A house mortgage interest cut allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on loans secured by their primary residence (or, occasionally, second homes). Most developed countries do not allow interest-rate reductions for personal loans, so countries that allow home mortgage interest reductions have created exceptions to those rules. The Netherlands, Switzerland and the United States each allow such abatement. In Belgium, Denmark, Ireland, and Sweden, only a fraction of the mortgage interest can be deducted.
Video Home mortgage interest deduction
Status in countries
Canada
Canadian federal income tax does not allow the reduction of taxable income to interest on loans secured by the taxpayer's private residence, but the home used in business as an owner who owns rental housing property can reduce interest as other reasonable business expenses. The difference is that deduction is only allowed when property is not used for personal use of taxpayers but is used as in other business types. However, there may be additional exceptions for loss of passive activity.
The indirect method, known as the Smith Maneuver, to make mortgage interest for taxes of personal dwellings deductible in Canada is through the exchange of assets, where home buyers sell their existing investments, buy houses in full or in part by sales, get mortgages at home , and finally, buy back his investment with money from the mortgage. The Supreme Court of Canada has decided in 2001 in the case of Singleton v. Canada that transactions in exchange of assets should be considered different, thus providing interest on the mortgage of the home acquired as part of the swap asset swap reduction.
The level of home ownership in Canada is similar to that in the United States in 2008 despite differences in tax policy.
Denmark
In Denmark part of the interest can be deducted. In 1987, 73%. In 1993 it was 50% and in 1998 it was 46%. From 1998 to 2001 it was reduced to 32%. The plan in 2019 will be 25.5%.
French
France does not permit mortgage rate reductions. In 2007, the newly elected President Nicolas Sarkozy proposed to make a conclusion as part of his legislative plan to spark the French economy. In August 2007, the Constitutional Council, the highest court in France, decided on the reduction of mortgage interest because it unconstitutionally created tax advantages that far exceeded the stated objective to encourage non-homeowners to buy houses. The court noted that the deduction would apply to people who already own a house.
India
The interest rate on the home loan can be deducted (under section 24 (b)) up to 150 000 rupees in a tax year to acquire or build a property. Deductions are only available when construction is complete or you own the property. The interest of the pre-construction period is deducted in five equal installments. The first installment is deducted in the year in which the construction of the completed property or property is obtained. Anyway subtracted under section 80C, which has a limit of 150 000 rupees.
Dutch
In the Netherlands, all interest payments can be deducted for a maximum period of 30 years. However, before deducting, the taxable income is increased by a percentage of the value of the property (so-called "notional rental value") on the grounds that the property has a potential revenue-generating goal.
Still in place today, the mortgage interest tax cuts are subject to fierce debate, and political issues during the last election. Although largely an emotional discussion point with Dutch voters, and portrayed by many as "political suicide", most Dutch people believe that the mortgage interest tax deductions will eventually be reformed. Many reasons for removal have been identified, often triggered by political ideologies (eg creating inflation of house prices, limiting government revenues at a time of economic crisis, mortgage interest cuts are raising the already high tax rate in the Netherlands, favoring disproportionately high income individuals.
Currently standing, Dutch politicians and other organizations are examining possible strategies to end the withholding of interest payments taxes and encourage public debate to prepare the Dutch public for its eventual abolition. Only 18% of Dutch public support abolished complete mortgage interest cuts.
Norwegian
Norway considers any interest paid, whether it is for a home mortgage or other debt, as a deductible expense. The result is a 25% reduction in the tax bill of all interest paid. The fact that the government essentially subsidizes 25% of the interest bill has made homeowners highly profitable in Norway, and critics argue that the cuts have increased the cost of real estate. The Central Party has proposed to reduce the reduction.
Swedish
A 30% reduction in interest up to 100 000 SEK, and 21% above that amount. The sum is about 10 000 SEK per person who pays taxes on debt.
United Kingdom
The UK introduced a scheme called MIRAS in 1983 to allow credit interest to be a tax deduction. It was removed in 2000.
