A Real Estate Story: A Brief History of the Home Mortgage Interest Deduction

How did the home interest deduction come about?

The First Income Tax - In 1894 Congress passed the first income tax, which was challenged and later struck down by the Supreme Court. So, government got into gear and in 1913 the Sixteenth Amendment was ratified granting Congress the power "to lay and collect taxes on incomes, from whatever source derived."

The Second Income Tax - Congress quickly imposed an income tax starting at 1% and rising to 7% on incomes over $500,000. This resulted with less than 1% of the US population paying any income taxes. This was the beginning of the modern graduated income tax.

Enter The Tax Deduction - The tax was offset with a deduction of any interest paid. Rental income was offset by the interest paid to finance the rental property and interest became a tax deduction.
Prior to WWI, home owners typically owned their homes outright. With the exception of financed or leased farm land, homes were purchased with cash. So at first, the mortgage interest deduction did not benefit homeownership.

Soon, local Thrift & Loans (Savings & Loans) were created to provide access to home financing.

Subsequently, programs through the FHA, VA, and later Fannie May and Freddie Mac facilitated broader homeownership. Finally, the creation of the conventional loan and the mortgage back security market brought financing to the masses. Along with homeownership came the mortgage interest deduction.

Of course home ownership today still makes sense in terms of deductions so let’s take a look at some good options here on the peninsula.'

25850 PASEO DE LOS ROBLES , Salinas Monterey Highway   MLS #: 81050150 $2,175,000 Beds: 4 Baths: 3.5
This gated, single story estate in Pattee Ranch has  1st class quality of craftsmanship & attention to detail. Follow the flowing floor plan to the enormous master suite w/ office, fireplace, his & hers walk-in closets, private patio & views of Castle Rock. The gourmet kitchen was completed in summer of 2010 w/granite, stainless steel & wine fridge.  Backyard boasts a stone fireplace, bocci court, pergola, putting green & incredible views!  SqFt: 4,708 Lot Size: 2.76 Acres  Check out photos on site www.pattyrosscarmel.com

109 17TH STREET, Pacific Grove   MLS #: 81050655: $899,000 Beds: 2 Baths: 2 (2/0)
Newer home, move-in ready & just steps to Lover's Point and Monterey Bay Coastal Trail in the heart of PG. Eric Miller designed, contemporary Mediterranean retreat w/ground level master suite w/private patio. Elevator takes you to the great room w/fireplace, kitchen w/ample granite countertops, Maple hardwood floors.  Cathedral ceiling & windows fill rooms with light. Peeks of Bay, 2 car garage.  SqFt: 1,593 Lot Size: 2,100 Sqft

129 WHITE OAKS LANE, Carmel Valley   MLS #: 81050838 $660,000 Beds: 2 Baths: 3 (2/1)
Completely remodeled condo in 1999. New roof 2 years old. This beautiful light & bright unit has the most desirable floor plan and view location. Spacious south facing deck surrounded by private landscaping.  SqFt: 2,090 Lot Size: 3,570 Sqft

779 ALICE STREET, Monterey   MLS #: 81051072 $549,000 Beds: 3 Baths: 2 (2/0)
Shining top-of-the-hill  New Monterey home; spacious reverse floor plan with vaulted ceilings and lots of light upstairs with an open/inviting family room-kitchen with balcony for the barbeque; master upstairs, two beds/bath and laundry on first floor; perfect spot to get to DLI on a quiet street;   size level lot with room for gardening/plants off of back deck; ready for new owners now!  SqFt: 1,438 Lot Size: 2,500 Sqft

© Patty Ross - KRXA Radio Show #181  October 22, 2010

4 Reasons Why Vacation Property Owners Should Put Their Rental Fears to Rest

Many vacation property owners would like to rent their home out when they’re not using it themselves. Problem is, they let their worry about the “what-ifs” override the benefits of collecting all that glorious rental income. Let’s take a look at some of the most common objections as to why vacation property owners don’t rent out their homes.

Objection #1: I am uncomfortable with strangers staying at my house.

Perhaps you’re worried about renters trashing your property or stealing from you. This almost never happens.  Even in the unlikely event that it did happen, that’s why you have insurance and ask for a security deposit upfront. And if you rent by owner, you really decrease the likelihood that something bad will happen.

Objection #2: I want flexibility for personal use.

You have complete control over when you rent your home out and when you don’t. You can rent it out during peak season and enjoy it yourself in the off-season. You can live in it during the winter and rent it out in the summer. You can reserve a few weeks out of the year for your own use and rent it out the rest of the time. You can even rent it out for two weeks without having to claim that income on your taxes (IRS Publication 527).  Except in Carmel of course where we have a 30 day minimum.

Objection #3: Financially, I don’t need to rent.
Think about it this way, if you have stocks and they are paying dividends, do you say no thanks to Microsoft? Of course not. So why would you leave real estate investment dividends on the table?

Objection #4: No one would want to rent my vacation home, anyway. 
If you just bought a far-from-luxurious suburban house for $150,000, you might assume that few people would want to rent it. Think again. Look on HomeAway.com and you’ll see listings for homes that range from rustic cabins to majestic castles.


