Should deductions for mortgage interest be kept? Would losing them affect your family?
As Congress and the White House negotiate the first major tax rewrite in decades, it would appear that deductions for mortgage interest may be on the chopping block.
“Members of both parties have largely steered clear of detailed proposals so far. But plans put forth in the past year by President Obama and Mitt Romney to place limits on annual total tax deductions would likely crimp the mortgage-interest deduction for certain taxpayers. Top congressional Republicans also have expressed openness to limiting total tax deductions as part of an overall budget deal. In addition, the presidentially appointed Simpson-Bowles fiscal commission suggested scaling back the mortgage-interest deduction as part of its own set of tax-related proposals. “
“Current law allows homeowners to deduct the interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans. The deduction overwhelmingly benefits wealthier families, partly because they tend to have larger mortgages and pay more interest, and partly because most low- and middle-income Americans do not itemize deductions on their tax returns. It also tends to favor homeowners on the East and West Coasts, as well as those in large cities such as Chicago, where average home prices are higher.”
“Edward Kleinbard, a tax expert and law professor at the University of Southern California, said the mortgage-interest deduction represents the kind of government “extravagance” that the country no longer can justify, given its fiscal troubles.”
“ ‘We simply cannot afford wasteful government subsidy programs anymore, and this is one of the most important examples of that,’ Kleinbard said. “It’s very much a subsidy to those Americans who need it least.”
“True enough, said Moody’s chief economist Mark Zandi, but the deduction nevertheless has become ingrained in the psyche of home buyers over generations, and reducing it would have real effects. “
“ ‘It’s a very visceral thing for people,’ Zandi said. ‘People account for it when they think about how much house they could afford to buy. You take that away, and house prices are going to weaken. They are going to decline.’ ”
So I am wondering how families feel about this deduction. Is that deduction an important one to your family? Would you miss it if they took it away? Are there other deductions that would hurt worse than that one? Do you think it should be on the table? Do you think it would hurt an already struggling house market to change it now?
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120 comments Add your comment
MANGLER
November 29th, 2012
11:21 am
To the people who argue that removing the mortgage interest deduction is a game changer or will kill them or the market … you bought too much house! That’s your fault.
Apartment complexes won’t rent to you if the rent (and sometimes utilities and other fees) exceeds 33% of your income. That is a way to safeguard them as well as you. Banks used to be that way, but then loosened the minimum requirements over time, with help from the Government with things like the mortgage deduction. If your budget was so close on financing that house that a minor change like this would sink you, then you never should have placed yourself in that situation to begin with. Home ownership is rife with the unexpected.
I realize that the mantra changed to “what’s the most I can possibly afford?” Well, now ya know.
The houses being designed today are not the SUV’ish McMansions that cropped up all over in the early 2000’s. They are looking like normal houses again. We needed that.
Tom
November 29th, 2012
11:22 am
Anyone remember tax criminal Timmy Geithner telling George Staphoccocus that Bill Gates shouldn’t get the same deductions as everyone else because “he doesn’t need them”, or wtte?
That, ladies and gentlemen, is a cornerstone of Marxism…..
“From each, according to their means….to each, according to their needs.”
Teacher, Too
November 29th, 2012
11:29 am
I didn’t buy a house I could not afford. It’s would be nice to be able to take advantage of itemizing after 25 years of not being able to. The deduction is one reason that makes buying a house so attractive.
Theresa Walsh Giarrusso
November 29th, 2012
12:02 pm
I am so proud of how seriously everyone is taking this discussion — I think it’s a great discussion of issues!!
who knows what evil lurks in the hearts of men
November 29th, 2012
12:19 pm
@Mayhem…It is a handout. All things being equal…if you and Rodney have exactly the same tax situations, but he decides to rent and you decide to own and get a mortgage, the government says that you are acting in a way deserves special…FAVORABLE treatment over Rodney and are going to charge you less in taxes. How is that not a handout?