United States
Based on 26 U.S.C.Ã, Ã,§ 163 (h) of the Internal Revenue Code, the United States allows the reduction of home mortgage interest, with some limitations. First, the taxpayer should choose to itemize the deduction, and the total of the detailed deductions must exceed the standard deductions (otherwise the details will not reduce the tax). Second, the deduction is limited to interest on debt secured by the primary residence or second house. Third, interest can be deducted only on the first $ 1 million debt used to acquire, build, or substantially increase shelter, ($ 500,000 if filed separately) or $ 100,000 of first home equity debt irrespective of the purpose or use of the loan.
Prior to the 1986 Tax Reform Act (TRA86), interest on all personal loans (including credit card debt) was deducted. TRA86 eliminates the vast deduction, but leaves a narrower home mortgage interest reduction. While many Americans believe that Congress created a reduction in mortgage interest rates as a way to encourage home ownership, historians point out that this never happened, as described in a New York Times article that notes that, in 1913, when interest-cutting began, I do not think of a reduction in interest as a stepping stone toward middle-class home ownership, because the tax does not include $ 3,000 (or for married couples, $ 4,000), less than 1 percent of the population produces more than that; Moreover, during that era, most people who bought homes were paid in advance rather than taking out a mortgage. In contrast, the reason for this reduction is that in small owner countries, it is more difficult to separate business and personal expenses, and so it is easier to just allow the deduction of all interest.
In the United States, there are additional tax incentives for home ownership. For example, taxpayers are allowed an exemption of up to $ 250,000 ($ 500,000 for married couples filing jointly) from capital gains on the sale of real property if the owner uses it as a primary residence for two of the five years prior to the date of sale. Economists have pointed out that high income areas with high incomes receive most of the tax benefits. For example, San Francisco, California received $ 26,385 per house while El Paso, Texas received $ 2,153 per home, a difference of 1.225%. The five highest revenue metros receive 87% tax inflows, with more than half entering California alone.
Maps Home mortgage interest deduction
Opinions on deduction
The National Association of Realtors strongly opposes the abolition of mortgage interest cuts, claiming, "Housing is the engine that drives the economy, and even mentioning reducing the tax benefits of homeowners can harm property values." House prices, especially in high-cost areas, may decline by 15 percent if recommendations to convert the reduction of mortgage interest to the applied tax credit. "
The Tax Foundation believes that some low- and middle-income taxpayers benefit, calling it a real estate industry subsidy. Alan Mallach, a senior fellow at the Center for Community Progress and a visiting scholar at the Federal Reserve Bank of Philadelphia, argues that the cuts are falsely raising home prices and are in fact government subsidies from the real estate industry. Critics in the United States also estimated that he contributed between $ 70 billion and $ 100 billion per year to the budget deficit.
Economist Edward L. Glaeser commented in the New York Times that policy "is the worst public paternalism" and wrongly "encourages people to leave the urban areas" and borrow as much as possible to bet on housing. "
On March 9, 2012, PBS aired the episode of Need to Know event where the bipartisan panel discussed tax reform. The panel, composed of former Democrat politician Eliot Spitzer, tax law lecturer Dorothy A. Brown, Reagan's domestic policy adviser Bruce Bartlett, and libertarian economist Daniel J. Mitchell, unanimously opposed the reduction of federal mortgage rates.
The standard justification for deduction is that it provides an incentive for home ownership. Countries whose income tax is taken into account on home ownership may allow a reduction under the theory that it is no longer a personal loan, but a loan for the purpose of generating income. The standard criticism is that it has no significant impact on home ownership, which allows taxpayers to avoid the general rule that interest on personal loans is not deductible, and that such deductions disproportionately benefit high-income people.
The second justification applies to countries that impose income taxes computed on homeownership, such as Iceland, the Netherlands and Switzerland: since home ownership generates income calculated under such systems, interest on home loans is no longer a personal expense, but the cost which is necessary to "earn" the calculated income and therefore must be tax deductible. In fact, Iceland, the Netherlands, and Switzerland allow at least a partial or customized version of the home mortgage interest cuts.
See also
- Hidden welfare state
- Interests
- Land value tax
- Loan
- Mortgage loan
- Qualified residential flowers
- Tax deductions
- The tax policy
- Taxable income
References
Source of the article : Wikipedia
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