If you're willing to criticize the mortgage interest deduction, are you also willing to criticize property taxes? Both are unfair advantages/disadvantages given to homeowners.
As a Georgist, I would say that most unearned wealth ultimately results from private ownership of natural resources (namely land).
When homeowners claim valuable land and hold onto it for decades, without paying the correct market rate for that land (which, of course, they didn't create the value for), they get the benefits of owning this resource without the responsibility.
In short, property taxes are much too high for the actual structures we build, but should be much higher on the underlying land. It's a sane revenue source that would unburden the load placed upon income tax, etc.
> Mortgage tax deductions are only on a primary home, so they don't apply to owners of rental units.
Mortgage interest on a rental unit is deductible against the rental income on that unit for obvious reasons: it's a business expense for the rental business and hence taken out of gross revenue for that business to figure out the (taxable) profits.
Specifically, for US individual federal taxes in 2016, see Form 1040, Schedule E, line 12. This is the form you use if you haven't actually formally incorporated your rental activity as a business.
Note that you can also deduct your spending on repairs to the rental property, insurance on it, property taxes (line 16 on that form), and so forth, for the exact same reasons: income taxes on business-like activity are levied on net income, not gross income.
The only people who can't take a mortgage interest deduction are people who have a second home that they are _not_ renting out.
And importantly, only enjoyed by homeowners who got the mortgage before the benefit of the tax deduction started getting capitalized into the value of the house.
wait, what? There's a $250k capital gains exemption for sale of primary home lived in 2 of past 5 years, so isn't capital gain basically irrelevant to anyone but very wealthy? Do you know something I don't? (reasonably likely)
What he means is that the deduction has been "priced in" to the price of homes/mortgages. In a similar story, a company I used to work for once offered employees a $x incentive to live close to the office. They then found that the price of homes in the area immediately went up by $x.
Got it, of course! Capitalized could be a formal tax term in this case, but it was just meant in terms of actual plain capitalization generally.
Yeah, mortgage tax deduction, like all incentives that encourage borrowing more money, ends up being a transfer of wealth from new homebuyers to whoever had owned property outright (whether older long-term homeowners or developers or real estate investors).