I hear it all the time here, people are disgusted with folks in society who make choices they disagree with and the government financially rewards them for it. In this case, you just happen to feel that your choice is better and more responsible than Rodney’s so therefore you deserve the money the government is giving you.
Package it however you want, but it’s still the government rewarding you for a choice…which generally seems to be frowned on by this forum…that is..unless the choice they are getting rewarded for is theirs.
missnadine
November 29th, 2012
12:27 pm
I agree to a point with the thinking that any deduction is an entitlement. It made me wonder about the right-wing faction on this blog. I would bet my paycheck that all of them have taken advantage of some credit, whether it was deducting the mortgage, taking the kid credit and so forth.
I don’t want to lose the mortgage interest, call it an entitlement if you will. I am not the person who comes on these blogs screaming about free phones and school lunches. Those who do should just NOT take any deductions, since they complain abou them on every blog.
HB
November 29th, 2012
12:30 pm
“People that buy houses tend to be more stable and better at managing their money, so we are punishing them?”
Oh yeah, they’re all much better at managing money — that’s why so many expensive homes are in foreclosure. A lot of us “less stable” renters made a choice 8 years ago not to borrow the max amount we could and buy a home with a small down payment amid predictions of a bubble burst because we know how to manage our money.
Of course, many homeowners are also responsible, but ending a tax deduction is not a punishment. Those paying off mortgages wouldn’t be taxed more than everyone else (punishment); they just wouldn’t get that perk anymore. Eliminating the deduction would likely slow sales, but that may not be a bad thing. Should the government be incentivizing home ownership to the degree it has? The deduction probably contributed to growing the bubble that eventually burst. Maybe real estate and banking/loans shouldn’t be as great of a driving force in our economy as they have been in the past 20 years.
who knows what evil lurks in the hearts of men
November 29th, 2012
12:31 pm
@Mayhem….I agree with you abou the inheritance tax though. I don’t believe that should be taxed either to the extent it has already been taxed.
But on the flip side, under current law only estates over $5M are subject to estate tax…so you stating that you’re going to be taxed on your inheritance implies that your parents are worth over that amount…so by deduction, you’re going to get $5M free and clear and then you’ll only get $650K for every million after that. You seem fiscally pragmatic…so I imagine with the $5M + you’re in line to get you’re going to live a pretty comfy life. I’m not saying you should get taxed on the excess…in fact I wholeheartely disagree with it…but if it offends you that much…if you parents want to write me into their will for all the $$ over $5M, I’ll gladly take the money and the subsequent tax burden off your hands. ;-)
james
November 29th, 2012
12:41 pm
Get rid of the mortgage deduction. You want to balance the
budget start taxing churches, colleges, non profits, etc….
Why should churches not pay taxes? It is a business despite
what they may want to tell you! I do go to church by the way….
Warrior Woman
November 29th, 2012
12:46 pm
Kleinbard is wrong – allowing taxpayers to keep more of their money is not a subsidy. Zandi is closer to correct. The current home market cannot afford elimination of the mortgage interest deduction. Further, home ownership is a, if not the, primary wealth building tool for middle class Americans, and the mortgage interest deduction supports such wealth building.
The mortgage deduction should not be eliminated. It should continue, at least for primary, owner-occupied homes.
DB
November 29th, 2012
12:47 pm
@who knows: My husband has a Ph.D. in accounting and absolutely despises taxes — won’t do them for anyone but us. You’re right, the vast majority don’t really need one — but the fact that they THINK they need one, faced with all the myriad deductions and allowances in the tax code today, is telling. It always blows my mind how many people would rather take the standard deduction than go to the trouble of figuring their deductions.
missnadine
November 29th, 2012
1:01 pm
@james – 10% agree on taxing churches.They are HUGE businesses!
missnadine
November 29th, 2012
1:01 pm
meant 100%, not 10% :)
who knows what evil lurks in the hearts of men
November 29th, 2012
1:02 pm
@DB…it’s funny…i actually have done quite a few taxes for CPA’s. They’re auditors and the last thing they want to do is taxes. It’s funny…people think accounting and taxes are the same. In my state, the state board of accountancy specifically states “tax preparation is not considered practicing accounting.” Even within the CPA circles..most know virtually nothing of taxes. It’s kind of like taking your kid to his/her pediatrician and thinking that doctor would be a pretty good surgeon too…I mean, after all, he/she is a DOCTOR, right?
