The Income Rich Take One For The Team. Thanks!

Re:The Income Rich Take One For The Team. Thanks! by petercooper on Wednesday January 02, 2013 @03:03AM (#4995765)

Non-American here. Was there/is there a rationale for allowing people to deduct interest from their incomes? It has always seemed odd to these English eyes. Is it considered a way to encourage people to buy property/invest in their education or is there more to it than that? As a home owner, I would love this deduction ;-)

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Re:The Income Rich Take One For The Team. Thanks! by cperciva on Wednesday January 02, 2013 @03:27AM (#4995814)

Was there/is there a rationale for allowing people to deduct interest from their incomes?

Yes. The situation is analogous to borrowing money to invest in the stock market: Your profit is the profit you make from the stocks minus the interest you pay on the loan, and that difference is what you pay tax on.

In Canada, a mortgage on a principle residence is not tax deductible, since Canadian tax law doesn't consider where you live to be an "investment"; this is balanced by a principle residence being exempt from capital gains tax.

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Re:The Income Rich Take One For The Team. Thanks! by Kroem3r on Wednesday January 02, 2013 @04:12AM (#4995903)

If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc.

If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense.

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Re:The Income Rich Take One For The Team. Thanks! by ralph on Wednesday January 02, 2013 @06:38PM (#5000080)

AIUI in some areas if the business claims for part of the main residence as a home office over a prolonged period then Capital Gains Tax can be due on that same fraction if there's a profit when the house is sold. IOW, it's not a free lunch.

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Re:The Income Rich Take One For The Team. Thanks! by cperciva on Thursday January 03, 2013 @12:52PM (#5003522)

I'm not very familiar with these rules, but you're definitely right that there are some complications. I have a friend who works for CRA and commented that he would never claim costs of a home office in a residence he owned, simply because the tax savings wouldn't be enough to make up for the headaches and tax audits which would result. (Claiming a home office in an apartment you're renting is much easier, since there's no capital gains to worry about and there's an easy paper trail for how much the space costs.)

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Re:The Income Rich Take One For The Team. Thanks! by cperciva on Wednesday January 02, 2013 @06:11AM (#4996143)

If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc.

Only in proportion to the fraction of the house which constitutes your home office.

If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense.

Right -- mortgage interest is a business expense when it's paid for a business reason. A principle residence is not considered to be an investment; it's considered to be a home.

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Re:The Income Rich Take One For The Team. Thanks! by mhw on Wednesday January 02, 2013 @03:25AM (#4995811)

I think we used to have something similar in the UK: http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_sou...

Seems to be another one of those perks that got removed just as I reached the point in life where I'd benefit from it.

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