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.

By Teresa at MSN Real Estate Oct 13, 2011 2:18PM

© Robert Llewellyn/CorbisIn 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? 

Tags: loans
Oct 23, 2011 11:26AM

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.

Oct 22, 2011 10:19PM
Six years ago, I bought a house I could afford and I have never made a late payment.  It's a well-kept, modest rambler, built in the 1960's.  I bought it for 210K and I put 50K down at closing which left a balance of 160K.  It is now worth about 130K and home prices are continuing to fall.

The house flippers and people who bought homes they could not afford washed out of the housing market a long time ago.  The people who are left are people like me who have damn little reason to keep making large mortgage payments on a property that after 50K down, home improvements and 6 years of payments is worth less than nothing to me.

To sell it, I would have to pay 5K to a realtor, sign over the buyer's check for 130K to the mortgage company... and write an additional check for 30K to the mortgage company.

Do you really want to give people like me one more reason to walk away?

Oct 22, 2011 10:12PM
People need to start using common sense when it comes to politial decisions... The top 10% have so much money their houses are probably paid for, so the mortgage write off is a moot point. it is the disappearing middle class that is under attack. Middle management are the ones making the decisions for the 99%. and they are not the brightest lights on the block otherwise they would be upper management. The less they pay the worker drones the more goes into their bonuses... as they sit in their offices on their rears wringing the spirit and lifeblood out of the people that truly do the work. Also, Please when you are in a business treat people with the respect and kindness that you would want exteded to you...There is no reason to be rude, yell or throw things the employees are there to help you not make problems for you....Also, stop trying to scam and get something for nothing.. It is the same as stealing. What goes around comes around. if this is the way you live your life, no wonder you always have problems. it is not the world against you it is Karma coming back around to right a wrong that you have perpetrated on someone in the past. Oh, and by the way, since when  do you think there is a problem if you have to stand in line.....just saying....
Oct 22, 2011 9:52PM
To Tired of Credit . . . let's reduce politicians pensions to match the rest of us.  Based on an average and percentage . . . and make them wait till retirement age (or age 70, like they want the rest of us to wait). And, only get ONE pension, even if they served in several levels of government.  That should help the deficit, as well.  Government jobs need to be less attractive, and FOR THE PEOPLE, not for themselves, and their rich campaign contributors.
Oct 22, 2011 9:49PM

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.

Oct 22, 2011 9:42PM
Let's kill the housing market forever!!  With home prices down and low interest rates, you'd think home ownership should go up.  But you forget property taxes, which keep going up, regardless of the state of the economy.  Who can afford property taxes that equal a second mortgage payment!!??.  So, now the government wants to penalize those trying to buy homes.  How about politicians and those donating to their campaigns the millions of dollars that are so-called needed to run for office instead donating this money to cover some of the national debt!  Or, to those who lost their homes, lost their jobs, and nothing being done to help THEM.  On the 1040 tax return, there is a checkbox to allocate $3 to a national fund for those running for office.  Since no one ever uses it, where is that money which was collected for a good number of years.  Politicians should be REQUIRED to use that fund, EQUALLY distributed to each candidate.  If people or corporations have millions to donate to a campaign, why can't they pay a decent share in taxes?  Just remove the tax credits Bush gave the wealthier citizens/corporations; their taxes don't even need to be increased., .  That will help more than "nickel and dime"ing the rest of us to death..
Oct 22, 2011 9:26PM
I agree with' tired of politicians':  Take their free healthcare away and make them pay for their own health bennies(That alone should fix our deficit).  Make all politicians a minimum term employment as well as presidents.  Let's be Americans again and take back our nation.  One Nation under God, indivisible.  And to all y'all atheist's who don't believe, don't worry about it, you don't believe....forgetaboutit!! 
Oct 22, 2011 9:25PM

