Smart SpendingSmart Spending

Kill the mortgage tax deduction?

Some people argue the break distorts the housing market and unfairly helps buyers who can afford more expensive homes.

By MSN Money Partner Sep 12, 2012 2:04PM

This post comes from Jim Wang at partner blog Bargaineering.


Image: Taxes (© Thinkstock/SuperStock)I promised you that we'd discuss Planet Money's "6 policies economists love (and politicians hate)." Let's talk about the first one: eliminating the mortgage tax deduction.


Here's how Planet Money presents the idea, part of "the common-sense, no-nonsense Planet Money economic plan -- backed by economists of all stripes, but probably toxic to any candidate that might endorse it":

Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

I agree and here are my three reasons why.

Post continues below.

First, the mortgage deduction is not as widely beneficial as most people believe it to be. Remember that those who don't itemize deductions get a standard deduction -- $5,950 for a single filer and $11,900 for married filing jointly for 2012 -- that we are able to claim without paying a penny. So if your total itemized deductions, including your mortgage interest, total  $5,950 or less as a single filer, you get no benefit from the mortgage interest deduction.


Second, how many people consider the deduction when buying a home? You probably look at your income and try to qualify for a loan. How many buyers adjust their withholding after they buy a house because they know they will claim the deduction? Very few, I suspect.


It's not part of the buying decision. Rather, the deduction results in a tax break, disbursed as a tax refund the following year. That money is then doled out to whatever the recipient's existing needs or wants are.

Third, the deduction is a government subsidy that increases home prices. Just as the Fed's quantitative easing and loose monetary policy have resulted in lower interest rates -- which increases home prices -- the mortgage deduction is fiscal policy that boosts home prices and rents.


What do you think? Time to scrap the deduction?


More from Bargaineering and MSN Money

Sep 12, 2012 7:37PM
Stupid stupid stupid stupid idea. With stale wages, rising energy costs, high unemployment and under-water mortgages..."let's eliminate mortgage interest deductions." I bought a home for a tax break, it was mY incentive to go into debt for 30 years. As a result I continually stimulate the economy with home improvements. Home Depot is a regular weekend trip for me. Mortgage interest deduction DID NOT CREATE THIS ECONOMIC PROBLEM! No fancy talk is needed here or financial analysis, stupid is stupid and there's no cure. Not all homeowners are irresponsible and purchased homes beyond there means. I have a son in college, paying out-of pocket so that he can graduate debt free. The problem lies within Washington and the politicians nowhere else. Cut / eliminate no-essential spending, slash foreign aid. stop spending what we don't have. The average citizen is not creating the problem.
Sep 12, 2012 4:43PM
Eliminating the mortgage deduction is the worst thing you could do.  If people lose the deductibility of interest, there will be untold numbers of homes that will be sold off.  This, in turn, will create an excess supply of homes which will drive down the value of real estate.  This will cause the value of everyone's home to drop and create another negative economic cycle.  Nothwithstanding the preceding, the resultant "tax increase" (e.g. the elimination of a deduction) will thereby lower the amount of funds people have to spend - and therefore create a 2nd wave of negative economic impact and contraction.
Sep 13, 2012 7:16AM

I am 70 years old. Work fulltime, make about $40,000. The main reason we are buying is for the MID. Kill the MID, we will sell and go rent and let the landlord fix stuff that breaks, pay the insurance and taxes, mow the yard and do the landscaping. We will just eat and sleep there and leave everything to someone else. How many millions will take that route? And there goes the housing market .. forever! The time rquired to get all those vacant homes occupied will take decades and housing values will collapse further. We should leave MID alone or we will see more unintended consequences.

Ps: I am a real estate broker

Sep 13, 2012 8:16AM
Are you serious?  Most of us Middle class types need our mortgage deductions.  We do itemize.  We can barely get deductions for giving to charities.  Teachers spend a bundle and only get to deduct $250.  Raise taxes on capital gains.  Some of us did not qualify for refinancing and that deduction of high priced interest is important.

Economists are out of touch with the true Middle Class who is struggling still to pay our mortgages and did not default on modest priced homes that are under water.  Get a grip, you rich types need to share in the taxes on your investments.  No more corporate welfare.
Sep 13, 2012 8:38AM
It figures the author of this article would be someone who doesn't need the deduction when filing taxes.   There are far too many of us that are middle class that NEED that deduction.
Sep 13, 2012 6:53AM

doing away with the deduction will mark the offical end and death knell of the American Dream. Home ownership is part of that dream. As is a good job paying enough to support your family, but that's another story.  


Why would I buy a home instead of renting? Hmmm. Two reasons, One is maybe the investment will increase in value. Hmmm, not in today's world. The other is the old view that renting was just throwing money away. Really? As a renter, I'm not responsible for cost of maintenance and repairs to the property. Granted, if I'm rough on the property as a renter, I'll have to pay for repairs, but the day-to-day problems with major appliances, water heaters, furnaces, roofs, exterior painting and the like is the responsibility of the property owner.    


So go ahead, do away with the deduction and watch an already stagnant housing market become a total disaster.  

