Second Home?
- Thread starter Kper
- Start date
I don't have a loan on the boat, but when I had a motorhome, we deducted the interest. I don't see much difference.
Stu,
I don't know about the rent as interest side, but in Massachusetts we get to deduct a portion of our rent from our state income tax. (I don't know the actual percentage, my Bride is a CPA and handles the details) So as liveaboards we are currently taking the mortgage interest on our boat loan as a deduction on our federal taxes and state taxes but we are also our slip fees as rent.
In addition, as someone pointed out up thread, we are going to take a deduction for our solar panel install. I believe its 30% on materials and labor. Since I am doing it myself I am not sure you do the labor but for the parts thats $285 roughly. Not a ton but every little bit helps. Having no kids, no real home mortgage (under $30K on the boat only) and making decent money our taxes are murder. But hey, this time next year our income will be $0, so I shouldn't have to pay much in taxes then.
Tax codes are designed to do one thing ...
I'm not sure how this argument relates to interest. Is interest deductible for income property? I haven't had income property for a long time so I don't remember if it is a deductible expense or not. But property tax is deductible, for sure.
So let's assume the tenant gets to deduct a certain amount for property tax and interest (for this argument) paid to the government (tax) and bank (interest) through the landlord. Tenant and landlord don't BOTH get to deduct for the amount that the tenant gets to deduct, so that means the landlord is forced to accept a smaller deduction. The landlord's logical response is to raise the rent because he or she was previously counting on that deduction as a component of overall returns on investment. Landlords don't purchase buildings to provide benefits to tenants, afterall. So the tenant just gets a rent increase indirectly due to the tax code. The rent increase is likely to be larger than the benefit of tax deduction, just due to general escalations and aggravation to the landlord.
Land Development often has the same unintended consequences. We often developed a raw piece of land by installing water pipes that would be turned over to the utility authority at no cost to them. After all, the developer is willing to pay for the improvements, but doesn't want to manage the utility after it is installed, and the utility companies have a lot of leverage to simply demand that the pipes and equipment just be handed over for a nominal amount (say $10) just to indicate a transaction. But the federal government says that the $250,000 capital improvement is income to the utility company (a quasi-private entity with governmental authority) so the feds say they want the utility company to pay a 20% tax on the income (just throwing numbers out). So the utility company, in turn, makes the developer cover the expense (now we're up to $300,000 for a $250,000 construction cost). It doesn't end there because the tax that was tacked on is also income, stimulating more tax that the utility company must pay to the feds.
It becomes a law of diminishing returns, whereby the developer actually has to pay 151% (that was a real percentage that was determined in agreement between the feds and utility authority) overall for an improvement that went in the ground and handed over to the utility company. Before you cheer hurray that the developer has to pay, just understand that the developer doesn't really pay that cost. Anybody who buys a home will pay that cost (multiplied even more so for profit margin) in the purchase price. Once again, the government shoots the middle class in the foot when they <say> they are on our side.
Tax codes punish the very people the government <says> they intend to protect.
I'm not sure how this argument relates to interest. Is interest deductible for income property? I haven't had income property for a long time so I don't remember if it is a deductible expense or not. But property tax is deductible, for sure.
So let's assume the tenant gets to deduct a certain amount for property tax and interest (for this argument) paid to the government (tax) and bank (interest) through the landlord. Tenant and landlord don't BOTH get to deduct for the amount that the tenant gets to deduct, so that means the landlord is forced to accept a smaller deduction. The landlord's logical response is to raise the rent because he or she was previously counting on that deduction as a component of overall returns on investment. Landlords don't purchase buildings to provide benefits to tenants, afterall. So the tenant just gets a rent increase indirectly due to the tax code. The rent increase is likely to be larger than the benefit of tax deduction, just due to general escalations and aggravation to the landlord.
Land Development often has the same unintended consequences. We often developed a raw piece of land by installing water pipes that would be turned over to the utility authority at no cost to them. After all, the developer is willing to pay for the improvements, but doesn't want to manage the utility after it is installed, and the utility companies have a lot of leverage to simply demand that the pipes and equipment just be handed over for a nominal amount (say $10) just to indicate a transaction. But the federal government says that the $250,000 capital improvement is income to the utility company (a quasi-private entity with governmental authority) so the feds say they want the utility company to pay a 20% tax on the income (just throwing numbers out). So the utility company, in turn, makes the developer cover the expense (now we're up to $300,000 for a $250,000 construction cost). It doesn't end there because the tax that was tacked on is also income, stimulating more tax that the utility company must pay to the feds.
It becomes a law of diminishing returns, whereby the developer actually has to pay 151% (that was a real percentage that was determined in agreement between the feds and utility authority) overall for an improvement that went in the ground and handed over to the utility company. Before you cheer hurray that the developer has to pay, just understand that the developer doesn't really pay that cost. Anybody who buys a home will pay that cost (multiplied even more so for profit margin) in the purchase price. Once again, the government shoots the middle class in the foot when they <say> they are on our side.
I believe I misspoke using the word "interest" where I should have instead used "property tax". Sorry for the misunderstanding.
Long ago in MI, as a renter myself, state law allowed me to deduct a portion of the rent I paid to my landlord off of my state tax return.
That's how I tied in the slip rental as a possible tax deduction.
I think everything is built around "diminishing returns". It's the second law of thermodynamics.