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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 13, 2012 8:16AM
Well. I highly considered it when I bought my homes. If they think it's skewed to more pricier homes,
support a fixed interest deduction of the first 15K only. There you go, still helps the homeowner but does not promote higher deductions for expensive homes.

Sep 13, 2012 8:12AM
I wrote an opinion earlier and two people replied that do not know what they are talking about. Steve Forbes has endorsed getting rid of the mortgage interest deduction. And Mitt has mentioned limiting it. Why let me explain. Say the two of us make $100,000 a year. You live in a low tax state, I live in a high tax state. I have a million dollar mortgage and you have a $100,000 mortgage. We both pay 4% you get a $4,000 deduction, I get a $40,000 deduction. Your income and property taxes are less, because your state is fruegal, My state taxes and spends freely, So you get another $20,000 in deductions but I get another $40,000 in deductions. So you write off $24,000 and I write off $80,000. Why should everyone pay more taxes to make up for my big right-offs. And what about people who paid off their houses? Instead of refinancing to pay off their credit cards and car loans? Get rid of some if not most right off's and let everyone pay a lower percentage of their gross income in taxes. Further if a family makes less that the Federal poverty level; exactly how much tax should they pay in taxes? Give to the government and get it back in food stamps? Minus 20% for handling. So people before you run your mouth please check the facts!
Sep 13, 2012 7:53AM
It seems a lot of folks here dont quite grasp the point of the article that the only real deduction of interest is the portion that goes above the standard deductible. The poster below with a 40,000 income would probably be hard pressed to have itemization go very much over the standard. If the population thinks this shouldnt be eliminated then at least put a cap on it. I'd bite the bullet just to have a step toward a simpler tax code.
Sep 13, 2012 7:49AM
The mortgage deduction should be eliminated.  The reason it has not been is the realtor lobby, if housing prices go down their commissions go down.  But, to be consistent, all deductions should be eliminated.  The government should not be creating incentives or disincentives to private activity through the tax code, it not efficient.  Create a reasonable standard deduction, probably quite a bit higher than today to keep taxes from impoverishing the lower quintiles, then tax all income as income, no matter the source and flatten the tax rates.  Reagan promised this, now Romney is.  Someone needs to just do it. 
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 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 7:11AM
Wrong... realtors are the ones that drove prices up since the more they sell for, the more commission they make!  Most realtors are like lawyers....
if that happens I will sell my house, or have to neglect it, which will drive prices DOWN. Also, most of the stolen money I 'get back' (my money to begin with) goes right back into the local economy.
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 13, 2012 6:34AM
All of us want fair tax treatment, however all the manipulation done by every level of taxing authority is done with your permission. You pay it. You vote morons into office that further manipulate, and you pay it. I cannot be convinced that a fair and simple method of funding the necessary parts of government, and de-funding the unnecessary parts, can be emplaced at this stage given all the special interests. The Military Industrial Complex has been living high for years on the system. Your local counties and states have been skimming large for years. So many sucking at your wallet, and you just pay it. It will only stop when you stop paying.....and when you vote wisely. And I see no indication for either of these to happen any time soon. One man's tax is another man's living. 
Sep 13, 2012 6:20AM
Anyone out there remember when you could deduct health insurance premiums, credit card interest and  interest on auto loans ?  That went away years ago and so should the mortgage interest deduction.
Sep 13, 2012 6:07AM

End all Tax Deductions. Tax me for what I earn, when I earn it and then eliminate tax returns altogether for a majority of Americans. If I owe 20% then tax me for that and then leave me alone. If I earn income from investments, then tax me when I receive that income. Why am I, a person with no family, no home and no income from investments force to file a tax return. We could cut the IRS budget in half if Americans such as myself were removed from the obligation to file a tax return. If the tax laws worked correctly I would owe the government nothing and it would owe me nothing at the end of the year.

Can't we have some small amount of common sense in our government or does it always have to be run as such a cluster "F__K". 

Sep 13, 2012 6:06AM
Stop and think how that mortgage deduction helps.  Lets say that you pay $10K a year in interest on your mortgage.  You get to deduct that $10K from your gross income which means you don't get taxed on that $10K.  However, you are only approx $5000 ahead of the standard deduction.  Thus, If you are taxed at a rate of 20%, that means you pay $1000 less in taxes assuming that you itemized rather than taking the standard deduction.  So, you spend $10K in interest to save $1000 in taxes!  I wouldn't throw $1000 away but it only amounts, in this example, to a savings of less than $100 a month.  Big deal!  Large interest payments might get you bigger deduction but won't increase your savings very much since an increase in interest payments doesn't reduce your taxes by the corresponding amount.  Mortgages allow the poor and middle class people to buy homes.  The mortgage deduction entices people to borrow, when they otherwise might not,  but actually has very little economic merit on its own.
Sep 13, 2012 6:06AM

I'm all for getting rid of the mortgage interest deduction. As long as they get rid of all deductions,loopholes,special interest and the entire progressive tax system. It seems the only really fair system is to tax everyone at the same rate, rich or poor. Yes the 48% of the people who pay nothing yet are consuming most of the resources might have to start paying.

We would have more money than we know what to do with. Hold the politicians to their fiduciary responsibilities of having a balanced budget like they require of the states. Stop all the unfunded mandates and get back to the basic intent of the role of governement as spelled out in the constitution. Give the states more responsibility and liability for their own residents by keeping the taxes local. Have a 10% sales tax on every product and service, no income tax and send it to the state. What's left over after a state balanced budget goes to the fed's. Simple. This could be accomplished if we limit ALL politicians to a single 6 year term-no do overs, mulligans, relection concerns, etc. If they fail, no pension, no benefits and they all have to live within the rules/laws/systems they create.

Sep 13, 2012 5:26AM
Doesn't matter to me!  I paid my house off already.   I'm not going to buy another one.  My home mortgage was all I could itemize and except for the first few years, my total interest payments were less than the standard deduction so I quit itemizing at that point.  You need a really big mortgage to successfully itemize without other deductions, maybe more than you can really afford.  However, at some point, without other deductions, your interest payments will be less than the standard deduction.  Maybe sooner than you think.  If you got nothing else to itemize, then at some point, the deduction becomes no big deal for you!  Good luck.
Sep 13, 2012 5:24AM
Yea!  I have had just about enough of these "ECONOMIC GENIUSES" we have in this country.  Maybe they should try working for a living!
Sep 13, 2012 5:15AM
Go steal from the banks!  They're making all the money!  The whole amortization of a home loan is a total scam...It's not even reasonable!  Why doesn't any of these idiots in Washington DC do any about that?        
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 2:56AM
Whoever you are and whatever you think, you need to shut up. Middle-class America is struggling enough and everything is on our backs. We need every bit of financial help we can get! Go tell this info to the rich ****s who pay so little in taxes!
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