Sep 12, 2012 9:30PM
Why not cut dopers and baby making machines off welfare and food stamps, instead of taking more and more from hard working productive taxpayers. take away all the incentives and soon everyone will be lazy and careless.
Sep 13, 2012 4:35PM

Take away the tax deduction and you will have plenty of empty houses...LOL! I know I would certainly walk away from mine.  If you can change the rules and take away the deduction, I can change the rules and not pay my mortgage.


Bad enough Im punished for not breeding incesantly or going on welfare...I will not be punished any more!



Sep 12, 2012 9:33PM
I think we need to eliminate financial analysts and politicians. That would solve 99.9% of this countries woes.
Sep 13, 2012 4:56AM
Sure get rid of mortgage deductions!  Then get rid of property taxes, sales tax, income tax and stop paying your mortgage completely!  The government can give back all the money they have stolen from Social Security and State disability programs as well!  Then stop paying and get rid of every politician n Washington DC....Democrats and Republicans both!  Retro-actively take back every politicians pension and force them to use Social Security like everyone else!  People are getting real sick of this garbage!
Sep 13, 2012 8:19AM
Very simple: I have two homes, the second I purchased in another state for my retirement which comes up in less than two years. Kill the MID and I will let both houses go back to the bank and start renting.
Sep 13, 2012 10:21AM
The mortgage tax deduction allows people to file long form and claim other deductions. Removing the mortgage tax deduction would force nearly everybody to file using standard deductions because of the reduced amount of deductables would not be enough to exceed the short form standard deduction. Gone will be charitable deductions, child care deductions, work expense deduction and many many others. This is a gimic to take more taxes from the people who are working and contributing to the wellfare of the country and economy. A punishment for the economy providers. How about taxing the 55% of the non taxed leaches,
Sep 13, 2012 9:53AM

How about the Govt starts worrying about how much it spends rather than on taking more of my income?


Egypt gets $1.5Billion from us and then attacks our embassy?  No more soup for you!

Sep 13, 2012 7:29AM
MSN stop blowing smoke up our butts!!! Mortgage Tax Deductions help the middle class a lot and have been for 30 or more years. So stop trying to make your BOY Obama look good because it is his idea to stop Mortgage tax deduction right along with a bunch of other tax deductions away from the American people. MSN when are you going to start telling the TRUTH you and Obama all you two do is lie through your teeth!!!
Sep 13, 2012 8:58AM
I totally disagree with this writter .The mortgage deduction along with the interest deduction allows most people to use the itemized deductions. Without this deduction many people would not buy a house and then you have another real estate crash. When a person itemizes their deduction is generates a tax refund at the end of the year and they count on that money as a savings plan because most working people find it hard to save . I prepare tax returns in new York and most of my clients don't make 250000 or more and that's with 2 workers . They are the working class who needs this deduction and count on it to pay their real estate tax,pay college tuition, fix their car , buy a new washer dryer, paydown their credit card debt and then maybe take a little vacation .  
Sep 13, 2012 8:49AM

Go ahead and kill the Mortgage Deduction.   It will be the death of the Housing market.  It is the worst in over 20 years.  I have several houses and I will pay them off or sell them when and if the Economy ever recovers. 


People in Washington DC have gone completely crazy or they are complete idiots.  

My vote is on the later. 


MSN will print anything and it shows with this article.   Thinking that this is good news material.


Anybody that like this idea of getting rid of MID has no common sense and no idea of what or how Simple Economics or Simple Math really works. 

And they probably balance their checkbook/money like the US government.  

The US government does is so well.


Sep 13, 2012 7:05PM
I'm a single home owner and without this deduction I would get screwed by the government even more than I already am.  Being single and successful in American is a crime.  Single people are expected to be the unknown uncles and aunts for people who have children and cannot afford to support them on their own.  I you don't believe me, look at the tax tables.  Single people get screwed!  This deduction helpes me a lot and I do not want to see it go away.
Sep 13, 2012 11:37AM

Absolutely NOT!!!  I do not agree with you.  Every reason you quoted for doing away with the home interest deduction where the reasons I purchased a house a year and a half ago.  I am a single woman with above average earnings, and my tax deduction for owning my home is over $10,000.00 a year.  This is a far cry from the $5950.00 deduction you seem to be so proud of.  If there are no tax advantages to owning a home, why wouldn't everyone just RENT and let the owner worry about maintenance etc.  Your idea would really put this country into a tailspin!

Sep 13, 2012 9:34AM
Don't be ridiculous!  I need the MID in order to pay my real estate taxes, make repairs on my house, etc.  Loosing this deduction would be a significant loss to me.  The more I hear from idiots like this author, the more I think we ought to trash our current system of government and all of the politicians involved and start over!
Sep 12, 2012 6:00PM
If someone only has $5950 in interest payments they must live in one of a few isolated pockets where homes cost far less than average. I would imagine 90+% of hmeowners with a loan do indeed itemize. Take away the mortgage interest deduction and home affordability drops by about 15%, which will leead over a fairly short time to a 15% further drop in home values. Do you suppose that might lead to more underwater mortgages and foreclosures? Like many tax subsidies this is built into the economic system, and will wreak havoc if suddenly withdrawn.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.