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Is the mortgage tax break in danger?

It's hard for federal budget-cutters to ignore the tens of billions of dollars Congress could save by eliminating the taxpayer mortgage interest deduction.

By Marilyn Lewis Feb 21, 2013 6:13PM

Image: House with bills (© Creatas/age fotostock)As Congress struggles -- and maybe fails -- to trim the federal budget deficit, it's hard for budget-makers to ignore the tens of billions of dollars Congress could save by eliminating the taxpayer mortgage interest deduction.


Axing the deduction could save $134 billion in one fell swoop, a congressional committee in charge of tax proposals has estimated.


Few use it

At the tax code stands now, homeowners can deduct up to $1 million of mortgage interest paid and up to $100,000 in home equity debt, says MSN Money tax expert Jeff Schnepper, the author of "How to Pay Zero Taxes 2012: Your Guide to Every Tax Break the IRS Allows." If you own a vacation home, the same applies.


But few of us use the deduction. Only about 23% of taxpayers who filed used it in 2010, for example, says, published by the nonprofit Libertarian Reason Foundation. That's because you've got to itemize to claim the deduction and relatively few taxpayers do.


"The numbers work only for taxpayers whose total deductions -- for mortgage interest, charitable giving and other expenses -- are worth more than the standard deduction," writes USA Today. Only 30% of taxpayers itemize, according to the Tax Policy Center.


The deduction's use varies by geography, USA Today says, "ranging from a high of 37% of taxpayers in Maryland to a low of 15% in North Dakota and West Virginia." It's used most where housing costs are high.


Who benefits most? "Taxpayers with big mortgages in high tax brackets," says the San Francisco Chronicle. Only 16% of taxpayers in the 10% bracket itemize, while 71% in the 33% and 89% in the 35% tax bracket do, according to the Tax Policy Center.


Wildly popular

Few of us use it but most of us love it. Passionately -- as Los Angeles Times columnist Doyle McManus found recently after he proposed dumping it. "Our mortgage interest deduction doesn't directly support homeownership; instead, it supports mortgage indebtedness, which isn't the same thing at all," wrote McManus.


Uh-oh. Them's fightin' words. Never mind that McManus is far from alone. "In the aftermath of the Great Recession . . . many observers have begun to wonder whether the time has finally come for reform," writes the nonpartisan Tax Policy Center, for example.


LA Times readers were furious. "Angry emails flooded in," McManus wrote  in a follow-up. "Many of the objections were well-reasoned, although one reader just called me a Marxist." Another reader said the deduction "is the only real tax break the middle class gets."

Happy ending?

If the tax break is such a sacred cow, why are changes to the deduction being discussed in Congress? A couple recent events contribute:

  • President Barack Obama's re-election. Obama campaigned on a promise of raising taxes on wealthier Americans. His win is seen by many to be a mandate by voters to do just that.
  • Deficit talks. Congress and the White House may or may not negotiate a way around the severe "sequester" budget cuts due to kick in March 1. But eventually their budget talks should get serious. That puts the tax deduction at least on the table for discussion.

There could nevertheless be a happy ending in all this for fans of the mortgage deduction. Remember the $134 billion that could be saved by eliminating it? Oops. Turns out that number was a bit squishy.


That congressional committee re-ran its numbers. Now it says the mortgage write-off is worth far less than previously estimated.


Real-estate columnist Ken Harney explains: "The nonpartisan Joint Committee on Taxation published revised estimates indicating that because of changes in the economy and tax legislation, the cost of the deduction for fiscal 2013 will be $69.7 billion."


That's a $64.3 billion difference. It means that while the mortgage deduction is still a juicy target, it's only half as juicy as before.


Even if Congress does take up the deduction, it could agree to make trims rather than eliminating it outright. It could cap how much interest a homeowner can deduct, for example, Schnepper says. Or Congress and the White House could declare mortgage interest paid on second homes ineligible.


