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.

By Teresa at MSN Real Estate Dec 7, 2012 1:10PM

House made of a hundred dollar bill (© Metta image/Alamy)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?

Tags: loans
Dec 22, 2012 2:52PM
I am single and the credit is the only break I get.
Dec 22, 2012 2:51PM
The government must learn to live within it's means, pay off its debt and stop this nonsense of this tax or that tax. They use the taxes as a weapon by cutting programs for the poor,  education, health,social security  and anything thing else they can twist our arms with unless we accept these new tax burdens. This starts at the local levels and goes straight up to the white house, it is time to restructure the entire tax system by ditching the income tax and adding a federal value tax on all manufactured goods imported or not .  
Dec 22, 2012 2:46PM

*I* really need mine; can't speak for anyone else.


Dec 22, 2012 2:44PM
The should phase out the deduction on income that exceeds $100K and eliminate it when the income reaches $200k.  Impose a cap and restrict it to the primary residence.  Done deal.
Dec 22, 2012 2:40PM
i am used to my mortgage deduction .   I want to keep it.   I make less than $200,000 a year, and itemize deductions.   I wonder how much of  a tax credit it would be replaced with.
Dec 22, 2012 2:40PM
I would agree with getting rid of the mortgage deduction if I dont have to pay a property tax every year.  My property tax increases almost yearly to the point we are on the edge of being able to afford a house.  Ten years ago we paid $ 2800.00 a year now we are paying $6800.00 a year
Dec 22, 2012 2:36PM
If the mortgage interest tax deduction for a primary residence is taken away, it will simply be one more slap in the face to those of us in the middle class.  I feel that if it is taken away then the 100 billion also needs  to come out of social programs.  Take the cell phones and cable tv and the internet away that my tax dolars pay for through some of the most socialist programs this country has.  If they want the extras available in life, get out and earn it.  I did and I am sick of seeing money taken from me wasted,  The best tax system I have seen is the fair tax plan.  It would tap al the grey and black market money spent.  Just m 2 cents. 
Dec 22, 2012 2:35PM

"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.

Dec 22, 2012 2:26PM
I remember many years ago hating to pay income tax because my husband and I could not afford a house, but we were subsidizing those that could.  We finally managed to save a down payment and then, of course, I loved the deduction.  The big difference though, was that just about everybody paid income taxes, now it's a burden to mostly the middle class, because we have so many 'freebies."  My kids are grown, the house is paid for, so we no longer have any deductions.  Our property tax is high, but it's going for schools, the town, etc., and I don't mind paying back.  And yes, we need to keep the deduction for mortgages as it helps the younger buyers if they want to buy a home.  And I am completely pro for helping resonsible people, I am also willing to help people who need help through food stamps, welfare, etc. as long as it is a helping hand and not a way of life.
Dec 22, 2012 2:15PM


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.

Dec 22, 2012 2:14PM
Thousands of deductions allowed for businesses but they want to take away the individuals deductions.  ?
Dec 22, 2012 2:13PM

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.

Dec 22, 2012 2:09PM
This is how it begins.  First an innocuous article or two appears, about the misconceptions regarding the mortgage interest deduction.  It only benefits the 'rich', only 25% of American's qualify, the wealthy are the only who qualify and so on....  Next will come a full blown movement to eliminate the deduction entirely.  The movement will pit the classes against each other, until finally those whom benefit from the deduction will ultimately succumb to the political pressures at play.  While in the meantime, those Americans who benefit from the largest, most destructive tax loophole of them all, the Earned Income Tax Credit, will go unscathed.  

Never mind the reality that should this deduction ever be eliminated our housing market will collapse!  Home values will plummet and never recover.  Yet our our leaders don't care, as they continue to look for creative ways to dip into our pockets.  

Look at it this way.  Hit the so-called rich man, by eliminating his home mortgage deduction, his home value will plummet!!!  Liberals will think this is great, until they realize that the price on their $100,000 home is directly related to the $200,0000 home on the other side of town.  After all why buy a cheap home when a much nicer home is only a few thousand more?  The shallow thinking of liberals never ceases to amaze me.  
Dec 22, 2012 2:09PM
tax and drug test welfare recipients??? leave my small deduction alone geez man!!!
Dec 22, 2012 2:06PM
we should do away with all income taxes PERIOD
Dec 22, 2012 1:52PM
do we really need a tax deduction for the middle class.the rich say no.if the middle class isnt burdened by most of the taxes who else will pay them.see the rich are afraid were going to try and cut their deductions so lets raise the taxes on the middle class again by taking their only deducion
Dec 22, 2012 1:47PM
This to me is just more signs of the liberal/socialistic concept of wealth distribution.... by taking this deduction away would hurt the middle class immensely,and is nothing less then the the government penalizing it's citizens for owning there own home.
Dec 22, 2012 1:35PM
You cant look at mortgage interest by itself. I don't know what the average bloke pays for health and dental insurance but mine is around 10K. Even with the 7.5% AGI limit on medical I still exceed the limit and when combined with the "other" major item ie. mortgage interest it helps a lot. Take mortgage interest away and kill itemized deductions in the process.  
Dec 22, 2012 1:33PM
We all need to chip in so the President can take his family on a few Vacations
Dec 22, 2012 1:32PM
WE again. If the criteria for deductions being necessary is the percent of people affected, why all the crying over eliminating tax shelters and off shoring profits to avid paying some or all taxes on that money? These tax increases only affect a tiny portion of the population and bring them only somewhat closer to the tax rates paid by the majority of taxpayers The wealthy now own the process and the government drones. Why are the names of the people involved in these decisions never listed in the story? When new taxes and new tax breaks are being put in place we should know the people. Home ownership and the tax incentives to become a homeowner are good for the domestic economy, but not corporate America. The desirability of individual home ownership was recognized at least as far back as president Lincoln. Thank the Regan Revolution for simplifying the tax code, eliminating deductions for the mud people- us and spending the next four decades writing 14,000 pages of tax breaks for special interests. Now that's an unfunded entitlement!
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