Due to the tremendous response by a lot of very smart commenters on my earlier post: A completely new proposal to save the real estate market. It's not as crazy as you might think! I have honed the idea based on the great feedback proffered by those that made so many excellent comments.
The idea was a dollar for dollar federal income tax deduction for down payments on the purchase of a home for any homebuyer that elects to take the deduction.
First and foremost, the deduction would be a one-time opportunity, and could be used on a first or second personal residence. Investment property is not included. (BTW investors already recover their purchase price over time as depreciation)
Secondly, the deduction would go against the cost basis of the property. In other words, like depreciation, the deduction would be subtracted from the cost basis. At the time of sale, the tax consequences would be the same as any other homeowner who has tax exemption opportunities for a sale.
Third, any new subsequent loans bowered against the property in excess of the cost basis would be treated as ordinary income. This would prevent someone from paying a lot down and then refinancing.
Don’t forget that the suggestion is to provide a deduction and not a credit. Many high-income taxpayers would be fall under the Alternative Minimum Tax section and would still have tax liabilities.
This idea isn’t just about selling more homes. It’s about buyers having more skin in the game which would add stability to the market. Don’t think of it as a subsidy; it’s more if a tax deferment much like a 1031 exchange.
But It could jump start the market during these tough days!
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I'd go for that. It would reduce the buyer's tax bill similarly to the way a mortgage interest tax decuction does.
Wonder how Congress could screw this up???
Richard - This is the type of creative approach that congress seems incapable of discovering, and it's much more logical, fair, and long-term than simply throwing some free money out there and selling a few extra homes. Good job.
Richard, very good. I'm with Lenn, I do wonder how Congress could screw this one up? Way to go!
Great idea Richard....but then it makes too much sense!! Ha
Patricia /Seacoast NH
Richard...Although the plan is solid and makes the buyer have more ownership up front...I hate the idea of more incentives on anything. The Goverment is just ot involved!
Okay, Now you can tackle all of the existing home owners that are having trouble meeting there obligations. I heard a suggestion to give everyone current on their mortgage a 5% rate.
Keep at Richard, it will take a lot of work to get the right person to at lease review the idea.
Richard, Too simple, "The Man" will never understand it!! Sounds viable though.
I love some good outside the box thinking my friend. I think someone already said it makes too much sense though.
Richard, thanks for thinking. There is a part of me that says this makes sense and another that just thinks it is time to stop the give aways and let the market correct itself naturally. I am not an economist but I remember learning long ago from my dad that "anything worth anything is something only when it is achieved by hard work."
Richard, I'm actually inclined to agree with this proposal. This way, the Buyer will have some skin in the game and the incentive would encourage consumers to purchase. Way to go!!!
Richard, I agree. This is a great plan. What began the downfall was too many homeowners not having any "skin in the game" as many have stated. I think this could truly work.
I think this plan is right on!
ROTFL @Lenn.
I am nervous about next year. I just don't know where our economy is headed here in the Detroit area.
Richard - I hope someone actually decides to pay attention to this idea of yours. Kudos!
Lenn...
Exactly ... a purchaser may already deduct "points" as prepaid interest so why not? Thanks for the comment.
John...
It just ideas we're tossing out here from our "think tank!" Thanks for adding your $.02!
Andrea...
They can make it a class warfare issue, that's how! THX
Patricia...
And good common sense is in short supply in Washington! THX
Bill...
But is only a deferment ... that's what makes it interesting.
F & M...
I'd go along with that! THX
It's a great idea, Richard. I still think that there should be a limit on how much of a deduction could be taken - say up to 40%...
Richard, as I mentioned on your first one -- that is just too smart and makes too much sense for it to happen! :-)
You really are a smart man!
It sounds helpful and easy, so that means it will never happen!!
Richard, this seems like a pretty viable suggestion! As Realtors (r) we are members of a pretty hefty lobby. Might be nice to see this suggestion be taken seriously by those lobbyists!
Hey Richard, more skin in the game...a dollar for dollar is better, no more free money.
RW,
The more you refine this the better it sounds and I like the part of adding stability to the market.
Great idea Richard. What are the chances it could ever happen given our current decision makers?
Richard, have you contacted your representatives? This is a great common sense idea! Let's start a petition!
I'm still not a fan. I think the market needs to get back to the current reality...
And the way Congress would mess it up is to start trying to limit it to specific income and demographic targets.
I think that the FairTax would be a better way to go... it would kickstart jobs.
!!!!!!!!! I likey likey! You really thought this through. We are also seeing appreciation so the potential for paying a little over a "normal" down would definitely be an incentive to save and buy!
