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Tax overhaul should begin with (second) home-related tax breaks

May 19, 2011

As I was electronically thumbing through tax-related stories today (yeah, I know; you wish you had my life!), I stopped to read about how today's low real estate prices and higher gift tax limits make this a good time for rich second-home owners to give away their vacation properties.

Now I'm far from rich and I don't own a beach cottage or a mountain retreat. But the article about how vacation homes can offer those who do own them yet another tax break underscores what's wrong with our tax code.

There's lots of talk about reforming the U.S. tax system. And it's probably likely to stay just talk for a while. But remaking something as complicated, convoluted and out of control as the Internal Revenue Code has to start somewhere.

The initial focus has been on corporate taxes. Eventually, though, we have to look at the individual tax system. And that brings us back to the hard questions of what tax breaks people are willing to give up for a simpler system with lower tax rates for everyone.

There are many, many tax expenditures — losses to the U.S. Treasury from certain tax deductions, exemptions or credits — that account each year for an estimated $1.1 trillion in forgone government money.

Monopoly houses While these tax breaks cover just about every part of most Americans' lives, among the first tax breaks that should go are those for owners of multiple pieces of real estate.

I know I've argued for this before, but as the deficits grow and folks become more entrenched over taxing "that man behind the tree," the mortgage interest deduction for two personal homes and the property tax deductions on unlimited pieces of personal real estate look to be the easiest to ax.

One of the key reasons to target homeowners, and especially multiple homeowners, is that there aren't that many of them relatively speaking. More people rent than own.

Even among homeowners, not all get to take advantage of the most popular tax breaks related to their houses. The mortgage interest and property tax deductions can only be claimed by those who itemize. And most filers take the standard dedeuction each year.

And, yes, homeowners being a smaller portion of the general taxpaying public means that whacking tax breaks for us won't be that big of a revenue raiser. And multiple homeowners are an even smaller group. 

But because owners of two or more houses are a smaller tax group, it will be easier to start there.

I say this while admitting that I'm part of that home-owning minority. I've owned a residence (five actually; consecutively, not concurrently!) most of my adult life and I've enjoyed the Schedule A write-offs they've provided.

And I know full well that my status highlights the fact that taxes aren't fair. I agree with my renting friends that it seems particularly inequitable that my fellow residence owners get so some much help at tax time.

I know homeownership is the American dream, but that philosophy is a big part of why we headed down the road that dead-ended in the real estate boom's horrible bursting. And the foreclosures and struggling housing industry added to the home-related breaks, with some not-so-stellar results.

So it's time to wean homeowners off this tax teat, starting with second homes.

Yes, the real estate industry will scream. I repeat, life and taxes aren't fair.

But the reform process has to start somewhere if we have any hope of ever streamlining and simplifying our tax system.

I'm willing to give up my residential tax breaks. What tax benefits do you enjoy but would sacrifice for a simpler tax code?

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TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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