Why Are Tax Brackets Adjusted for Inflation but Not Deductions Like Mortgage Interest? Seems Unfair

[Anonymous]

Anonymous wrote:

Anonymous wrote:I would love to see the childcare FSA amount increased. It’s been 5k since forever, which I’ve already spent and then some by February. The amount was 5k back in 1986 when I was in diapers myself, so talk about not even remotely keeping up with inflation. 5k in 1986 is over 14k today. Seems like it would be reasonable to allow a ~15k tax free allotment.

I don't have kids in daycare anymore and one of my kids is aging out of the Dependent Care coverage this year, but I still 100% agree with you. $5000 is barely 2 months of daycare.

+1!

[Anonymous]

You know what else is unfair? Why does 1 lbs of apples cost $2 but 1 lbs of bananas cost $1.50? This is really unfair to us apple eaters.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It does get adjusted

Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million.
Now, the loan limit is $750,000.

Deduction is based on principal, so it increases when rates go up too.



This deduction limit is so high it's a total non-issue.

The deduction is too low, many people in high cost areas have larger mortgages. But its inevitable that it should be adjusted for inflation as housing pricing goes up. It just doesn't make sense. Also all the child tax credits etc anything that is a deduction or credit is stale it must be adjusted for inflation

Uh yes many wealthy people in high cost areas have mortgages of over 750k.

I live in a very high cost area and get the mortgage interest tax deduction because I'm a middle class person with a mortgage of 300k. I bought a much smaller home than you did because it's all I could afford.

You just want a tax break. You don't *need* one in order to afford a home. You just want one. Well I want a million dollars.

[Anonymous]

Anonymous wrote:What’s super unfair is calculating capital gains on a house you’ve had for decades. $150k 35 years ago is worth $360k so that should be the cost basis, not starting at the 1990 price.

I also think its unfair for a surviving spouse to have to pay capital gains tax as a single person. They bought (or lived in) the house as a couple and would have had double the benefit until one spouse died. Seems mean actually.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Because you are benefiting by the appreciation (ie inflation) in the value of your house and your mortgage payment stays the same.

Renters are seeing increases every year.

Your suggestion is ridiculous unless you want your mortgage payment to increase with inflation.

Are you dumb? People take on new mortgages every day.

Your comment doesn’t make any sense. A renter can stay in the same apartment and will see rent increases every time the lease renews (in todays’s market).

A home owner with a 30 year fixed will have the same mortgage payment for 30 years.

While that is true, it’s completely irrelevant

[Anonymous]

Anonymous wrote:I’ve been wondering about something that feels a bit unfair. Tax brackets and Social Security benefits get adjusted for inflation every year, which makes sense to keep up with the rising cost of living. But other important tax-related items, like the mortgage interest deduction limit and various credits or deductions, don’t seem to get the same treatment. Why is this the case? It seems like we’re penalized for inflation when it comes to these deductions, especially in high-cost areas where housing prices have skyrocketed. Does anyone have insight into why some things are adjusted while others are not? Is this something that could be changed in the future, or are we stuck with this imbalance?

Yes I will provide the insight in one word……Democrats.

Next question.

[Anonymous]

Anonymous wrote:All tax write-offs for homes should be completely eliminated, including 1031s. Why is it anyone else's responsibility to subsidize your lifestyle and home? No tax breaks for homeowners in any way shape or form.

If that’s the case, rents will increase even more than they have. Cause and effect. Action and reaction.

[Anonymous]

Taxes is about taking as much money from you as possible without the masses revolting.

Has nothing to do with fairness or anything else. Just greed.

[Anonymous]

Anonymous wrote:I’ve been wondering about something that feels a bit unfair. Tax brackets and Social Security benefits get adjusted for inflation every year, which makes sense to keep up with the rising cost of living. But other important tax-related items, like the mortgage interest deduction limit and various credits or deductions, don’t seem to get the same treatment. Why is this the case? It seems like we’re penalized for inflation when it comes to these deductions, especially in high-cost areas where housing prices have skyrocketed. Does anyone have insight into why some things are adjusted while others are not? Is this something that could be changed in the future, or are we stuck with this imbalance?

Because that’s how Congress wrote the statutes. Tax deductions and credits are a form of government spending. There are some winners and losers every time. There’s nothing inherently fair or unfair about it.

[Anonymous]

Because middle class people should not be subsidizing rich people with large mortgages.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What’s super unfair is calculating capital gains on a house you’ve had for decades. $150k 35 years ago is worth $360k so that should be the cost basis, not starting at the 1990 price.

Huh? So, if you bought Amazon stock in 1998 and you sell it today you should get an inflation-indexed cost basis.

Some folks have some crazy ideas here.

That actually was a serious proposal a few years ago.

To answer the OP certain parts of the tax code are not indexed to inflation intentionally either to bring down the cost of other changes or because it makes it more palatable politically to pass it that way.

[Anonymous]

Anonymous wrote:Because from a policy standpoint, a person that can afford a $2 million mortgage doesn't need as much relief as someone that can only afford a $1 million mortgage.

From a policy standpoint, neither of them need relief (speaking as someone who thinks it’s just fine that I can no longer deduct the full cost of what started out as a $950,000 mortgage).

[Anonymous]

Anonymous wrote:What’s super unfair is calculating capital gains on a house you’ve had for decades. $150k 35 years ago is worth $360k so that should be the cost basis, not starting at the 1990 price.

That’s why you don’t have to pay capital gains taxes on the first $500,000 in capital gains on the sale of your primary residence (if you’re filing as a married couple).

[Anonymous]

Anonymous wrote:You know what else is unfair? Why does 1 lbs of apples cost $2 but 1 lbs of bananas cost $1.50? This is really unfair to us apple eaters.

The banana buyers get a rebate for the peal, so totally fair.

[Anonymous]

Anonymous wrote:I've never understood why someone should should get to pay less federal income tax because they decided to take a mortgage.

I'm not a scholar on this but work in housing. I believe it's because it's beneficial for residents to own land. They are more likely to defend it and support it and the infrastructure around it. So, there is an incentive to taking on a mortgage rather than having a few people or the government own land or outside investors.