Do we really need the mortgage tax deduction?
Congress is weighing ending or curtailing the popular tax break. Housing-industry groups strongly oppose any cuts, though only 25% of Americans get any tax benefit.
One of the issues that has bubbled to the forefront in the fiscal-cliff discussion is whether the federal government should do away with the tax deduction for mortgage interest.
The deduction, in effect since tax code was written in 1913, is one of those things that, if you like it, is a cherished benefit that aids homeownership, and if you don’t, is a tax loophole that costs the country money it can’t afford.
It is projected to cost the U.S. Treasury $100 billion next year. It has been variously proposed that the deduction be eliminated, that this deduction (or all deductions) be available only to those earning less than $250,000 a year for couples or $200,000 for individuals, or that the deduction be replaced with a tax credit. There is no leading proposal, though it is worth noting that we’ve been writing for at least three years that this cherished deduction is in jeopardy and yet it is still here.
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While the deduction is popular, only about 25% of U.S. taxpayers actually receive it. The percentage ranges from 15% in West Virginia to 36.79% in Maryland, according to the Tax Foundation.
To deduct your mortgage interest from your taxable income, you first have to own a home. Then, you have to itemize deductions. You also have to have a mortgage. That means that renters, lower-income taxpayers and those whose home is paid for don’t get the deduction.
The mortgage interest deduction is available to any homeowner with a mortgage, but it provides more tax savings for the wealthy – not surprisingly, since they are likely to have larger mortgages. The Wharton School of Business crunched some numbers, CNBC’s Diana Olick reported.
The deduction saves taxpayers who make less than $40,000 a year about $100 each. Since only one-quarter of those itemize, most don’t save anything. Taxpayers who make up to $250,000 a year save $1,200 to $2,600 a year in taxes. Taxpayers who earn more than $250,000 a year enjoy an average tax savings of $5,400 a year, Olick reported.
In a report, the National Association of Home Builders quoted statistics from the Joint Committee on Taxation that found that the majority of those who benefited from the deduction earned $50,000 to $200,000 a year – though nearly one-third of the total amount saved went to those with incomes over $200,000. Those statistics were from 2008 and used an unusual method of computing income.
Eliminating or curtailing the deduction is strongly opposed by the housing industry. The chief economist of the National Association of Realtors has said that ending the deduction could lower housing prices by 15%. Other sources, including the Reason Foundation, have said the decline in value would be closer to 3%.
Both the NAR and the builders’ group have "calls to action" on their websites, urging people to tell their senators and representatives to oppose any repeal of the mortgage interest deduction.
But, looking over the fiscal cliff, is the mortgage-interest deduction something that should be sacred or is it time to talk about ending or curtailing the benefit?
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"Do we really need the mortgage tax deduction?"
I am very careful about the "we" business...I go to work, every other week I get the check and Uncle Sam has managed already to take a big chunk of the money. With the remaining money I have to pay my bills and when I get some money refunded from the mortgage tax deduction, it is a big chunk for me. I know that some people pay their real estates with cash and they do not use mortgage tax deductions, that is why they will be happy to eliminate it as a loophole. The same people care to register their yacht in the Caiman Islands because the registration is cheaper over there, they need the registration loophole.
Um...
Do we really need a mortgage deduction?
I guess in a perfectly socialistic society where only the rich and the government own all the land, and everyone rents and receives government assistance instead of earning a wage in return for labor performed, then I guess not. But personally, I will not live in a nation that has those "ideals." It is extremely wrong and immoral to force those who have toiled and labored for their fruits to pay for those who want what the same lifestyle without the same efforts.
Take away the deduction and you will hurt those who contribute more to society than others by spurring an entire industry by buying land, and by furthering compassion with charitable contribusions and adding to America's GDP by being entreprenuers who also take business tax deductions - all of these combined will reward the hard-working individual with an itemized tax deduction that is greater than the standard deduction, and each helps the economy and Americans as a whole.
This is a ridiculous proposal and is guaranteed to quelch the American spirit more than help the defict. What's the point in taking away something that will reduce GDP more than it cuts spending?
I might as well give up my house and rent, stop my contributions to those in need (the government is more than willing to give it all away even though it has no idea how to do so efficiently - and definitely will waste money earmarked for the needy much more than charities who are involved with the needy on a personal basis and are better suited to identify benefits fraud than the slow, weak and inefficient Federal government! Heck, I might as well begin choosing my small, irrelevant nation below the Tropic of Cancer to repatriate to in lieu of remaining in this once Great Nation that is looking more and more like the remains of other once-great but fallen empires in history.
You are completely off the rocker with this story.
If you drop this deduction and an average of say 6 K as well in House tax, the regular people in the 50-150 K range would never buy a house, and the housing market would drop far far worse, like 1/3 at once. People in regular income have to have the deduction, and they save far more in taxes than you say here, like on average 20 K in interest and prop tax, would save the average at least 5-10 K a year in Fed and state tax.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.
msn real estate is social
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