Daryl wrote:I'm puzzled by your comment, and am obviously too dumb to follow the logic. Can't see any reason to allow a tax deduction on people's homes (not a business), but an investment rental property should be treated like any other business & investment loan deductions allowed. All three of my kids bought their own homes in their early 20s and are paying off their mortgages as quickly as possible to then buy investment properties. Our various tenants could buy their own homes but prefer to invest their money in expensive cars, clothes, and consumer goods; and possibly waste the rest.
One of the effects of the American mortgage interest deduction for homeowners is that it levels the playing field for younger adults compared to their elders. Consider this situation:
OldGuy buys an investment property. They pay $1000 a month on a mortgage. Of that, $666 is interest. They deduct $666 from their taxes. They rent the property out for $1000. On the remaining $333 in income after the deduction, they pay 30% tax. He pays $100 in tax per month, and the house covers itself in rent/mortgage. At the end of 15 years, he has a fully paid off house.
YoungGirl buys her first house. She pays $1000 a month on her mortgage. Of that, $666 is interest. She deducts nothing, gains the same amount of equity every month as OldGuy, and pays $300 in taxes at 30% on the income she used to pay for the house. At the end of 15 years, she has a fully paid off house. BUT she has also paid much, much more in taxes than OldGuy. Effectively, she had 20% less purchasing power than OldGuy when she went house shopping, because she had to pay an extra $200 in taxes.
Let's look at how that plays out...
OldGuy has $500,000 in savings, investments and retirement accounts because he's been doing this stuff for 30 years. He also has better credit, and can get bigger and lower-interest loans relatively easily. Instead of charging $1000 a month, he realizes he can cover his ENTIRE tax+mortgage burden by charging $1150 a month in rent, plus have $5 left over to grab a burger. Oldguy buys five $100,000 properties (requiring a down payment of a mere $100,000 total), gets them to pay for themselves, and in 15 years will own five properties free and clear.
YoungGirl wants to buy a house. As OldGuy and his buddies continue to snap up properties while she's in secondary school, the housing market starts getting inflated. She'd like to buy a house of her own, but because she's effectively paying an extra 20% on the mortgage, she can't afford it. She gets a roommate and starts renting from OldGuy.
Ten years later, Australians wonder why their housing is so damn expensive and there's so many empty rental properties going for way too much.