Mortgage Interest Deduction, Once a Sacred Cow, Is Under Scrutiny

[Omaha Steve]

Source: NY Times

By PETER EAVIS

A tax break that has long been untouchable could soon be in for some serious scrutiny.

Many home buyers deduct their mortgage interest when assessing their tax bill, a perk that has helped bolster the income of millions of families — and the broader housing market.

But as President Obama and Congress try to hash out a deal to reduce the budget deficit, the mortgage interest deduction will likely be part of the discussion.

Limits on a broad array of deductions could emerge in any budget deal. It is likely that any caps would be structured to aim at high-income households, and would diminish or end the mortgage tax break for many of those taxpayers.

FULL story at link.


Read more: http://dealbook.nytimes.com/2012/11/26/mortgage-interest-deduction-once-a-sacred-cow-is-seen-as-vulnerable/?partner=EXCITE&ei=5043

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Nick Ut/Associated PressMany analysts expect President Obama and Congress to limit the mortgage interest deduction for some households.

[BlueMan Votes]

1. we're paying off the mortgage in two weeks- 25 years early.

so that particular deduction is no longer our concern.

[Fridays Child]

2. Congratulations.

For many of the rest of us, this is just one more attack on the Middle Class.

[high density]

16. Do you pay a marginal rate greater than 28%? (i.e. >$178k single income)

If not then you have nothing to worry about.

There are broader approaches, too. In its proposed budget, the Obama administration plans to focus on top earners. The administration suggests capping deductions at 28 percent for high-income households, those earning more than $250,000.

Under the current rules, a high-earning household deducting $20,000 in interest payments would probably apply a 35 percent rate to that amount and receive $7,000 in tax savings. The Obama budget aims to limit that tax saving by capping that rate at 28 percent. If that rate were applied to $20,000 of interest payments, the saving would fall to $5,800.

[Gormy Cuss]

28. That's the key. If it's just limiting it, rather than eliminating it, it may not be a bad idea.

Even high income hhs would retain some deductibility under that plan.

[unblock]

8. actually it is, because your property's value is based in part on others' effective borrowing costs.

to whatever extent the mortgage deduction is reduced or eliminated, you'll be getting less when you eventually sell your house.

[BlueMan Votes]

27. only if we plan to sell the house.

which we don't, anytime in the foreseeable future. and in the mean time, i'll continue to remodel the interior, and landscape the outside. they're my hobbies. and it will add value to the house should we sometime choose to sell/move.

and- even if the loss of the mortgage interest deduction causes the value/selling price of the place to fall- it would also cause the value/selling price of whatever house we would decide to buy to fall as well- so it all evens out. we get less for selling- but we also pay less to buy.

[Earth_First]

12. Awesome. So you got yours.

So kindly, everyone else can just fuck off?

[still_one]

44. You do realize that there are many who are not in the same situation don't you?

[BlueMan Votes]

52. yep. but i have enough of my own concerns to lose sleep over...

i'm not going to fret about everything that might be a concern for someone else.
people need to fight their own battles and be consumed by their own worries- but the mortgage interest deduction is no longer one of mine-
chronic pain, spinal arthritis, and permanent disability are, however...and they're easier to deal with when there's one less thing to worry about

[still_one]

57. Wouldn't it be nice if someone worried about universal health care, and someone worried about

mortgage deductions for those who need it?

In fact you may not be concerned about someone worried about someone just barley making it because of the mortgage deduction, but their are people worried, and fighting so everyone, including you has affordable healthcare, which isn't here yet

[BlueMan Votes]

58. i already have affordable healthcare. i've been on Medicare for 16 years.

and i'm only 52.

lucky me!

[Vattel]

3. Fuck that.

[Trailrider1951]

4. Well, that is surely going to help the housing situation in this country

NOT! Who's going to buy any of the houses on the market if they cannot deduct the interest and taxes? Now, if they limit the deduction to properties appraised at, say $400,000 or less and to PRIMARY residences only, well, maybe I can support that. Otherwise, no deal!

[yourout]

7. DING.....DING....DING.

Home sales and home construction are already slow as hell.
This would drive a stake through them.

[Swede Atlanta]

32. Unfortunately.....home "buyers" subsidized renters for decades...

Now the time has come to pay up.

I fully support programs that encourage home ownership. But it should NOT be at the mortgage interest level. It should be at time of sale.

The current system emboldens banks that levy interest knowing the home "buyer" can deduct the interest. Further it encourages what I call irresponsible ownership.....low down payment, high mortgage payments and interest.