Al and Peggy...
You never know how far this idea will go! ThX!
Bryant...
I know it, but you never know. Stranger things have happened. THX
JL...
Thanks for the feature, I really appreciate it!
Interseting concept...need to get it to the right hands...Good luck!
I think its a great idea up to a certain amount. It would help keep the market moving!
Richard,
That's pretty creative, and seems to be very workable. This real estate market still needs plenty of help and an idea like this would give another leg to stand on.
Richard - when I read it the first time it made a lot of sense, but with these refinements it seems like a pretty solid plan...you must send this on to your Congressman. Someone needs to pay attention!
Brilliant!
Hi Richard -- I need to read this post about 5 times in the morning, it made my brain hurt. I just knew I should have taken that accounting class in college! LOL
It's a deduction, not a credit.
I didn't catch that on your last post. That makes more sense to me.
Also, I think you're doing a nice job of refining your idea.
Richard, I recommend you start a petition for this. Lots of people here agree it makes sense (or even too much sense). Why not try to make it a reality? You can get started at www.thepetitionsite.com. Register it, then blog about it. The site itself makes it possible for you to invite others to sign and forward it. If nothing else it should up your own reputation as a creative problem-solver--and that's good for your business.
Hi Richard, great idea. Sounds too good to be true. Congress would definitely screw it up or someone would find a way to defraud the government, but a great idea none the less. Hope it works!
I like it... anything that gets buyers to put more skin in the game can't be bad. You need to start pitching this to Congress.
Have you shared this idea with anyone in Washington? I think you have more chance to get something done there than on AR.
I think it's a great idea !!! You might have to impose some sort of ceiling like 50-100,000 to get it thru Congress !!!
I like the idea because it does two things. It may stimulate home buying and will give the home owner more of an interest in their home. Actually, I think this is something Congress may go for. They are always interested in showing the public that they are "doing something". Most of the time it results in counterproductive policies. Every once in a while, such as this proposal, good politics equals good policy.
Richard, it's time to take this idea on the road. I would suggest writing an Op Ed piece, sending the proposal to some think tanks, and running it by your local Chambers of Commerce. Let's get people really thinking and talking about this.
Richard,
That seems like a good idea.
Only problem in Canada, is that upon sale, a principal residence is exempt from tax. And, we are probably more likely to pursue a grant than a tax deduction. That's just the way it is, here.
Brian
I guess if you start with the premise that propping up the prices of high end homes is a good thing then I guess your proposal would sound good. Especially if you own a high priced home or if you profit in some way from the fact that high priced homes are selling.
But I'm sure there are hundreds and thousands of other specific products and industries that have their proponets make the same case. So it becomes a contest of who has the better funded lobbyists in Washington to funnel the benefits their specific way.
Economic growth starts with savings and investment. The money needed to invest in new, productive products and services starts when someone works and saves and invests those savings in these ventures.
Therefore, if you want a very simple plan to get the economy going, just eliminate taxes on savings and investments. Get rid of taxes on interest, dividend income and capital gains. Don't make it specific to any particular industry. Let the free market make their choices on where to invest. This would get our economy back on a sound foundation. We'd be a country of savers and investors instead of a country of wasters and spenders. Spenders are great but only when they spend within their means and invest a little in future productivity gains.
I do like this idea. And, there is no need o cut Medicare benefits to fund it.
And, by the way Richard, another nice photo. When do you find the time to get these pictures?
Richard:
Do you think you might have time in your busy schedule to run for office? We could use some of this type of creative thinking in Washington.
I like the fact that this would encourage larger down payments. This would promote more stability in the housing market by adding more solid buyers.
I think this makes more sense than the $8,000 first time home buyer credit.
Richard - This makes way too much sense. Hopefully it can be lobbied and pushed into reality. Surperb post
Richard, I have a novel idea.....let the market fix itself. When did we become a nation of socialists? Why should the government step in and fund buying houses? Home ownership is a privilege not a right. If the government is going to spend money to artificially prop up the economy than spend it on jobs. Get those not working to work.
I think it is ironic that REALTORS who are traditionally against social welfare programs are all about it when it is for houses.
Very informative blog post. Thanks for the information. I am sure it will be useful to me down the road.
Damon...
How is letting an individual keep THEIR money either Socialist or welfare??? It's just about the most Capitalist idea to date.
I think its a good idea who knows maybe some one of power will read your blog
I like it; with one modification, though. Any new loans borrowed against the property in the first year would be treated as ordinary income; maybe two. I don't think that provision should last the life of the ownership, though.