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.
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.
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Sounds like an easy out for congress instead of looking at the taking away the deductions from the wealthiest they figure it's easier to take it away from the little guy (the working men & woman just getting by).
I'm one of the 23% that itemizes & uses this deduction. Every home owner (except for those that are carrying only a small portion of mortgage debt) should be using this deduction. I only make 40k a year & I benefit very well from this deduction.
Keep going Congress by eliminating MORTAGE interest you will finally destroy the middle class & all we have strugled for plus kill the housing market. We nned to fire our Government as they are absolutely "USELESS" to any man kind & financial well being of Generations to come, makes one want to VOMIT
The mortgage-interest tax-break... It's not a "sacred cow" used only by the "privileged few". It's not some kind of sneaky loop-hole where folks weasel around and use some hidden "letter of the law" interpretation to see if they can get over. It's a simple itemized deduction - much simpler, actually, than if you had a lot of medical bills and itemized to deduct those. It's actually one of the few real ways to cut off some of your income-tax burden if you are a working-class or "middle-class" home-owner. Folks who typically do NOT have access to all those rather more-clever and harder-to-access loop-holes and writie-offs and such - "investment costs", "capitol gains and losses", "amortiziation", etc. etc. etc., which richer folks and those who pay accountants use to... hmmm. ESCAPE paying some tax.
And it works - if you pay enough mortgage interest in a year to make the total itemized deductions on the fed 1040 greater than your standard deduction. Extremely straight-forward - you take a mortgage loan, you repay it over time, you pay a sliding (decreasing over time) percentage of each payment in loan interest to the banker / lender. So, earlier in your loan life - first several years, you pay a high - maybe very high - percentage of each monthly payment as interest. Later, your payments increasingly consist of your principal that you borrowed, and less of interest.
I take it. For a couple more years - until either this is taken away - in place of Congress addressing SPENDING as versus digging around to see where they can grab more money to spend - or until the amount of interest paid dwindles to the point it no longer pays to take this deduction.
Folks can deduct for education and child-care and donations and .... all rather straight-forward as well and hardly sneaky and prone-to-abuse, unlike those harder-to-access "rich-man's games - oops. I meant to say "legit deductions". Really! My BAD). And WHY NOT? We PAY that interest to someone else, who counts it as THEIR profit = income (of course after THEY get to write off various "costs" around it) - WE home-owners don't get to use it. Save it. Invest it. Etc. Hey. We DO get to itemize those medical costs... which of course we also did not get to use for anything else. Guess folks see "justness" and "fairness" in that - but not in this "sacred cow?".
It IS a way of encouraging folks to BUY homes. Otherwise, the COST of home purchase just goes UP - without any benefit to the SELLER or to the AGENT who has a job mediating the sale - and fewer folks get to buy one. (Saving several G off your adjusted taxable income saves some money you could have used elsewhere in your economy, and actually reduces the COST of the home over the loan period) Does the housing market really need this?
WHY does Congress eyeball this one? Because "only" 23% of tax-filers take this one, and there is a lot - apparently about 130+ BILLION - of money Congress can grab to SPEND, instead of rolling up their sleaves and doing the harder, but MUCH MORE VALUABLE decision-making to actually CUT government expenditure. Of course, once they can take this common working-man's itemized deduction away... say! Deduction for high medical costs? High costs of education? Losses due to accident and theft and disaster? Why not? LOTS of money to be had there, as well. The workers don't need all that cash.
First of all, referring to any "budget deficit" is a non sequitur since ther has been no budget in over four years. Second, this is in no way a spending cut or increase in revenue; this is another accounting trick designed to convince the public that a governmental action has meaning or is, in some way, effective. Third, this amount is trivial when speaking of spending in trillions of dollars.
This is just another smoke screen designed to hide the ineffectiveness of the current administration to fulfill its promises. The only way our country can survive is to stop spending money we don't have, cut the level of spending in all areas (not just reduce the rate of increase!), and demand that the Treasury cease and desist from printing more scrip, since this reduces the value of the dollars currently in use. We also need to demand that the Senate comply with their legal responsibility to enact a budget every year.
The fiscal plan outlined by House Budget Chairman Paul Ryan calls for reducing the top individual and corporate tax rates from 35 percent to 25 percent, which would require lawmakers to consider eliminating tax breaks such as the mortgage interest deduction to meet his revenue targets.
Over the next decade, the Wisconsin Republican wants the government to collect $4.2 trillion less than it would if Congress did nothing, and $1.8 trillion less than under the budget proposed Feb. 14 by President . Ryan’s targets in the plan he released yesterday are similar to the amount of revenue that would be raised if Congress extends tax cuts set to expire at the end of 2012.
I laugh at all of my friends who voted for change based upon the lies that tax increases would not hit them. How's that 26% increase in payroll taxes working for you (2% additional of your pay). I say get rid of the mortgage deduction. People voted for change, give it to them.
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