Here are my latest picks for great buys:
3538 GREENFIELD PLACE, Carmel 93923 High Meadows $1,750,000 Beds: 4 Baths: 4 (3/1) 
Dramatic Ocean/white water views, Point Lobos, Monastery Bay, Santa Lucia Mountains, to Carmel Valley!! Surrounded by windows, the living/dining room and the master bedroom have "knockout" white water views(on a sunny day)!  Beautifully updated with superior materials. Wood floors throughout, skylights, loads of windows, guest quarters or 4th bedroom and bath, meandering paths, front patio.  SqFt: 2,700 Lot Size: 9,583 Sqft

19652 WOODCREST DRIVE, Salinas Monterey Highway MLS#81048705 $1,075,000 Beds: 5 Baths: 4 
Gorgeous, spacious home behind the gates of Prominence in Las Palmas II. 2 story & upgraded thru out. Gourmet chef's kitchen w/SS appliances, granite, breakfast bar & large pantry.  Lovely master suite w/balcony, fireplace, huge walk in closet & spa-like bath plus 4 large bedrooms. Downstairs bedroom & bathroom for guests.  Backyard has sprawling lawn & fireplace perfect for entertaining or staying in!  SqFt: 4,307 Lot Size: 49,222 Sqft

4970 PENINSULA POINT DRIVE, Seaside MLS #: 81048624: $550,000 Beds: 3 Baths: 2 (2/0) 
A beautifully upgraded & desirable Avocet Model with custom Travertine stone floors, tray ceiling in main bedroom with French doors to lovely paver-patio garden. Don't miss the gigantic walk-in closet in main bedroom. Spacious kitchen with Corian counter tops & molded sink. Stainless steel appliances too. Huge corner lot with "no-work" front & side yards maintained by HOA.  Across from greenbelt.  SqFt: 2,115 Lot Size: 6,037 Sqft

208 CARMEL AVENUE, South Salinas 93901 Maple Park MLS #: 81049400 $399,000 Beds: 3 Baths: 2 
Charming remodeled, spacious home in desirable Maple Park neighborhood. This beauty offers refinished hardwood floors, a quaint dining room with built-in china cabinets, sunny kitchen offering new appliances & granite counter tops, new bathrooms, 2 attics for storage and a well maintained yard with fruit trees. This home won't last long--it's a regular sale.  SqFt: 1,729 Lot Size: 5,500 Sqft

© Patty Ross, KRXA Radio Show #178  October 15, 2010

5 Reasons Why Now is a Good Time to Invest in the Housing Market

Foreclosures spiked in August 2010, with banks seizing 95,364 homes, according to RealtyTrac, a housing research firm. They were up 25% from August 2009 and at their highest level since the company started tracking this data in 2005.This is frightening news for homeowners, home sellers and home builders who may feel like they are barely hanging on, because it signifies continuing weakness in the housing market. But all of the news isn’t bad, since this may signify that the worst is over.

Here are some reasons why now is a good time to invest in the housing market:

The trend may reverse. Actual foreclosures lag defaults and foreclosure notices, and both of these latter categories are going down. Default notices peaked in April 2009 at 30% below their year-ago level.

The government programs have disappointed. Lots of foreclosures are coming now, because it took some time for folks trying to modify their mortgages under the government’s Making Home Affordable program to wash out. Some homeowners didn’t qualify, others did qualify but then fell behind on their modified mortgages. The Obama Administration mortgage relief program is now estimated to be able to help only 1/6th of the three million homeowners it had intended to aid.

Homeowners who are current may have options. Last week, the Obama Administration launched its latest effort, which would help homeowners who are underwater (they owe more than the house is worth) with their mortgages but are making timely payments by reducing the amount owed. That’s good for folks who want to refinance but haven’t been able to, but there are ramifications. One, it will lower their credit score. And any secondary debt, such as a home equity line of credit, will greatly complicate any modifications, or make them impossible.

It’s all regional, remember? Some housing markets are doing just fine. The biggest trouble spots in August probably sound familiar: Nevada, Florida, Arizona, and California. If you think you want to retire to one of those previously popular locales, it’s a good time to go shopping for your next home; you’ll get an excellent price.

Bargain hunters have plenty of time to catch the auctions. There’s going to be a lot of inventory for a long time. Foreclosed homes actually put up for auction reached 147,003 properties in August, and that number can be expected to go up before it goes down. There is already more than year’s supply of existing homes on the market now.

The properties we’re going to look at today are all bank owned and ready to go:

91 CORONA ROAD, Carmel Highlands MLS #: 81006931 $1,400,000 Beds: 3 Baths: 3 (3/0)
Park-like setting and early California Architecture. This Highlands home has it all. High end kitchen, lush mature gardens, plenty of privacy and recent complete remodel design, turn key potential. SqFt: 2,900 Lot Size: 40,510 Sqft Check out photos on site www.pattyrossacarmel.com

409 OSO D'ORO COURT, Salinas Monterey Highway MLS #: 80909546 Beds: 4 Baths: 3 (2/1) $1,009,000 Open floor plan & gorgeous views at this private home at the end of the cul-de-sac. Sunny & warm. Spacious patios take advantage of lovely golf & valley views. Gourmet kitchen (with upgraded appliances & materials) & family room combo make this home not only cozy for quiet nights in but also great for entertaining. Great deal! SqFt: 3,455 Lot Size: 37,055 Sqft Call me for private showing 831-236-4513

24438 SAN MATEO AVENUE, Carmel Active MLS #: 81042589 Beds: 3 Baths: 2 (2/0) $769,000
Hardwood floors in LR and sep DR. 2 fireplaces. 2nd story master suite w/ large tub, separate shower, closets. French doors to private deck. Downstairs 2 bed and bath, entry, charming study/den w/ FP, Saltillo tiles & doors that lead to patio and garden. 2 car garage. This property needs short sale approval. Large lot! SqFt: 2,050 Lot Size: 8,500 Sqft

3020 VERA LANE, Marina MLS #: 81040592 Beds: 3 Baths: 3 (2/1) $349,000
Newer home in good condition on a corner lot. Everyone can live in a single story. Nice size yard. SqFt: 2,035 Lot Size: 8,398 Sqft

(c) Patty Ross, KRXA Radio Show #179, October 2010