political. Rather than tax to raise money for the necessary things, deals and work-arounds in the tax code are created to attempt to achieve the same thing.





I say keep the AMT, let all the politicians sit on their hands and have it slowly produce income for the U.S. govt to pay off it's interest payments. Win-win for D.C. , none of the politicians is bad guys and the debts get paid down. Of course, that's just wishful thinking, they'll get more money and blow it on fast cars and booze - idiots.
 
<p>Darin,</p>

<p>You made a few mistakes.</p>

<p>The capital gains exclusion is what allows homeowers to "stash away money" (tax free).</p>

<p>The mortgage interest deduction is entirely different. It alows you to avoid income tax on the amount of interest paid annually on a maximum of $500,000/single or $1,000,000/couple in mortgage debt on a primary residence.</p>
 
<p>The exemption from captial gains tax due to sale of a primary personal residence and the mortgage interest deduction are two completely different tax issues, as someone in here previously pointed out.</p>

<p>The mortgage interest deduction is reduced by one of two factors: either AMT or high income tresholds.</p>

<p>Mortgage interest deduction is reduced by high income tresholds when the taxpayer has very, very high income, (I don't know the exact amounts), and is paying federal income tax at the highest marginal tax rate. A taxpayer paying at the highest marginal tax rate is not subject to AMT.</p>

<p>Mortgage interest deduction is also reduced by AMT. AMT is incurred by a combination of income tresholds and deduction amounts and paying less than the highest marginal tax rate. The formulas for determination are quite complicated, but most simply put, if a taxpayers deductions are great enough and their income large enough so that their marginal tax rate is reduced by the deductions, AMT, (alternative minimum tax), is incurred, which reduces the deductions and insures the taxpayer pays a minimum amount of tax no matter how large their deductions are.</p>

<p>Don't you just love the term "alternative minimum tax". Every now and then I get a client who asks me, "What do I have to do to pay alternative minimum tax?"</p>

<p>The <strong>ONLY</strong> schedule A deduction not subject to AMT is the charitable contribution deduction. Some folks think the mortgage interest deduction is not subject to AMT, but this is a fallacy.</p>
 
<p>Janet -</p>

<p>I didn't know that the amount you could deduct for your mortgage interest was varied for single versus married ... I thought it was just $1Million for mortgage interest whether single or married, with another $100,000 interest deduction for a HELOC?</p>
 
Laing_Lies - I didn't either, and I am in the business. If it is important to you, I will check, but I am fairly sure it is $1 mil no matter if you are married or single. And I will also check on the HELOC limitations. I thought the $100,000 had to be subtracted from the $1 mil.
 
<p>awgee -</p>

<p>Yes, I would be very interested in what you find. My accountants have always told me i would be able to deduct up to $1.1 million ($1M + $100,000).</p>

<p>Thanks!</p>
 
<p>It is $1mil if single, HOH, or married filing jointly. It is $500,000 if married filing seperately. Here is the blurb straight out of IRS pub 936.</p>

<p><em>"The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately)."</em></p>

<p>And generally speaking, the loan limit is $1,100,000. But their are a myriad of limitations.</p>
 
The HMID is actually necessary to level the playing field between homeowners and landlords. If they eliminated the HMID, sophisticated buyers would form a tax entity to purchase and own their home and obtain the interest deduction through the pass-through tax entity. The HMID eliminates the need for this complex structure which gives homeowners the same tax advantages as real estate income property investors.
 
<p>Oh - maybe I'm wrong about the cap.</p>

<p>I guess Awgee will clarify.</p>

<p>I also thought the HELOC had to be included in the cap, however.</p>

<p>I thought it was total mortgage indebtedness, regardless of position.</p>

<p>(Spoke too soon!)</p>
 
<p>I'm not sure if this is a reputable site or not...but it does talk about the $1.1Million total - </p>

<p><a href="http://www.bcpl.net/~ibcnet/equity-tax-advantage.html">http://www.bcpl.net/~ibcnet/equity-tax-advantage.html</a></p>

<p> Oh, forget about it...I just read to the bottom which says that if you make more than $137,000 AGI, then you can only deduct up to $68,000 of your HELOC if you're married. What's the point of the $100,000 maximum for a HELOC then? If you made less than $137,000, there'd be no way you would even max out your $1M mortgage interest maximum.</p>
 
<p>Laing_Lies - Yes, you may deduct the property taxes on multiple properties. There must be some circumstance in which you can't, but I can not think of any right now.</p>

<p>And generally speaking, the loan limit is $1,100,000. But their are a myriad of limitations.</p>

<p>Janet - I know some of the brightest folks in the tax world and no one can remember all this junk. We all have to look it up, ask others for clarification, and even look it up multiple times in the same tax season.</p>
 
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