Simple solution......we provide means for low earners to qualify but otherwise do not deduct interest payments. This gives incentives to banks to not charge unreasonable fees. Then the owner pays down the debt.

[taught_me_patience]

5. Mortgage interest deduction is regressive

and should be done away with.

[LeftyMom]

6. +1

Subsidizing housing for the upper/middle class while the poor suffer is bullshit.

[virgogal]

10. Baloney. Lots of blue collar,working class families own houses.

[unblock]

13. everyone benefits, if only indirectly.

the mortgage deduction helps people buy rental property and rent it out at a lower price than would be possible without it.


having said that, i find plenty of appeal in a direct deduction or perhaps even better, a credit, for renters as well.

[LeftyMom]

14. I used to work in rental management. Believe me, the owners were not passing their savings along.

Pull the other one.

[unblock]

19. not as a direct line item in anyone's rental contract, of course

but it's built into the market price.

there are obviously going to be short-term and localized exceptions, as well, markets aren't instantly perfect and real estate especially can be slow to react; but if rental property is effectively cheap to purchase and dear to rent, eventually developers will build more rental units in that market, increasing supply and lowering rents.

eventually, the mortgage deduction slightly increases the direct cost of purchasing housing, slightly decreases the effective cost of purchasing housing, and slightly decreases the cost of renting.

[LeftyMom]

24. Property owners are charging what they can get away with, and not a cent less.

Reducing their costs does not reduce rents. When they pay off their properties they don't reduce rents. The only thing that reduces rents is a glut in the local rental housing market, and then only enough to fill up the units, at which point rents will rise just slowly enough not to provoke move-outs.

[unblock]

30. again, it's a market effect, so you're not going to see it looking at any one owner's situation.

yes, of course they rent out at the market rate. my point is that that market rate, broadly speaking, reflects the costs to own and manage rental property.

[LeftyMom]

34. It's an imaginary effect. The reality is that property owners can buy policy and renters can't.

Welfare for the wealthy is bullshit.

[unblock]

48. check your history. unlike many tax loopholes, this one was one of those put in just for the rich.

in fact the rich are limited in their ability to use it already (they can deduct up to $1mm in qualifying mortgage and $100,000 in qualifying home equity loans) and i believe there are further limitations/phase-outs under the alternative minimum tax.

in any event this mortgage interest tax deduction targeted returning gi's after wwii. i'm sure some rich real estate moguls pushed for it, but it was not really originally designed for rich people. even today, many, many people who get help from this deduction are not remotely rich.

[Honeycombe8]

20. How does that increase revenue for the country? That's what removing the MID is about. nt

[unblock]

26. removing the deduction raises revenue for the government directly,

while costing the government in spades indirectly by reducing home values, reducing construction jobs, reducing borrowing, and reducing further economic activity that normally flows from all this. all of this economic activity normally generates its own tax revenues, which would be severely impaired by removing the mortgage interest deduction.

[Honeycombe8]

33. I was asking how adding a rental payment to deductions increased revenue. nt

[unblock]

46. it doesn't, at least not directly

it would stimulate the economy and therefore tax revenues by putting more income in the hands of renters, who are more likely to spend it than richer people. this would offset a good chunk of the lost revenue, though probably not fully cover the cost (only a few programs, such as food stamps, manage this).

but i'm not claiming it's a revenue enhancement, i'm a fan of it for other reasons, mostly because it directly helps many people who could really use it and i think it would be an effective economic stimulus.

[taught_me_patience]

50. Please explain to me how this works

first off, the rent is determined by demand, not by cost plus. If it were cost plus, then if an owner is finished paying their mortgage, rent would be free?

Secondly, the mortgage interest deduction does not apply to rental property. The owner can deduct maintenence, interest, and depreciation against the rental income as "business" expenses, which are available to any business to offset income. However, you cannot have a passive loss against your ordinary income. So please explain how the mortgage interest deduction lowers rent.

[JimDandy]

29. What? The poor can ACTUALLY get subsidized housing

in the form of Section 8 rent payments, subsidized housing, and temporary subsidized housing. And, in some jurisdictions, renters (usually the poor) can deduct from their income taxes the property taxes the owner paid on the residence they rent, because it's the renters that actually end up paying for property taxes in their rent.

The mortgage deduction is what gives the poor the possibility to eventually own a home and head up the ladder to the middle class. That's just my opinion, though.

[LeftyMom]

35. Where? There's a years long wait to get on the years long waiting list for Section 8.

The rental deduction in this state is $60. Per year.

