US Mortgage Collapse predicted 8 years ago by Canadian CPA Tax Instructor

Written by on September 20, 2008 | General

Deja vu finally took full effect for me this week!  So much so that I pulled out my Certified Public Accountant (“CPA”) reciprocity course notes from 2000 to see if I could track down the name of my instructor who called it!  

In 2000, I took the US CPA reciprocity exam for Canadian Chartered Accountants who at the time were flooding down to the US to bolster the tech accounting ranks during the boom. The CPA US tax instructor was actually a Canadian tax specialist who also knew US taxes and therefore a very fitting instructor for the course.  The material was focused on the differences between the two tax systems and as such he couldn’t help but evaluate the pros and cons of each. 

There was one adament issue that he emphasized that I remembered crystal clear- the deductibility of US mortgage interest against other forms of income (ie. salaries) will one day come back to haunt the US economy!

Fast forward eight years and the American economy is facing one of the most serious economic challenges of the last 70 years as a result of … a mortgage meltdown! 

Here’s the problem and I saw it first hand as the controller of a Bay Area biotech company with employees coming to me regularly with mortgage renewal paperwork and W4 withholding calculations, etc.   This tax rule that allows people to deduct mortage interest “home equity indebtedness” against other forms of income such as salary coupled with the capital gains exemption for personal residences (not different in Canada) is a bona fide tax planning exercise!  To capitalize on it fully, you have to maximize your debt (buy as much house as the bank will let you) and pay it down as slowly as possibly!  

As a result, the Mortgage companies in the US have come up with some pretty aggressive mortgage strategies over the years… it seems like a collective effort to minimize paying the IRS! 

Anyone see the obvious problem with this…?  I just googled this and I see a splattering of this issue out there but you won’t hear too many American’s talk about it.  Who would dare challenge a tax law that so clearly benefits so many homeowners in the US… until it’s too late that is!?

Accounting buddies out there who took the CPA course… who was the instructor I’m talking about as I can’t seem to figure out who it was as he deserves a pat on the back!

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