And you’re right, it is telling. But knowing what I know about the perceived complexities of tax preparation vs. the actual complexities of tax preparation, especially given how many software programs there are out there, I feel as if it’s more telling about the people than the taxes. Now granted, there are some pretty complex issues, but as most neo cons will attest, 47% of the population don’t owe taxes so they don’t count…and in my experience, doing the taxes for a wage earner with a family, a home, d some stocks and a rental or two is as about as difficult and time consuming as a year’s worth of changing the oil in my car. Which, by the way, I have my mechanic do. ;-)
DB
November 29th, 2012
1:02 pm
@Mangler: Underwriting guidelines for mortgage loans used to be fairly strict — 25% of income towards a mortgage (which included withholdings for taxes and insurance), and a total of 33% of TOTAL debt including the mortgage (squeak up to 36% sometimes, if you were in an area where the land-to-value ratio was unusually high.) But mortgage companies and banks kept getting hammered for “unfair” lending practices when they refused to loan to someone who had a debt ratio of over 40 to 45% or even higher, and had expansion plans held in abeyance up while communities demanded “proof” that a bank was “fair”. (You do NOT want to know how many Community Reinvestment Act reports I’ve had to do!) So, make the loans, take the risk — and here were are with banks with portfolios full of loans that they would never have made prior to the CRA act in 1977 as the guidelines became looser and looser.
Houses almost became like cars, where an unwary buyer walks into a car dealership financing office, and the question they ask is “how much do you want your payments to be?” and end up with 7 and 8 year loan on a depreciating asset. Sex education in the schools? Ha – wow about basic consumer finance?!
Bobo
November 29th, 2012
1:08 pm
This is yet another case of the government becoming a criminal empire. Why not just go ahead and steal every last penny from every working person and let the dregs of society have it? Wouldn’t it just be more honest to hold a gun to our head and try to take it? Anyone who doesn’t own a $5 million mansion is struggling to pay everything already. Why not just take another $3000 to $5000 a year off everyone’s paycheck and give it to more unwed mothers cranking out 7 kids one after another, some politicians who need another Escalade for their mistresses, and some artists who produce obscene crap that offend everyone with a moral compass?
I don’t even want to hear about ‘mortgage interest was never meant as a permanent deduction’ argument. Our tax load is far higher than at any point in our history. You can call this democracy if you want, but a 40% individual tax rate is socialism. Take away the mortgage deduction and that’s where we are.
DB
November 29th, 2012
1:08 pm
@who knows: My husband isn’t an auditor, his niche area of specialization includes economics, statistics, historical reconstruction and forecasting, and business valuations. But for years, my father would ask my husband, around March or April, “So — are you pretty busy now?” Couldn’t get it out of his mind that CPAs = tax season. :-) After about 20 years, he finally accepted that my husband was swamped year round, not just in March and April!
Teacher, Too
November 29th, 2012
1:10 pm
Maybe there should be an either…or. If you are single without children, you get to deduct the interest from your mortgage. If you have children, then you get to claim your dependents but you don’t get to deduct interest from your mortgage.
I am single with no children. Until I bought my house, I could not take anything except the standard deduction. I’ve not ever complained, but I agree with those posters who’ve said that removing the interest deduction would cripple the housing market. The deduction is an incentive to purchase a home. Home ownership stabilizes neighborhoods, among other things.
As I said before, maybe limit the amount of the deduction to a percentage. It’s a compromise…
It would only affect...