[JimDandy]

37. True, the waiting time to get Section 8

has increased tremendously these last five years. Foreclosures have swelled the wait lists with former home owners. It's one of the more noticeable indicators to me of the reversal of fortunes for the middle class. I see the MID as a "hold-the-line" financial necessity for maintaining a middle class. Wouldn't be averse to a sliding cap (based on $ value within defined market areas, not by straight $ value), though and only one MID allowed per income tax return.

[LeftyMom]

39. No, there was a years long wait to get on the wait list for Section 8 when times were good.

The wait list in this state has been open and taking names for a total of 4 weeks in the past 10 years. None since the housing crash.

Subsidizing housing for the comfortable while the poor do without is cruel and misguided.

[JimDandy]

43. It's all a balancing act.

"The poor" are not all doing without. A lot of taxpayer dollars go to these housing subsidization programs for the poor. More $ to help the poor would be good, but take it out of tax dollars going to the military industrial complex and the rich instead of the middle class. I have been a property manager and am now a tenant rights advocate, so I see it from multiple sides and we're just going to have to agree to disagree.

[still_one]

45. It isn't because of mortgage deduction why the poor suffer, it is because of trillion dollar wars

[Warren Stupidity]

9. Well I guess we should have worked harder to re-elect Obama.

The people decided they wanted what romney was offering. That is what democracy is all about.

Wait, what? Obama won? Wtf?

[still_one]

47. The only thing I expected from President Obama is choosing good Supreme Court Justices

I have no illusions about anything else, though I believe we will fight for them

[ProgressiveProfessor]

11. I could see a cap on it

but if it was based on $, it would be better for Kansas and not as good to NY, and NYers would not stand for that (Compare the house prices between Topeka and Manhattan or Long Island).

[WinniSkipper]

18. It really needs to be a cap

or have it as a component of a larger cap on deductions.

That will protect the existing market (for the most part) and lower and middle class homeowners. Honestly - if you can afford to live in a house that is so pricey you can deduct 30K in interest, you can live in a house where you can now only deduct 20K of interest.

[ProgressiveProfessor]

21. That would damage the high end market in major cities...

Alternative there would be shift from fully amortized loans...which could lead to more hanky panky.

The reality is that the upper middle class will not stand for the loss of their primary deduction.

[WinniSkipper]

53. I may be calculating this wrong

but wouldn't a 2M mortgage at about 5% generate a first year deduction of a little over 30K?

[taught_me_patience]

51. Dems would lose California if a cap were implemented.

[lonestarnot]

15. Dems better not let piglicons soak us out of that for richie rich.

[Earth_First]

17. Pssst...

I have this foreboding that this is only the beginning.

[lonestarnot]

23. I'm not worried too much.

[julian09]

25. What were house prices when that mortgage deduction began?

When the rate goes back up it will be bigger deduction, I'm for capping it.

[blackspade]

22. This sounds very bad.

The deduction for middle class families is one of the things that makes home ownership viable.

That is not a log that I think we Democrats should throw on the inferno started by the republicans.

[nolabels]

36. It will be last time i ever vote for any R or D again if they do

Don't really give a rat's ass anyway. Our world is so effed over already it won't matter what the freaking bone heads do at any rate.

Yea, color me angry but after trying to scrape for all these years to pay the mortgage just be good in the establishments view they want to do this. It will be fun telling them to shove the whole thing up their..

[still_one]

49. The Supreme Court was the main reason for voting Democratic at least this time

As for the mortgage deduction, I believe most of us who have a single mortgage on a single residence will not be affected. To completely eliminate the mortgage deduction would double dip the housing market, they are not going to do it

[nolabels]

55. I will not die of a thousand cuts

We have been brainwashed to thinking by our corporate masters that money should control everything and that vaunted Supreme Court that you think is so important even rules that way.

We got the government we paid for and i wouldn't expect too much from it

[still_one]

56. It is important. It is a lifetime appointment. We lost in 2000 because of the Supreme Court.

Corporations were given untold power with the Citizens United ruling, they are going to be voting on voting rights within the next few months

I have not been brainwashed, but I do know that a lot of where we are today is because of the Supreme Court

I am also telling they are NOT going to remove the mortgage deduction for single home owners.

[high density]

41. It doesn't sound bad if you read the article.

It phases in when your marginal tax rate exceeds 28%, which means six figure income. I don't think we need the federal government subsidizing home ownership for this group of people.

[msongs]

31. eliminate corporate and military welfare. problem solved. thank you so much nt

[jmowreader]

38. There is an income cap on the mortgage deduction

Ranting about wanting to limit the mortgage deduction for high-income households leaves out the fact that it's already limited for them. This is about getting rid of it for everyone--which will cause a LOT of banks to go under because the mortgage interest deduction is figured in when you're qualified for a mortgage.

