Life is so expensive for young adults these days

[ApatheticNoMore]

Me either, but I don't know why college is not 100% tax deductible, but mortgage interest is.

It really wouldn't matter unless it was enough of an expense to make itemizing make sense. Many people in the country don't even itemize their mortgage interest (where the amounts of mortgages are high it makes sense to itemize of course). I think at one point ALL interest was itemizable, which may have encouraged debt but was at least fairer. I didn't until recently realize what a total scam the mortgage interest deduction was*. I really thought it was just for buying houses (condos whatever) ok. I didn't realize you could basically get a deduction for anything by using Helocs and the like, but I think maybe you can. If that's true then it really would be fairer to make all interest deductable rather than having to launder interest through a house first, that is completely ridiculous.

* I didn't until recently understand what student loans were used for either. I thought they were used to pay tuition and books (duh) I didn't realize people actually used them for living expenses! I guess I'm pretty naive in many ways.

[catherine]

Many people in the country don't even itemize their mortgage interest (where the amounts of mortgages are high it makes sense to itemize of course).

Really?? I can't imagine having such a small, cheap-interest mortgage that it isn't worth itemizing, but as you say, I live in Central Jersey, so...

I think the whole idea of deducting mortgage interest is related to how we value the symbols of The American Dream... and it's one way for the government to help people strive for and attain the 3-bedroom, 2-car garage family home with 2.5 kids and dog. A lot of people feel that the mortgage deduction makes alternatives like renting or owning outright financially stupid ideas (which I certainly don't believe).

[CathyA]

It really wouldn't matter unless it was enough of an expense to make itemizing make sense. Many people in the country don't even itemize their mortgage interest (where the amounts of mortgages are high it makes sense to itemize of course). I think at one point ALL interest was itemizable, which may have encouraged debt but was at least fairer. I didn't until recently realize what a total scam the mortgage interest deduction was*. I really thought it was just for buying houses (condos whatever) ok. I didn't realize you could basically get a deduction for anything by using Helocs and the like, but I think maybe you can. If that's true then it really would be fairer to make all interest deductable rather than having to launder interest through a house first, that is completely ridiculous.

* I didn't until recently understand what student loans were used for either. I thought they were used to pay tuition and books (duh) I didn't realize people actually used them for living expenses! I guess I'm pretty naive in many ways.

That's what most of my DD's college loans were for............rent and food in her master degree days. That can really add up!

[ApatheticNoMore]

Itemization is actually not all *that* widely used. Itemization is talked about (be sure to deduct this charity contribution!) far more often than it's actually used. Only about 30% of federal income tax filers itemize. And apparently "The home interest deduction is claimed by fewer than a third of federal tax filers and less than half of homeowners." (some of them may own their home free and clear though). Itemization is used more often by those in higher tax brackets and it benefits them more.

Itemized deductions are worth more to taxpayers in higher marginal rates, because the value of a deduction is simply the deduction multiplied by the tax rate.1 Itemization raises after-tax income by 4.4 percent for taxpayers in the top bracket and by more than 3.5 percent for those on the AMT, compared with 2.4 percent for taxpayers in the 33 and 28 percent brackets. Taxpayers in lower tax brackets benefit much less: Itemization boosts after-tax income by less than 1 percent for those in the bottom two brackets

Remember that next time they tell you how progressive the tax code is.

It's pretty crazy when you find out how this stuff actually works:

"Right now, homeowners may deduct interest on second homes as well as principal residences so long as the combined amount borrowed doesn't exceed $1 million, and they may deduct interest on home equity loans up to $100,000

That's insane. Why are second mortgages tax deductable? Is it just naked giveaways to the rich time or what? And why 100k of loans only if they are laundered through houses?