November 29th, 2012
1:10 pm
…those of you earning “big bucks”…”limits on annual total tax deductions would likely crimp the mortgage-interest deduction for certain taxpayers.”
Details, people, details…
Mayhem
November 29th, 2012
1:11 pm
@Who knows – thank you for explaining that all to me. I still don’t see it as a hand out, since I’ve paid the interest that I am writing off……to me, I’m getting some of MY money back.
And I’ll keep you in mind when I get that inheritance….LOL.
GardenDiva
November 29th, 2012
1:14 pm
The thing I think some people are missing is that the government taxes behaviors that it wants to discourage and gives credits or deductions for behaviors it wants to encourage.
We (the United States) have typically looked at home ownership as a desirable thing, hence the current deduction for mortgage interest.
Freedom lover
November 29th, 2012
1:14 pm
Fundamentally the income tax code should NEVER be used as a tool of social engineering. Ideally we would do away with the Income Tax completely as it fundamentally is just slavery in another form.
People should purchase a house, have a child, donate to a charity, purchase municipal bonds, etc. because it makes financial and moral sense to them, NOT because the government has provided a financial incentive to act one way or the other. It is little wonder the morality of our society is so poor and our value system (for all things) so dysfunctional.
That being said, major elements of the housing market are critically dependent on the current process. A phased approach to elimination would be far less of a shock to the system. A complete removal of any price category (say over $500,000) would immediately result in a significant impact on that sector of the market. Ultimately all deductions must go, along with the income tax itself.
We do not however have a revenue problem. What we have is a spending problem. Eliminating all deductions and even imposing a 95% tax on every American would still not cover all the money government is spending/wasting every year.
who knows what evil lurks in the hearts of men
November 29th, 2012
1:26 pm
@Mayhem…who cares if you’ve paid all the interest that you’re writing off? It’s an expenditure that you elected to make as a function of incurring debt to acquire the utility of an asset, just like a car would be, but no one is complaining about not being able to write off their vehicle loan interest. Car loans arguably are just as vital to one’s livelihood and contributions to society as a home. Most people have to drive to work. But you (and most others) are actually making the argument by supporting a tax break on that particular interest that the government SHOULD actively take a role in what people spend their money on.
So, Denise...
November 29th, 2012
1:29 pm
…by saying “I am not a part of the Entitlement Generation and I voted for Obama. What a surprise! So, no Mayhem, not all people who vote for President Obama are freeloaders. I really get sick of that assumption.”
…are you saying that you voted for Obama because you are black, and he is black, too? Like 97% of the black population will tell you that that is WHY they voted for Obama? Inquiring minds want to know…
who knows what evil lurks in the hearts of men
November 29th, 2012
1:35 pm
@bobo…”Our tax load is far higher than at any point in our history”
Actually..you’re wrong….at least in the last 30, which I assume is considered “any point in history”….
based on this chart, we’re currently at some of the lowest average tax rate across the board in that time frame.
I mean..I get where you probably believe that because of your obvious disenchantment with this society, and you’re probably going to refute the CBO and anything government…but unless you have something better to show than actual studies by experts, you may want to lay off the “Our tax load is far higher than at any point in our history” posts….they just make you sound like a radical extremist.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
Whjat about Obamacare...
November 29th, 2012
1:36 pm
…for one Jimmy Johns (similar to Subway for those not familiar with this food franchise) franchisee “that means 150 more employees will be considered full time. And that’s a huge new expense for his business. He told the Huffington Post that those 150 employees would add some $500,000 in premiums, making 10 of his 18 stores unprofitable.
This is a very tight spot to be in. But kudos for Hodges for talking about it rationally and showing exactly what he’s dealing with under Obamacare. He’s trying to do the right thing by his employees, but he’s got a tough road ahead.”
HELP…….
Fair Tax
November 29th, 2012
1:46 pm
End all deductions and just go with the Fair Tax.
