Tax overhaul should begin with (second) home-related tax breaks
Thursday, May 19, 2011
As I was electronically thumbing through tax-related stories today (yeah, I know; you wish you had my life!), I stopped to read about how today's low real estate prices and higher gift tax limits make this a good time for rich second-home owners to give away their vacation properties.
Now I'm far from rich and I don't own a beach cottage or a mountain retreat. But the article about how vacation homes can offer those who do own them yet another tax break underscores what's wrong with our tax code.
There's lots of talk about reforming the U.S. tax system. And it's probably likely to stay just talk for a while. But remaking something as complicated, convoluted and out of control as the Internal Revenue Code has to start somewhere.
The initial focus has been on corporate taxes. Eventually, though, we have to look at the individual tax system. And that brings us back to the hard questions of what tax breaks people are willing to give up for a simpler system with lower tax rates for everyone.
There are many, many tax expenditures -- losses to the U.S. Treasury from certain tax deductions, exemptions or credits -- that account each year for an estimated $1.1 trillion in forgone government money.
While these tax breaks cover just about every part of most Americans' lives, among the first tax breaks that should go are those for owners of multiple pieces of real estate.
I know I've argued for this before, but as the deficits grow and folks become more entrenched over taxing "that man behind the tree," the mortgage interest deduction for two personal homes and the property tax deductions on unlimited pieces of personal real estate look to be the easiest to ax.
One of the key reasons to target homeowners, and especially multiple homeowners, is that there aren't that many of them relatively speaking. More people rent than own.
Even among homeowners, not all get to take advantage of the most popular tax breaks related to their houses. The mortgage interest and property tax deductions can only be claimed by those who itemize. And most filers take the standard dedeuction each year.
And, yes, homeowners being a smaller portion of the general taxpaying public means that whacking tax breaks for us won't be that big of a revenue raiser. And multiple homeowners are an even smaller group.
But because owners of two or more houses are a smaller tax group, it will be easier to start there.
I say this while admitting that I'm part of that home-owning minority. I've owned a residence (five actually; consecutively, not concurrently!) most of my adult life and I've enjoyed the Schedule A write-offs they've provided.
And I know full well that my status highlights the fact that taxes aren't fair. I agree with my renting friends that it seems particularly inequitable that my fellow residence owners get so some much help at tax time.
I know homeownership is the American dream, but that philosophy is a big part of why we headed down the road that dead-ended in the real estate boom's horrible bursting. And the foreclosures and struggling housing industry added to the home-related breaks, with some not-so-stellar results.
So it's time to wean homeowners off this tax teat, starting with second homes.
Yes, the real estate industry will scream. I repeat, life and taxes aren't fair.
But the reform process has to start somewhere if we have any hope of ever streamlining and simplifying our tax system.
I'm willing to give up my residential tax breaks. What tax benefits do you enjoy but would sacrifice for a simpler tax code?
- Rethinking mortgage tax breaks
- The unfairness of housing tax breaks?
- Economy killing home tax break, redux
- Up next for Obama: Tax system overhaul
- Taxpayer Advocate calls for tax reform
- Deficit commission tax overhaul, take 2
- Debt panel suggests major tax changes
- Vacation home tax breaks
- Home sweet second home (austinwoman; PDF)
- Tax-free income for short-term landlords
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