Home Mortgage Interest Deduction
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As the U.S. continues deeper into the abyss given massive federal deficits and looming spending increases on entitlements, Congress and the President are scrambling for potential spending cuts and tax increases. Included in this discussion is a potential to limit or eliminate the mortgage interest deduction (MID) on primary and second homes.
The National Association of Realtors® has gone on record stating that eliminating the MID would result in property values declining up to 15 percent.
To answer this you need to examine how many people use these deductions and how much the reduce taxes, a savings which logically would be capitalized back into the value of the dwelling.
The Washington Post has completed a review of data from numerous sources with the following findings:
- MID will reduce taxes collected by $484.1 billion from fiscal year 2010 to 2014 (and if capitalized at 5 percent, that equals $1.9 trillion of housing equity
- MID will reduce taxes by $98.5 and $106.8 for 2013 and 2014, respectively
- Homeowner deductions for state and local property taxed reduce/will reduce Federal tax collections $120.9 billion from 2010 to 2014
- Trulia’s chief economist Jed Kolho reports that of those that itemize deductions, 49 percent of the deductions are housing related
- 15 percent of households making less than $50,000 itemized deductions (based on 2009 IRS data)
- 65 percent of households making from $50,000 to $200,000 itemized deductions
- 96 percent of households making more than $200,000 itemize deductions
- Kolko noted that a $25,000 cap on all itemized deductions (including charities), as proposed by Romney, would fall on some of those earning from $50,000 to $200,000 since their average itemized deductions totaled $24,000. The biggest brunt, however, would be those earning more than $200,000 since their average deductions totaled $81,000. Obama favors cutting housing related write offs for those making more than $250,000 and capping the marginal rate above which no deductions could be taken at 28 percent
- Average mortgage deductions per state include (largest):
As you can see, there are no easy answers, winners or losers.
But the discussion will go on.