The only thing that is going to work to significantly cut the deficit is to rein in high-dollar government programs, mainly the military, and to do a tax increase that's going to hit everyone. Taxing the rich alone won't do it. And cutting discretionary spending (although Medicare Part D should have already been eliminated) won't do it.

[PSPS]

42. "Taxing the rich alone won't do it"

Actually, it can quite handily. It is hard for most people to even fathom the vast annual income of even the top few households in the country.

To get into the top 400, you have to earn at least $140 million. As a group, they paid 16.6% income tax. Their total income tax amounted to about 2% of total income tax receipts from everyone.

But when you talk about the top 100 or top 50, the income levels are well over ten times that. As you get into the higher stratum, the wealth is, as I said, hard to fathom.

[kelliekat44]

61. Reducing taxes on the rich sure helped put us in the hole. So why not let their taxes

help get us out?

[jmowreader]

63. Taxing the rich is a huge part of my plan

President Obama wants the tax on ordinary income in the upper (probably two) brackets to rise to Clinton's rates, and doesn't address capital gains. Warren Buffett's plan taxes capital gains as ordinary income for anyone making over $1 million and leaves the Bush rates in place. My plan maintains the capital gains rate of 15 percent for anyone over 64-1/2 years old and under $100,000 in capital gains (this is a tactical move to ward off the Republicans' probable 'this plan makes grandma support freeloaders' attack), eliminates the capital gains preferential rate for everyone else, and increases the marginal rate by 2 percent for the lowest rate and 12 for the highest.

The Republican catchphrase is Revenue Neutrality. Whenever the GOP starts screwing around with taxes they always say the new plan maintains revenue neutrality, which should make any sane man ask why the fuck they're doing it. (The real answer is they're implementing what Roger Corman called Minority Privilege in his great political essay Death Race 2000 -redistribute wealth upward and make the poor proud to live in synthetically-created poverty.) My plan is not revenue neutral. My plan fucking soaks the rich with nearly 50 percent tax on everything they make.

Since the plan ALSO keeps in place every loophole we have, it gives The Rich a way to cut their own taxes: job creation and philanthrophy. Use your money to help people or we will use your money to help people.

I would also entertain the notion of bringing back the nonmortgage interest deduction, the killing of which basically eliminated homeowner equity for the middle class. Thank you Ronnie!

[PSPS]

40. This is the same trick as it has always been

I can see limiting it to maybe the house you live in. All income property can deduct borrowing cost (interest) as a business deduction anyway. But the idea that this will "increase tax revenue from the rich" is ridiculous. The rich don't use mortgages. They buy property with cash.

No, this is just another way of avoiding increasing taxes on the rich while maintaining the facade of doing the opposite.

Here are a couple of interesting figures:

1. The tax revenue lost by the Bush tax cuts alone is almost 50% of the entire annual deficit.

2. Remember how Bush's Medicare Part D prescription coverage prohibited the government from negotiating prices? All medicine has to be purchased at the rack rate? This was designed, of course, to destroy Medicare. Well, the unnecessary cost of this one provision alone comes to over 40% of the entire annual deficit.

So, reversing both of these items resolves practically all of the annual budget deficit.

[uncle ray]

59. actually, the rich do use mortgages, as an instrument to make money.

borrowing is so cheap right now, it is cheaper to borrow for your home and profit from your investments and yield a net gain vs. paying cash.

[loudsue]

54. No No and NO!

The middle class has paid every last dime to support the 1%, and the mortgage interest deduction, medicare, social security are NOT part of the deal.

[dipsydoodle]

60. We lost that in the UK back in April 2000.

That followed a period where only the first £30,000 of a mortgage qualified anyway and the tax adjustment was done at source.

[PurityOfEssence]

62. Reagan used affirmative action to make poor whites jealous, Walker used benefits of public workers

to mobilize the have-nots, and now those of us who have managed to scratch out a little something will be beset by those who think middle-class homeowners are somehow stealing from them.

There was more than just an expectation that this deduction would hold over time, and many of us structured our financial planning around it.

Those of us who live in expensive urban areas like Los Angeles pay serious taxes for our little patch of something.

So go ahead, pull the rug out from under us. That'll show us.

[Blue Hen Buckeye]

64. Touching it would be political suicide.

[snooper2]

65. The Worry Nannies are out in full force ROFL, what part of high-income households did you miss?

ROFL..

reminds me of the threads Obama's takin' my Social Security away!


I guess people have nothing better to do....