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Mortgage tax break ‘in play’

By Marcie Geffner · Bankrate.com
Wednesday, July 27, 2011
Posted: 11 am ET

Tick. Tick. Ticktickticktickticktickticktick.

That might be the sound of the fast-approaching deadline for the federal government to raise the national debt ceiling prior to a default on the government's obligations.

Homeowners, homebuyers and home sellers might well wonder what that has to do with real estate, housing or mortgages; however, one possible answer is the mortgage interest deduction, a cherished line item on many homeowners' federal income tax returns.

To steal a turn of phrase from the National Association of Realtors, the deduction is believed to be "in play" as part of the deficit reduction talks that have become tangled up in the debt ceiling debate.

While the crisis unfolds, homeowners have little information about what, exactly, is contained in the multiple debt and deficit proposals. Indeed, as the Realtor group noted, the negotiations "continue to generate rumors, inconsistencies, uncertainty and contention."

What is known is that the mortgage interest deduction has been on the table at least since December 2010, when President Barack Obama's Commission on Fiscal Responsibility and Reform, known as the Deficit Commission, recommended that the deduction be repealed, capped, eliminated for second homes or turned into a tax credit.

Realtor groups are quick to argue that the deduction, which they refer to as "the MID," is a powerful way to encourage people to buy and own their own homes. That explains why these groups have issued multiple "calls for actions" to their members, warning that real estate's most sacred cow is at risk of slaughter.

Of course, many taxpayers don't own a home, don't itemize their tax deductions, own a home but don't have a mortgage, or own a home and have a mortgage, but pay only little interest and don't have enough itemized deductions to exceed the standard deduction. None of those folks benefits directly from the mortgage interest tax break. That said, however, many homeowners do itemize and take advantage of it. Depending on the size of the mortgage and the interest rate, the savings can be substantial.

Still, critics also point out that the deduction is an expensive missed opportunity for the federal government to collect more tax revenue. Opponents also say the deduction is an unwarranted perk for people who just happen to own their own home.

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27 Comments
Carter
August 03, 2011 at 8:08 pm

I totally agree that this deduction should be-at least-limited. If the government really wants more tax dollars stop the Earned Income Credit. Why that was ever started I cannot figure out. I know folks that will find work for a few months a year just to get this credit then lay around the rest of the year. Time to nip it in the bud!

Jesse
July 31, 2011 at 3:56 am

I am all for getting rid of it. The last thing we need to do is continue to prop up the housing market. I have lived all over including San Diego and there is no way some of those very basic homes should cost 500K. Homes got way over valued so that it is hard for anyone to afford. We need to let the bottom just fall out and it will all self correct when buyers see real bargains. Also this interest deduction is unfair to the millions of americans that rent and don't get to write that off.

FrankTalker
July 29, 2011 at 2:16 pm

@Kevin:

"This deduction is the only way I can afford a 450k house on a 90k salary in CA. I understand I choose to live in CA and enjoy a higher salary than most but you can barely raise a family in CA on less than a 100k and buy a house."

That just proves our point... your house should be worth 270k (3x income), and the mortgage interest tax deduction and other government measures are only serving to artificially prop up unsustainable housing prices. It's time for the big government to get the hell out and allow the free market to bring housing prices back to their pre-2000 levels.

Solutions
July 28, 2011 at 11:05 pm

For any of you morons who wish the mortgage interest deduction would go away...evidently your short term thinking is interfering with your logic. Contrary to your liberal brainwashing, eliminating this will destroy the housing market, the construction industry, the general jobs market, and the service industry related to housing such as gardeners, landscapers, architects, space planners, pool services, painters, drywall installers, appliances, electronics, hardware stores, food stores, restaurants, furniture stores etc and many other local businesses and local tax bases (property taxes for you morons). You have been led to believe that this deduction works only for the rich and that supply side economics doesn't work...those that are manipulating you are wrong and so are you.

Jeff Stokes
July 28, 2011 at 10:45 pm

I am a realtor and i am for getting rid of it. Lower the tax rates for all. A flatter tax with less deductions. Most countries do not have it. In the long run all houses will be less expensive.

Kevin
July 28, 2011 at 10:14 pm

@ Bill

If you feel so generous, DONT TAKE THE DEDUCTION. This deduction is the only way I can afford a 450k house on a 90k salary in CA. I understand I choose to live in CA and enjoy a higher salary than most but you can barely raise a family in CA on less than a 100k and buy a house. My wife and rented for a decade before saving enough for 20% down and buying a house like normal person should.

Why don't we just simplify the tax code to 0% tax on 50k and 10% in excess of 50k regardless of type of earnings. This would be fair and generate more tax revenue. No special deductions for anyone and all income is taxed at the same level. This seems like the only logical and fair way for taxation.

Bob
July 28, 2011 at 3:32 pm

"Opponents also say the deduction is an unwarranted perk for people who just happen to own their own home." Some of us planned and saved to "happen" to own our own home. The only change I would support is to make it only avialable for your primary, or "homestead" residence.

JACK
July 28, 2011 at 1:14 pm

ELIMINATING THE MORTGAGE DEDUCTION WILL ONLY EXTEND THE HOUSING PROBLEM. THE ECONOMY WILL NEVER RECOVER WITHOUT A HOUSING REBOUND. HOUSING CONSTRUCTION AND HOME SALES HAVE ALWAYS BEEN A KEY PART OF A GOOD ECONOMY. SOME OF THE JOBS: CARPENTERS,ELECTRICIANS,CONCRETE WORKERS,DRY WALL WORKERS,PLUMBERS, LANDSCAPERS,SALESPEOPLE, TITLE PEOPLE,APPRAISERS, BANKERS,TRUCK DRIVERS, THE COMPANIES THAT MANUFACTER THE COMPONENTS. HOUSING HAS ALWAYS BEEN A PART OF ANY RECOVERY AND WILL CONTINUE TO BE THE KEY FACTOR. WE MUST SELL THE EXISTING HOUSING STOCK AND BEGIN NEW CONSTRUCTION. I AM NOT IN ANY WAY RELATED TO THE HOUSING INDUSTRY. BUT, I KNOW WE WILL NOT GET OUT OF THE CURRENT MESS WITHOUT HOUSING.

Donna
July 28, 2011 at 10:22 am

I've been paying school taxes for 35 years, yet I don't have any children. Nor do I get the tax breaks that people with children get. I've worked hard all my life to be able to afford my modest home. The mortgage interest deduction is the one tax benefit I get, and I need it. I'm for keeping it and repealing the tax cuts to the rich. They DON'T need it.

Bill
July 28, 2011 at 8:17 am

All for getting rid of it. (And, yes, I currently qualify and have enough to itemize).