4 ms·

The 2017 tax act had an obfuscated impact on corporate ownership of houses. Capping the personal SALT deduction while simultaneously lowering the corporate tax

The 2017 tax act had an obfuscated impact on corporate ownership of houses. Capping the personal SALT deduction while simultaneously lowering the corporate tax rate made local tax policies to increase local ownership ineffective.

qwertyuiop_ 2y ago
Could you explain ?
- Terr_ 2y ago
  Not OP nor a tax-lawyer, but I think they meant that the federal tax code changed so that: 1. It became was more-expensive for individuals to own a house, especially in areas with high local property taxes. (Losing the ability to deduct those payments from their personal federal income bill.) 2. Taxes on corporate profits went down in general, and some portion of those corporations may be in the business of buying housing and then renting them out. (Since companies are taxed on profit rather than income, they already pseudo-deduct property taxes and other expenses.) That said, those two items don't feel like, er, "two ends of the same see-saw" to me, especially given how #2 is very broad.
- smileysteve 2y ago
  Yes, relatively, the lever that municipalities had to encourage owner occupied properties (a homestead exemption) is taken away for upper middle class (especially if a married couple each has a tech salary, and if the state has even a low income tax rate) Therefore, it becomes beneficial for the (even the same individuals) to invest in corporations that rent out real estate; and removes the ability for the city to use homestead exemptions to help discriminate to encourage owner occupied units. So you get higher home prices/rents with fewer owner occupied properties, with less incentive for community investment (including property taxes), and fewer levers for the state/municipality to pull.
lr4444lr 2y ago
What do federal corporate tax rates have to do with municipalities setting their own property taxes? Nothing stops them from giving preferential treatment either to primary residence homeowners. Municipalities are their own worst enemies with restrictive zoning and small-minded inability to consolidate services with neighboring districts that don't need so much duplication.
- bitmasher9 2y ago
  I think there’s a preserve incentive with city council. Most members of city council, and most donors to them, would benefit greatly from having higher local property values that deep pocketed corporate buyers bring.
- smileysteve 2y ago
  Relativity; If corporate income taxes are 21%, income is reduced by expenses such as property taxes. If individual income tax rates are 24%/32%; and a state has a low income tax rate of 5%; then a married couple making $200k earned income, then a salt cap at $10k, pays 25% more in property taxes than the corporation. So, even if the state and local taxes are massaged to give owners a 25% discount for being owner occupied; they don't. The idea is not the the state/city needs less services; owner occupied properties often want more services and are willing to pay for it; but now the city can no longer create policy that supports that.
rootusrootus 2y ago
Saw that directly. Everyone talks about the tax cuts, but my taxes went up as a result of the SALT changes. There was a real effect on people, especially those in high cost of living areas, when they could no longer deduct mortgage interest. I wonder if it will be allowed to expire on schedule and my taxes will go back down. Probably too much to hope for.
- jauntywundrkind 2y ago
  My first order ignorant analysis is this feels like something done to make people dislike higher tax or progressive states. It increases the indigestion/frustration with taxes & the state. Makes the payments compound. But I'm also willing to admit there may be some very solid policy reasons why this is a good idea. I have tried to imagine some, but no luck so far! What kind of impact did making SALT tax no longer deductable have on the federal government? Did this change the budget noticeably?
  - rootusrootus 2y ago
    > feels like something done to make people dislike higher tax or progressive states You hit it on the nail. That was even part of the pitch, that it would hit blue states harder than red ones. Even then, I expect the real goal was just catering to the folks with deep pockets. No attempt was made to hide that -- half the tax 'cuts' expire, but the other half are permanent. Guess which half...
roshin 2y ago
But only federal corporate taxes went down. Can't local municipalities add a corporate tax for property ownership? The main argument against local corporate tax is that the corporation can just move to a low tax area (Delaware/Ireland). But with land ownership, that doesn't really apply.

qwertyuiop_ 2y ago

Could you explain ?

Terr_ 2y ago
Not OP nor a tax-lawyer, but I think they meant that the federal tax code changed so that: 1. It became was more-expensive for individuals to own a house, especially in areas with high local property taxes. (Losing the ability to deduct those payments from their personal federal income bill.) 2. Taxes on corporate profits went down in general, and some portion of those corporations may be in the business of buying housing and then renting them out. (Since companies are taxed on profit rather than income, they already pseudo-deduct property taxes and other expenses.) That said, those two items don't feel like, er, "two ends of the same see-saw" to me, especially given how #2 is very broad.
smileysteve 2y ago
Yes, relatively, the lever that municipalities had to encourage owner occupied properties (a homestead exemption) is taken away for upper middle class (especially if a married couple each has a tech salary, and if the state has even a low income tax rate) Therefore, it becomes beneficial for the (even the same individuals) to invest in corporations that rent out real estate; and removes the ability for the city to use homestead exemptions to help discriminate to encourage owner occupied units. So you get higher home prices/rents with fewer owner occupied properties, with less incentive for community investment (including property taxes), and fewer levers for the state/municipality to pull.

lr4444lr 2y ago

What do federal corporate tax rates have to do with municipalities setting their own property taxes? Nothing stops them from giving preferential treatment either to primary residence homeowners. Municipalities are their own worst enemies with restrictive zoning and small-minded inability to consolidate services with neighboring districts that don't need so much duplication.

bitmasher9 2y ago
I think there’s a preserve incentive with city council. Most members of city council, and most donors to them, would benefit greatly from having higher local property values that deep pocketed corporate buyers bring.
smileysteve 2y ago
Relativity; If corporate income taxes are 21%, income is reduced by expenses such as property taxes. If individual income tax rates are 24%/32%; and a state has a low income tax rate of 5%; then a married couple making $200k earned income, then a salt cap at $10k, pays 25% more in property taxes than the corporation. So, even if the state and local taxes are massaged to give owners a 25% discount for being owner occupied; they don't. The idea is not the the state/city needs less services; owner occupied properties often want more services and are willing to pay for it; but now the city can no longer create policy that supports that.

rootusrootus 2y ago

Saw that directly. Everyone talks about the tax cuts, but my taxes went up as a result of the SALT changes. There was a real effect on people, especially those in high cost of living areas, when they could no longer deduct mortgage interest. I wonder if it will be allowed to expire on schedule and my taxes will go back down. Probably too much to hope for.

jauntywundrkind 2y ago
My first order ignorant analysis is this feels like something done to make people dislike higher tax or progressive states. It increases the indigestion/frustration with taxes & the state. Makes the payments compound. But I'm also willing to admit there may be some very solid policy reasons why this is a good idea. I have tried to imagine some, but no luck so far! What kind of impact did making SALT tax no longer deductable have on the federal government? Did this change the budget noticeably?
- rootusrootus 2y ago
  > feels like something done to make people dislike higher tax or progressive states You hit it on the nail. That was even part of the pitch, that it would hit blue states harder than red ones. Even then, I expect the real goal was just catering to the folks with deep pockets. No attempt was made to hide that -- half the tax 'cuts' expire, but the other half are permanent. Guess which half...

roshin 2y ago

But only federal corporate taxes went down. Can't local municipalities add a corporate tax for property ownership? The main argument against local corporate tax is that the corporation can just move to a low tax area (Delaware/Ireland). But with land ownership, that doesn't really apply.