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Mortgage tax break ‘in play’

By Marcie Geffner ·
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Commission on Fiscal Responsibility and Reform, known as the Deficit Commission, recommended that the deduction be repealed, capped, eliminated for second homes or turned into a tax credit.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.

Follow me on Twitter: @marciegeff

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September 08, 2011 at 1:03 pm

mike, your comment is misguided, Obama has not said anything about eliminating the Mortgage Interest Tax Break. This has been debated largely by Republicans because this is one of the itemized deductions that if you exceed the standard deduction can save someone a lot of money. Why are you insisting on blaming the president with something he has no control over? Are you one of those people who believe that the way to lower the debt is to soley reduce government spending, if that is so then you are delusional.

September 07, 2011 at 3:19 pm

I would like to comment on Terry Tripp. I am one of the people that do no pay taxes. I pay federal income taxes each month. At the beginning of each year though, I am able to get at least double my taxes back which is about 5-10k even though I only make about 75k each year. I am not a republican by any means, but I agree with going to a flat tax. I know of many people which itemize deductions, make around 200k a year, pay around 25k in taxes and receive about double what they pay in. It is really ridiculous.

Midway Garden
September 04, 2011 at 6:29 am

Jennifer, an alternative should really be called 'flat tax rate' not 'flat tax'. In the former, there is a natural progressivity built in. If you make $10K and the rate is 10% then you pay $1K. If you make $100K then you pay $10K. Most of the plans out there under discussion have an additional progressive feature such as not taxing the first x amount of income.

Personally, I think it's a good idea for almost everyone to pay something. We've gotten into a situation where we are borrowing 40 cents of every dollar we spend. Of course people want more spending if someone else pays for it. Unsustainable, no matter how much you tax 'those that can afford it'.

Though simplification of the tax code is a great idea, we have to be concerned about the impact. What would be the effect on the housing market? I'd guess that it would be very negative not only on housing but the overall economy.

And Jennifer, increasing payroll taxes is not a good idea when we already have a significant unemployment issue. Continually making it more expensive to hire people in the US makes the movement of jobs overseas economically attractive. Wake up.

August 25, 2011 at 6:58 pm

What's wrong with the progressive nature of the tax code right now? If anything, we should increase taxes on those who can most afford it, especially payroll taxes.

But a flat tax? That's not a good solution at all. Not even close.

Terry Tripp
August 16, 2011 at 10:59 pm

I find it interesting that people think a flat tax or sales tax is the way to go. These are the same people that buy into the repubican propaganda that 50% of Americans don't pay any taxes. Who is this 50% ? Social Security recipients, disabled and handi-capped people, most retired people, Ministers and other heads and workers for religious organizations. Then we get to those people that are lucky to be able to keep a roof over there heads. Last but not least the more well to do that are able to take advantage of the considerable tax deductions and credits that are avalable. Property tax is the hardest one to get out of, if you own property. Any body that works for a living that thinks the rich will create jobs because you give us a tax break is sadly mistaken. The only way you will get jobs in the US is to make it more profitable to make things here than over there. It;s called a tarrif. If we had more of them you wouldn't have to pay so much in taxes. If you want to buy the line that, that only drives up the cost of goods, I suggest that you look at what it does to middle class pay, to compete against people that make pennies an hour intead of dollars. FAIR TRADE NOT FREE TRADE. The middle class benifit from the housing deduct not the rich. They can just pay cash.

August 09, 2011 at 3:15 pm

I would be in favor of a flat tax or national sales tax and that would be great if they did that instead, but they will not so I want my mortgage deduction. All that Obama wants to do is take away the biggest deduction of the middle class. His dirty secret (which the media is completely on board with) is that he says things like close loopholes on "corporate jets" and "millionaires" and in reality his proposal is to eliminate the mortgage deduction. What the hell does the mortgage interest deduction have to do with corporate jets or millionaires? Nothing. He lies. Eliminating this dedcution means a massive increase to the middle class.

Dan marchese
August 09, 2011 at 11:40 am

Ditto on leaving that home or second home RV in my case. The only reason I purchased either at those prices was for MIT. By offering the deduction millions of Americans have supported builders, furniture and appliance sales, home improvement, county taxes, etc.,etc. In short, it's what made us grow. Although a democrat, I would offer the following, knowing full well that much can be done with existing waste and fraud. Typically the first seven years mortgage payment goes to the interest only and very little to the principal. I would entertain extending that to 14 years. Result. Interest deductions would be lower giving more to the uncle Sam. Homeowners would see more action on their principal. Deduction stay in place with this modification. What will banks say? No of course, but it s a conversation.

August 09, 2011 at 9:19 am

I've always found it confusing why people think the MID is a great deal, especially for the wealthy. To qualify, one must *be paying interest* on their mortgage. Sure, getting the MID is better than not getting it at all. But it's not like people are making money off it. For a wealthy individual taxed at say, 35%, paying $10,000 in interest (to a bank) to save $3,500 on one's taxes still nets a loss of $6,500. If that same individual avoided a mortgage and kept her $10,000, she'd only pay $3,500.

August 08, 2011 at 10:02 pm

I'll tell you what-- one of the best reasons to own a home and pay that monthly mortgage is to get that MID. If they eliminate it I would walk away from this upside-down house so fast you wouldn't see my feet moving. The way the market it, I could rent a home 2 times bigger with a lot bigger than a postage stamp for the same price or the same size for 1500.00 less a month. Its a no-brainer. So what I can't buy a home for 7 years- who wants one when you can't get MID. BTW- I am all for the flat tax. EVERYONE USES THE SERVICES, EVERYONE SHOULD PAY.

August 07, 2011 at 9:37 pm

As a true conservative I believe the MID is just another form of social engineering by Washington just as the EIC is aimed at the working poor or hardly working folks. Neither of them or any of the many tax breaks and loopholes should be allowed. It has nothing to do with your political party and everything to do with common sense in eraticating these credits and deductions. A fair approach is to install a form of "flat tax" where everyone pays and APPRECIATES the fact that government benefits are NOT free. A flat tax and even some form of sales tax is much more in line with freedom and liberty. Also we should eliminate the income tax and property tax as well.