End mortgage deduction to cut the deficit?
Only a quarter of Americans deduct mortgage interest from their taxes, but the deduction appears to be a sacred cow of the tax code. Some argue it's unfair and should be scrapped.
In the past few years, as concern has grown over the U.S. budget deficit, lawmakers periodically look at whether they should end one of the most popular tax breaks: the mortgage interest deduction.
And then they back off.
"Given the still precarious status of the nation’s housing markets, and past mistakes made by government to prop up these markets, it is fair to say that Congress needs to tread carefully when addressing policies that affect real estate," Sen. Orrin Hatch, R-Utah, said last week during a discussion of the issue by the Senate Finance Committee. "With respect to the tax code, there are a number of proposals that would alter the treatment of housing, but any changes should happen only with the utmost care and significant transition periods."
He went on to oppose a proposal by President Barack Obama to reduce the value of the deduction for homeowners in the highest tax brackets.
Realtor and homebuilder groups also oppose curtailing or eliminating the deduction, which dates to the first federal tax code in 1913.
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"We believe that any policy change that makes it harder to buy a home, or delays the purchase of the home until an older age, will have a significant long-term impact on household wealth accumulation and the makeup of the middle class as a whole," Robert Dietz, an economist and assistant vice president for the National Association of Home Builders, said to the committee.
The Congressional Budget Office estimates that the United States could save $215 billion by 2021 if the deduction were phased out. Other estimates say the deduction costs the federal government about $100 billion a year.
Academics argue that the deduction does little to encourage homeownership and disproportionately benefits the wealthy. They also note that the deduction encourages people to take out larger mortgages and buy larger homes, thereby contributing to housing bubbles.
In a report arguing for the repeal of the deduction, Anthony Randazzo and Dean Stansel of Reason.org noted that only about 25% of taxpayers could take advantage of the deduction in 2009. Among those who can't benefit from the deduction are renters, homeowners without mortgages and homeowners who don't itemize deductions.
"The mortgage interest deduction is almost exclusively claimed by households in the top income brackets and younger individuals with large mortgages who have not paid off much of their loans. It provides little to no benefit to low-income families, seniors and Americans without mortgages," they wrote.
Tim Ellis at Seattle Bubble suggests that it would be fairer to create a flat homeownership tax deduction, the same amount for all taxpayers regardless of the size of their mortgage, or even whether they have a mortgage.
What do you think? Is it time to eliminate the deduction for home-mortgage interest?
2 Fed Up With Gov... It was the Dems/Clinton admin who wanted home access for the poor and desired to cap the amount that could be borrowed at approx $127,000 or less - it was actually the Republicans who said, "no, we want easy money available for everyone." And capped the limit much higher - you can thank the Republicans for this mess - look how many bankers, realtors, and lenders got rich with the housing bubble - and the middle class got left holding the bag.
Anyone who believes only the wealthiest benefit from Home Mortgage deductions are showing they continue to drink the koolaid from a bunch of liars in Washington..
Schedule A Itemized deductions are phased out at higher income levels. Mortgage Interest has limits as to how much (first million on a home) can even be deducted, so those 25 million dollar mansions are not getting written off via the HMI deduction. Even the Mortgage Insurance paid on FHA loans starts to get reduced at $100,000 AGI and is eliminated 100% at $110,000 AGI (I know, because my AGI last year was $114,000 and I got ZIP of the $9000 I paid on my FHA Loan's upfront Mortgage Insurance Premium).
This is nothing more than another tax HIKE on the middle class.
You want to eliminate Home Mortgage Interest? fine.
Eliminate the 15% capital gains tax rate ceiling on income that benefits the wealthy disproportionally. Because that tax break certainly is FAIR to EVERYONE.
Eliminate the bush tax cuts which favor the upper class.
Eliminate the Earned Income Credit which directly benefits the poor end of the scale where people who pay ZERO *FEDERAL* taxes get a REFUND.
Everyone across the spectrum pays, or it should be a NO GO.
Just continues to show how the 1% think only about the size of their big fat wallets and think of ways to screw everyone else.
i think when things go wrong we all know if you pay out more than you take in it creates problems
quit being a pawn take the lead and look ahead this country is run by business for business and
save your money for the important things if you need them. Everyone nation on this earth has survived
by being frugal this time has returned. The game of business has never left us but this downturn has
left people blaming others this is America money never sleeps here , new methods have been
introduced to secure profits if someone tries to sell you something what you do not need lose them
or face the consequences. This country has been blessed to be here but the lack of cohesiveness
can destroy even us we are not invincible a chain is strong as its weakest link
With lots of experience under my belt: A mortgage = pay $3 to get a $2 tax deduction. Makes no sense.
I have no mortgage interest deductions now, but I do have property taxes that I am still allowed to deduct. That's a nice deduction. It means that I don't have to pay double taxes.
Everyone that is pissed off that they should keep the mortgage interest deduction should be more pissed at their real estate agents... that's the "big" sell point. But you're still paying $3 for $2 (see above).
Twenty years ago (maybe 30), people were advised to not spend more than 30% on housing. What's wrong with doing that now? Who actually "needs" 2 extra bedrooms, bathrooms and 'the visiting clergy room' (you know -- the formal living room that nobody uses!)
As I get older and wiser, I'm realizing that although I have a lot of crap that I have to 'store', my actual living space consists of 1.) computer room w/bed, 2) Bathroom, 3) Kitchen ... I have six other spaces.
This place is paid for so I get no deductions, other than real estate taxes.
In another life, I really did use the mortgage deduction for my rentals - that paid off. It's really included in the rent. Along with the insurance and maintenance - Renters --- you're not paying for that crap, so don't complain about not getting the deductions.
That's it for now.
I would check with your accountant. I am retired here in California after 40 years in accounting.
Here a homeowner gets to deduct mortgage interest and property taxes. The same holds true here for rental property. I know because I prepare tax packages each year for owners of
multi-family units. I hope you find that in your state you can also deduct the property taxes.
I think you will probably find that you can.
Why should I have to pay more taxes so Bill Gates can deduct the mortgage interest and taxes on TWO of his houses.
Why would Mr. Gates need to finance a house? He dropped out of college, and went to work building one of the largest corporations in the history of the world, and has made a lot of money. I'm sure when he bought his house, it was like buying a bag of chips from a vending machine.
Supply and demand based on price will determine how much the prices drop. People will only pay as much as they want to pay no matter what anyone else says or does. You also have to
consider that with home price drops that will come with elimination of the home mortgage deduction the downpayments will be less, property taxes year after year will be less as will insurance payments year after year.
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.