More on MSN Money:

Feb 22, 2013 8:00AM
Who wrote this crap?!!!  "Axing the deduction could save $134 billion in one fell swoop"......and then later in the article "Remember the $134 billion that could be saved by eliminating it? Oops. Turns out that number was a bit squishy".....Isn't that kind of like writing somebody's obituary and then saying "Ooops just kidding - he's down at the local bar having a pint! Ha ha ha ha".....definitely a two thumbs DOWN from me....
Feb 22, 2013 8:00AM
It's really sad how mathematically challenged most Americans seem to be.  The home mortgage deduction is mostly a scam that benefit the poor and middle class very little.  Unless the interest paid on the mortgage is greater than the standard deduction and property taxes, it would be silly to itemize to claim the deduction.   Even when the itemized deductions are greater than the standard deduction, the difference varies depending on the size of the loan and the interest at which the loan was borrowed.  I'm not one to pass up free money but the people that really benefit are the wealthy with their second homes and big mortgages. 
Feb 22, 2013 7:57AM
This is what you voted for...blame no one but the people you elected....
Feb 22, 2013 7:47AM
I absolutely don't believe the numbers about how many people use the mortgage deduction.  I used it when I bought my $35,000 house and I use it now with my $2,2 million house.  Everyone I know uses this deduction.  

Personally, I don't care if they remove this deduction since I'm wealthy.  But eliminating this will kill the housing market yet again.

Feb 22, 2013 7:34AM
Until 1985, consumers had all sorts of tax deductions and businesses were hyper-taxed if they made hyper amounts of profit. The Tax Act of 1986 reduced consumers to the mortgage interest deduction and gave businesses a nearly infinite number of them. 1985 was the last year big businesses and wealthy people paid fair taxes. Eliminate that? YES. There is no argument favoring not doing it. The premise is-- go in debt buying a home on credit, reduce a percentage of your tax liability because you paid it to a bank. Close the banks, get credit out of Wall Street and bring back consumer advantages in tax deductions. Why there isn't a flat corporate anf greedy grubber tax is ridiculous.
Feb 22, 2013 7:31AM
I used to able to deduct interest on credit cards and auto loans. Suck it up.
Feb 22, 2013 6:58AM
This is total garbage! Media propoganda at its finest. Anyone with a mortage is using the long form. This Marilyn Lewis person is nothing but a hack journalist putting out this tripe. But, I guess this is how she's paying her rent!
Feb 22, 2013 3:11AM
Those of us old enough to remember interest deductions here goes. Credit card, store credit cards, gasoline credit cards, automobile loans and pretty much all interest paid on just about all secured and unsecured loans. The only thing remaining is mortgage interest. Not to beat to death our congessmen, the best healthcare we can give them, raises they give themselves, lifetime pensions and when they retire they get to keep the remaining re-election campaign money. You see folks, they could not care any less than they do. The majority of them are lawyers and not accountants. Therefore the trust we give them is hopelessly misplaced.
Feb 22, 2013 2:59AM
Yeah, and have you heard the one about the President wanting to change the law where his family, and future president families, will get secret service protection for life once they are out of office.  Right now it is only the ex-president who gets the protection.  Watch that law be changed and there goes more tax dollars.
Feb 22, 2013 2:39AM
One more thing, let us continue re-electing the same politicians since they seem to be doing a great job...  NOT.  After all they have not voted on anything in more than 2 years; well except for letting the lower payroll tax (aka; social security) expire.
Feb 22, 2013 2:34AM
I think they should cap it and just allow the deduction for the primary home.  I pay $18,000.00 in interest and if they do away with the deduction I will have to turn the house over to the bank.  The deduction is what keeps me from having to do that, especially now since I recently retired. 
Well, I guess I'm one the 23% then, but I'm not rich, my home is worth less than $200k. Between the mortgage interest, city & state property taxes, and the state income or local and state sales tax deductions, it makes way more sense to itemize. Not to mention the modest, I admit, charitable deductions, and the rare chance of medical expense deduction, it all adds up. Believe me, it is nowhere as difficult as most ppl seem to think.

Anyway, the point I was going to make is that the day they eliminate the mortgage deduction is the day I pay off my home. As long as I can deduct the interest paid directly from my taxable income, keeping the house payment makes sense. Without it, I might as well put the house payment in the bank so I will be ABLE to pay the taxes at the end of the year.