I was right about ALL interest once being deductable:

Prior to the Tax Reform Act of 1986 (TRA86), the interest on all personal loans (including credit card debt) was deductible. TRA86 eliminated that broad deduction, but created the narrower home mortgage interest deduction under the theory that it would encourage home ownership.[18] A New York Times article notes that, in 1913, when interest deductions started, Congress "certainly wasn't thinking of the interest deduction as a stepping-stone to middle-class home ownership, because the tax excluded the first $3,000 (or for married couples, $4,000) of income; less than 1 percent of the population earned more than that;" moreover, during that era, most people who purchased homes paid upfront rather than taking out a mortgage. Rather, the reason for the deduction was that in a nation of small proprietors, it was more difficult to separate business and personal expenses, and so it was simpler to just allow deduction of all interest

But with HELOCS the deduction becomes a deduction of ALL interest up to 100k but only if it's laundered though a house, otherwise your interest is not deductable.

https://en.wikipedia.org/wiki/Home_m...rest_deduction
http://www.urban.org/uploadedpdf/100...Deductions.pdf
http://money.cnn.com/2013/05/10/pf/t...age/index.html

[ApatheticNoMore]

That's what most of my DD's college loans were for............rent and food in her master degree days. That can really add up!

Yea I really never realized people did that until I first heard the idea about 6 months ago. I heard it in terms of a life hack if you will, in bad economic times, like if you are completely broke say and you can't get work, you had no savings or already burned though most of your savings being unemployed, and you have healthcare expenses etc., then you could temporarily go to school and take out loans to get you through if you had no other ways to get money (of course you'll still need SOMETHING to land you on your feet eventually - the loan thing is a temporary solution not a permanent solution - unless your a few years from SS or something ). An abuse of the system to use student loans as a de facto social safety net in a country with few safety nets? Yes almost certainly. And it's non-dischargable! But understandable if one was down to one's last penny (better not to end up there in the first place!) But I had never realized student loans could be used for other than books and tuition in the first place. It had never occured to me.

[catherine]

That's insane. Why are second mortgages tax deductable? Is it just naked giveaways to the rich time or what? And why 100k of loans only if they are laundered through houses?

Thanks for the info! I'm definitely going to read through that because I assumed that everyone itemizes their mortgage deductions. And don't forget, you can itemize property taxes and homeowner's insurance, too--and again, I'm from NJ where property tax is considerable

As for the interest deduction on second homes, I thank God for that deduction, because back when I had that albatross of my MIL's house dangling around my neck with a $360k mortgage on it, and no one living in it, I was really happy to get some relief from that bottomless money pit.

[iris lilies]

The IRS standard deduction for us is $12,000. While it's true that we don't have a mortgage, I'd be hard pressed to imagine a world in which our mortgage, should we have one, exceeded that amount. But when combined with other itemizations, it would theoretically push us over the standard. Sometimes our itemized deductions exceed the standard, sometimes not. Last year we itemized.

As far a deducting educational expenses I say "why, sure! " and while we are at it let's just deduct everything! If we can't make higher education free for everyone regardless of aptitude, then at least let's be able to deduct this and all costs from our tax bill. Really if we could get deductions down to the point where no one pays any taxes, that would be good. Right?

[Lainey]

Closing corporate tax loopholes: http://articles.chicagotribune.com/2...es-walgreen-co

I'm thinking of moving my financial self, Lainey Inc., offshore. Not paying taxes is Standard Operating Procedure for our big businesses, so maybe Lainey Inc. and others should do likewise. I'll still enjoy everything that our first-world country provides, and keep all of my money too. Just think of all the jobs I could provide with that extra cash - trust me!

[catherine]

As far a deducting educational expenses I say "why, sure! " and while we are at it let's just deduct everything! If we can't make higher education free for everyone regardless of aptitude, then at least let's be able to deduct this and all costs from our tax bill. Really if we could get deductions down to the point where no one pays any taxes, that would be good. Right?

Believe me, I have a long way to go before I don't pay any taxes. I just think it's a statement on our values to allow mortgage interest deductions, but not education, so if I had to choose, I'd remove the mortgage interest deduction and let students, or parents who are footing the bill for their kids, deduct a bigger part of the cost of tuition. Do we want to encourage education or mortgage debt?

[bae]

For you, you'd have to give up US citizenship if you have it.

And if you do, and move significant amounts of capital outside the USA as part of the process, they take your loot on your way out.