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.
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 Reason.com, 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.
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."
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:
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.
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.
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