[nulbyte]

> I also learned recently that the realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else.

> Why am I able to use my single rental as a tax shelter?

The tax deduction is only available on your primary and secondary residences. (Where secondary here refers to a second home, not a third, etc.) You don't get to claim a primary or secondary residence mortgage interest deduction on your rental properties, because you aren't living there.

This arose out of a previous law that generally allowed for the deduction if interest on all loans because it was administratively unfeasible to differentiate between business and personal interest expense (or so said the wisdom at the time). Even today, business interest expenses are generally deductible. This is wholly separate from the mortgage interest deduction, which is for owner-occupied homes.

[mdorazio]

You didn't actually address any of the parent concerns about why. Why should anyone get a deduction on a second home when inventory levels are at historic lows? Why should homeowners get a fat tax deduction from their mortgage when I as a renter get nothing?

Going further, why should anyone get to exclude a quarter of a million dollars on capital gains when they sell their home?

[ethbr1]

You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

Furthermore, for homes purchased after 2017, the personal mortgage interest deduction has been capped on $750,000 of mortgage debt (first and second home only, combined). [1]

Given the boosted standard deduction, thus isn't a major difference.

If you're going to pick a windmill to tilt at, there are much larger structural issues in US housing. As mentioned elsewhere: zoning that precludes new unit construction, SFH zoning for areas that would support denser development, etc.

[0] https://www.irs.gov/businesses/small-businesses-self-employe...

[1] https://www.irs.gov/publications/p936#en_US_2022_publink1000...

[moate]

>>You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

How does a landlord paying less tax require them to pass that benefit to the renter? Is the assumption that absent this money rent would be higher? If the amount returned to the landlord increased would the rent decrease proportionally or is this just the wishful thinking of trickle down?

[reaperman]

It's valid that benefits would pass to renters if the market was constrained by limited demand and priced at the marginal cost of ownership. If the market is constrained by limited supply, then benefits are absolutely not passed onto renters, and the market will be priced at renters maximum ability to pay.

I don't think we're either purely supply- or demand- constrained in Houston, TX. But I do think that a massive number of rental properties are using cartel-based pricing in the form of YieldStar software. This distorts the market just enough by preventing price drops in large amounts of properties in less desirable areas, which props up demand in more desirable areas.

This only works if large companies like Greystar and Knightvest and Post own both expensive high-end properties where they need strong ROI, and inexpensive crappy properties where they can take a lower ROI because the capital outlay per unit was a smaller % of their total assets. If both the shitty apartment and expensive apartment rent for $1,400/month, the shitty apartment might go vacant but it didn't cost much in the first place. Meanwhile the expensive apartment costs the same $1,400/mo so people say "that's a bit too much for me to really afford but I can't find anything cheaper and this is the nicest one at that price".

Without YieldStar's price distortion, the expensive apartment might still be $1,400 but the shitty apartment would likely be $800/mo. Enough people would move from the nice apartments to the shitty ones that the nice apartments would eventually have to lower their price a bit to maintain target occupancy rates.

[cool_dude85]

Oh, the free market passes this sweetheart deal on to me, the renter. Glad to see how well the system works.

[gigatexal]

Haha it sure as shit does not. Landlord's keep it. The reasoning that shareholder/landlord savings either via by tax or fiat are shared with tenants or customers is a hilariously wrong fallacy of trickle-down economic thinking that has been debunked.

[ethbr1]

It's literally impossible to "keep it."

The landlord charges what they believe they can charge.

That's set by market rates in your local area (or cartels like RealPage [0] et al.).

And that's set to homogenize returns with national rental alternatives.

And that's set by alternative options to invest of capital.

If you +5% to the costs of operating rental property, by removing a deduction, rents are going to go up.

And focusing on commercial mortgage interest deductions is ridiculous, as they're accounted for in the exact same way as every other business: expenses deducted from income.

[0] https://www.propublica.org/article/yieldstar-rent-increase-r...

[gigatexal]

I’m hypothesizing that removing favorable tax incentives for owners will cool real estate speculation and cause demand for homes to fall such that prices fall such that more renters become owners. There’s an eventual equilibrium sure but it’s probably at prices less than they are now.

I’ll concede to you on the costs flowing to renters in the sense that if ownership costs go up for all owners rents would follow.

I still think as a category the asset is far too tax advantaged at the expense of the poor or the non-home owning to the detriment of society as a whole.

[uoaei]

Savings are not passed onto the consumer. If they were, we'd all be working 10hr/wk and have free healthcare and insurance.

[dugmartin]

If you have a commercial loan the interest is tax deductible as a business expense. The "tax shelter" many people think of when thinking of becoming a landlord (and is not allowed) is deducting passive losses each year (eg rental income is less than all your rental expenses) when you are not a "real estate professional" as per the IRS guidelines. You can deduct those passive losses when you sell "substantially all" your property. IANAL but I did own, landlord and then sell a commercial property (and would never do it again).

[gigatexal]

There should not be a deduction for the interest paid. It makes no sense and only helps the relatively affluent who can own/buy homes.