Real estate tax breaks: Why it's good to be rich

Time to re-examine the usefulness of real estate tax loopholes? Photo: Flickr

MANILA, Philippines, August 7, 2013 — We are no novices when it comes to living through a recession. Since the 1800s up until 2009, most Americans have continually fought hard to survive economic downturns. Over the years, critics, pundits and economists have assigned different levels of culpability to financial institutions, watchdogs, credit agencies, government housing policies, and consumers, among real or alleged culprits.

In our own time, one of the stronger trends that contributed to the Great Recession was the subprime mortgage, which is defined by one source as those mortgages “given to borrowers who do not meet typical lending criteria, generally upon which little or no down payments are made, [and] had been increasingly popular through the early 2000s.”

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During this era, lenders frequently misled average borrowers to believe that such mortgages could be paid at low interests for a certain number of years, after which they’d online rise moderately. Unfortunately, the interest rates reset upward more steeply than those borrowers believed possible until they no longer had a chance of affording them.

Starting roughly in 2006, accelerating in 2007 and peaking around 2009-2010, the resulting epidemic of foreclosures skyrocketed to historic levels and housing prices serially collapsed nationwide. After taking office in 2009, President Obama proposed a stimulus incentive offering residents tax credits and assistance geared toward helping buyers retain their homes. However, despite these attempts, the government and banking bureaucracies slowed the already inefficient programs to a crawl, and the foreclosures continued to pile up, albeit at a slightly lower pace.

Today, despite the Great Recession, the boldness and enthusiasm of many Americans has not been entirely shattered when it comes to real estate. Well-heeled buyers, at least, and those who managed to stay in cash during the stock market implosions of 2008 and 2009 maintained an impressively steadfast interest in getting on the bandwagon, obtaining foreclosed properties or properties whose values had severely eroded in expensive and high upkeep residential areas at bargain basement rates.

In spite of occasional serious price panics, real estate investing has been a promising venture since roughly the early 1900s. But in truth, it is frequently the case that only a rare few at the social ladder’s higher rungs will be able to relish a great view of the world from the top floor of a pricy, elegant residence.

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As underscored in a recent “New York Times” article, however, sudden bargains and rapid price appreciation of properties during hard times is not the only benefit wealthy investors may gain should they have enough courage to invest in real estate. Although currently under attack in some quarters of Congress, one of the many plusses of investing into real estate are the substantial tax breaks available. Such are the advantages of these tax subsidies that the rich no longer seem to notice or care about the concealed fees and other outlays that may come their way.

But, in the scheme of things, the bigger question that people often fail to ask is this: What is a tax break anyway and how does it affect the rich?

Tax breaks, while theoretically available to all are often taken only by the privileged few. That said, as currently on the books, real estate tax breaks such as the mortgage interest deduction have been justified by Federal, state, and local governments as a means encourage home ownership. But in the bigger picture, especially in cities, they are also tailored to encourage community revival, retain urban population, entice landowners and investors to the city, and shrink development costs for home-ownership and rental projects.

Tax breaks offer an advantage for residents who improve their homes and also persuade individual homeowners to buy in the city. These tax benefits have been, at least up until now, sacrosanct and remain with the property during the entirety of its ownership, accruing to successive owners after that, save for certain special incentives that involve set periods of time.

Along with the possibility of capital appreciation, the existence of one or more tax breaks often draws the wealthy into making substantial investments in residential, rental, or commercial real estate in many cities. But does America envision the possibility of allowing the middle class to get onto this bandwagon as well? “Middle-class America,” according to, “enjoys some of the same tax breaks as the wealthy on things like the mortgage interest on home loans, capital gains on retirement investments and donations made to charity.”

The quantity of tax breaks - deductions, credits, exemptions and other tax benefits has more than tripled for the past four decades. Tax policy experts think it’s high time legislators thought about them again. Amidst enduring opinions regarding tax break, the Republicans in Congress, along with a few Democrats, are exploring the notion of controlling and even terminating some of America’s‘ most cherished tax breaks. Gone are the days of Republicans not touching hundreds of tax breaks in tax laws for fear that doing so would be dubbed a tax hike.


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Jona Jone

Jona Miranda Jone brings her expertise to the Communities page as a financial writer who is also an expert on mortgages and other transactions concerning property ownership.  Jona now lives in the Philippines, where she works as a freelance writer.

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