 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  

I agree. Let's just pay everybody, saaaaay, $100,000 a year. There you go. Everybody's happy, everybody gets everything they want. It's just that simple. Sheez. Yep, the first solution of nitwit liberals is to tax "the rich".  We did that through the 60's and 70's, and topped out at a 70% marginal tax rate in 1980, along with an economy that was broke. Ask someone you know how that worked out. Stop looking to everyone else to solve your the problem's of your little life, and stand up and be a man.
Oct 22, 2011 9:19PM
I am sick and tired of playing by the rules and getting screwed.  Got a fixed mortgage paid down interest by a point, placed a substantial down payment on a home within my means. Then Clinton administration comes along and decides that everyone should live the american dream of home ownership so requires the banks to approve a certain percent of loans be made to lower income buyers and along comes ARM's. Opens the door to fraudulent loans as well as flakes getting approved for homes they should never have purchased. Fast forward......People walking away from mortgages they cannot afford, excessive inventory reduction of values....The banks have been bailed out by the taxpayers (and now making billions in revenue), turn around and short sell thereby reducing the comps in the neighborhood., so we are eating it on both sides!! They should have rewritten all mortgages and I'm sure people would have tried to keep thier homes. Now they want to take away one of the only deductions that I have to stay in my overpriced,underwater home.  If this is done I may re-think trying to stay put and walk away just as so many of my neighbors have done. Just thinking of the type of house I could live in for what I'm paying now makes me drool....I am one of the fed up Americans that will be heard the next election!!!!!You can bet on that!!!! Congress and the Senate should play by the same rules as the rest of us and stop voting privledges that they do not deserve!! Obamacare, what a joke. majority of Americans do not want it so why are they trying to shove it down our necks????Provide ALL Americans with the healthcare coverage the Congress and Senate have...if it good enough for them it is good enough for me!!! Have to get off my soapbox I'm running out of room but have lots more to say!!!!
Oct 22, 2011 9:10PM
All the middle-class living in a one-bedroom apartment...this is class warfare - and the GOP will stop at nothing to protect the 1%.  This homeowner tax deduction doesn't effect you???   You are not wealthy....You are not in the wealthiest tax bracket.  Please, anybody believing this Homeowner Tax Deduction is about you - this only entertains the rich that the ignorant are fighting for them.  Please stop siding for the wealthy, it will only cost you in the long run.  Since the rich won't pay you a fair wage in order to live in a palace - allow Obama to go after them.  Wake up!.   
Oct 22, 2011 8:48PM
Okay, I am as offended by all of you who say I should pay taxes as I am by any other comment. No, of course some of us DON'T pay taxes, how could we?!   I make a couple thousand a month, over half my income goes to my mortgage.  When I get some of that back, I can fix my car, pay my bills, go to the dentist, and maybe go get some clothes.  Why?  I'm taking care of your kids.  Others of us who don't pay taxes are taking care of your parents, we are preparing your food, we are driving a truck to deliver your goods, we are farming to grow your food, we are doing the low paid work that is very necessary for a nation to exist. For that you will punish us, make us pay taxes when there is tons more month than money?  
Btw, I have a master's degree, but no place to use it, like many of us in the 25-55 age range, we went to college, did all the right stuff, but there are no jobs that will pay what we thought. I'm not very upset, but I am upset that you think I have less worth as a human being and somehow should live on even less so you can keep more. Most of us who don't pay taxes work very hard, we are physically exhausted, so you don't hear us defend ourselves too often. 
I'm not sitting in a fancy chair, having a latte and getting a manicure while chatting on my cell phone with your tax money, where would I get that money?  I try to stretch $15 in cell phone minutes over two or three months, that is about 20 minutes a month. Tax return money, the mortgage interest refund as well as earned income go for things like an appliance repair, auto repair, an oil change,  clothes for work-we better look like we make more money than we do, or we are out of a job, haircuts, maybe a movie. 
Really, you would deny me, and hundreds of others? Next time you shop at Wal-Mart, be sure to tell your cashier he doesn't deserve a tax break so he can get a flu shot or tires for his car. Next time you check into your hotel, be sure to mention to the lady checking you in you don't think she should get 35% of her child care reimbursed so she can make over $5 an hour to work after daycare. Maybe the person helping your dad in and out of the tub doesn't deserve the American dream, a home, only affordable with the mortgage interest deduction, and you think they only deserve to rent, and not build equity to help retire while they care for ten to twelve nursing home residents five days a week. 
Isn't that just a little arrogant? 
signed, a Republican who won't be shot down by those who dismiss us as only interested in the 1%
Oct 22, 2011 8:44PM

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.





Oct 22, 2011 8:28PM
i agree that instead of eliminating the mortgage interest deduction, we should eliminate lifetime healthcare for our congressman & senators.  That would have to be a similar savings, I also agree with limiting the terms, it seems that all they want to do is argue over which party has the right answer & nothing gets done to make the country better. They have gotten too comfortable in that privileged lifestyle.
Oct 22, 2011 8:10PM

Are you nuts!!  Stop writing articles like this!!!

Oct 22, 2011 7:47PM
there will be a lot more people who choose to rent over buy a home because of this benefit cut, and  guess what, the richs get all benefit again, more renter = more demand for rental units= more money for the richs
Oct 22, 2011 7:44PM

Dear txvagabond,

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.

Oct 22, 2011 7:36PM

Dear tsvagabond,

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.

Oct 22, 2011 7:33PM
People should buy houses THEY can afford, not houses they can afford with a government subsidy. 
Why should I have to pay more taxes so Bill Gates can deduct the mortgage interest and taxes on TWO of his houses. 
The mortgage interest deduction is just the creation of the power of the lobbyists for the building and real estate interests. 

Oct 22, 2011 7:31PM
This is the absolute wrong time to consider this move.   Lawmakers should do the opposite to encourage home ownership to stimulate the real estate market.  
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