Feb 22, 2013 2:04AM
"It's hard for federal budget-cutters to ignore the tens of billions of dollars Congress could save by eliminating the taxpayer mortgage interest deduction." They aren't saving anything, they just want to spend the deduction money and then some. This will just put more people into foreclosure because eliminating a deduction is another tax on the middle class we don't need. People are already feeling the pinch trying to make ends meet with the larger payroll taxes being taken out of every check. People have less in their paycheck every week and now the tax return many count on to tie them over and perhaps lower their debt expense will be taken by the big spenders in Washington AGAIN!!! 
Feb 22, 2013 1:47AM
Obama will be known as the TAX PRESIDENT and will not cut anything.  The sheeple voted for him and unfortunately, now we ALL GOTTA PAY!
Feb 22, 2013 1:05AM
Well, you've had your chance to dump 0 and congress, and you didn't. Live with your sins.
Feb 22, 2013 1:02AM
I hear that all you are worried about them taken away this mortgage deduction tax break, which really does amount to much of anything, but that's my opinion. But what I want to know is why aren't you bitching about Facebook, General Electric not paying any taxes at all since Obama's has been in office in these corporations are getting big money back from the federal government. I'm talking millions dollars. I didn't see here what I didn't read one thing about that. I guess you don't care that certain corporations out there can get away without paying any taxes whatsoever, but the comes down to the oil companies doing the same thing you crucified as far as I'm concerned, the only tax break anybody should get is none. We should have a flat tax everybody pays 10%, no matter how much you make or little you make and don't tell me it's going to hurt the poor people. These people are ready poor. They don't pay any taxes to start with and all their food subsidies comes from us anyway, so you're not going to hurt after something the liberals want you to feel bad about going to hurt the poor know you're not, you know, if we did that, of course, but this a ministration deftly say would be enough money coming in, but would be more than enough is people need things people buy things there always needing their always buying no matter how rich or how poor Sophie got a 10% tax on everything out there. The federal governments gone make out pretty good. So get your head out your butts call your congressman or your Senators and tell him to vote for a flat tax. That's the only fair way of doing.
Feb 22, 2013 12:56AM

Thi**** middle class straight in the gut.


The example is for MARRIED people.  I guess there are NO single, Head of Household or other such people who own a home where the standard deduction is FAR less than what it is for married couples.  Most people use the deductions on their home to help reduce their tax bill.  It is stupid to buy a house to "Get the deduction," and the argument that people want the deduction is stupid, too.  If that was the case, no one would refinance and want a 10% mortgage.  


If only 30% of people itemize (and I call bull on that, because MOST people who have a mortgage, probably have enough interest and property tax deductions to itemize alone) and  everyone who is probably making $250k or above itemizes (probably just in property/personal taxes paid alone), then I don't believe this is as big of a tax break as say...


Hummers and Escalades being able to be claimed as Farm Equipment because of the weight of the vehicle


15% dividend tax rates and 15% Capital Gains rates that benefit only the mid-high middle class  and upper class


Writing off sales taxes and such for your $80,000 yacht




How about the jerks in Washington DC start by giving up their guarnated 10% raise + health benefits each year.  Their annual raise alone is probably more than 30% of the people make in a year.  Gee, I can be a worthless representative who does nothing, shows up for work when I want, miss 30% of the votes that I'm supposed to be present for, make $200,000 a year, have a $50,000 a year expense account, lifetime platnium health insurance and benefits.   


EVERYONE has to pay across the WHOLE spectrum, from the lower class to the upper class.  And the people in Washington who started this MESS can be the first ones to sacrifice to fix it.


Feb 22, 2013 12:50AM
I have only been able to itemize once to take advantage of the interest deduction.  With interest rates as low as they are, it makes it harder for people to pay enough in interest in order to claim the deduction.  I highly doubt I will be able to take advantage of it again.  Maybe temporarily get rid of it while interest rates are low, but re-instate it when rates go back up to 6-7%
Feb 22, 2013 12:18AM
Stop looking for live on another planted  Looking for a war if we are visted from another planted stop looking for trouble .A good place to cut spending.
Feb 22, 2013 12:06AM

NO deductions NO loop holes Pay on what you earn for everyone . One tax to replace Federal ,State and what ever taxes there are.Flat Tax  50years of paying for 50years of Freedom.Plus Tearm Limit for Congress and downsize congress with a good main frame computer  a good cost savings.

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