Mark
November 29th, 2012
1:53 pm
I think people that are saying we just need to limit the deduction need to pay closer attention.
The Mortgage Interest deduction is already limited. Duh. Publication 936 clearly states “The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million”
You can also use $100,000 as a heloc, so it’s limited to $1.1 million. That’s about $38k at 3.5% interest.
Bid Ern
November 29th, 2012
1:56 pm
I’ll trade the lost deduction for the total elimination of the mistake called welfare.
Mark
November 29th, 2012
1:56 pm
So, in general, the people getting the biggest benefit of this deduction compared to their income are those making $50k to $300k. These people are also known as the middle class.
Mark
November 29th, 2012
2:04 pm
To the lady complaining about the rich using the deduction on multiple houses and boats and motor homes:
You can only claim it on two homes (although you are correct in that it can be a boat of motor home that has sleeping and cooking areas). So you can claim it on your primary house and a second non-rental home, but that’s it. And the TOTAL across both houses is still limited.
who knows what evil lurks in the hearts of men
November 29th, 2012
2:13 pm
@Mark…or just say everyone is entitled to “x” amount of itemized deductions and eliminate things like the 7.5% of AGI threshhold for medical expense, or 2% AGI thresholds of other itemized deductions, the 50% charitable contributions, etc. And eliminate the standard deduction but still allow for personal exemptions. Take the current list of eligible deductions and say take 100% of it all, but once you hit, let’s say $30K, you’re done. Everyone, regardless of rich or poor gets the same absolute benefit, albeit those with lower incomes would get a higher percentage of income benefit.
East Cobb RINO, Inc. (LLC)
November 29th, 2012
2:18 pm
If the mortgage interest deduction is taken away, I will stop paying on my upside down mortgage. There is no longer an incentive to hang on. I doubt I am alone.
Soccer MILF
November 29th, 2012
2:25 pm
As long as the “do nothings” get their cable TV and obama phone then I will gladly pay more. I mean its a worthy cause.
missnadine
November 29th, 2012
2:51 pm
Theresa – don’t feel too proud. The only thing you did is post someone else’s story, like you almost always do. You’ll find the readers here are quite educated and can easily discuss important matters. It is when you post stories on being worried about who taylor swift is dating you lose this group. We may not all agree, but if you read these posts, most are articulate.
Dennis
November 29th, 2012
2:56 pm
Is the real “socialist utopia” that everyone SHOULD own a house? Seems that in a true free market there will be people that it will always be out of reach for (and that the last 10 years prove it should probably be out of reach for more people and not less.)
The reality is that the Federal budget is an order of magnitude out of balance – and cutting PBS or mortgage interest deductions will have little effect on what happens. We have been expanding the money and devaluing everything in our economy for too long.
motherjanegoose
November 29th, 2012
3:09 pm
HB…I have been a renter, homeowner and landlord. It takes a little more skin to be the last two than the first. Some homeowners ARE irresponsible. I agree. We do not live in a Mc Mansion nor would this ever be something that would appeal to us; however, I am happy we live in a subdivision with an HOA. No one has an orange house, chickens in their back yard nor a schoolbus up on cinderblocks in their front yard. When we bought this house 15 years ago, we were worried if we could afford the mortgage. Now, we are on the tail end. We went without a lot of other things, such as big TVs, fancy phones, a new car, trips to the salon etc. It bugs me that people who work hard to earn the things they have, are typically punished to make it fair for everyone else. We lived in a trailer with roaches, almost 30 years ago. That was all we could afford. We did not complain. We did not ask for $$$ or a handout. We worked hard and saved our money plus kept our credit clean. Thus, we are about to pay off our mortgage.
Lately, it does not appear that hard work and perserverance is being rewarded.
Mike
November 29th, 2012
3:19 pm
Regardless of one’s opinion on the mortgage deduction in general, why is it allowed on a second home?
The mortgage deduction on my house give me about $3,700 a year. I haven’t taken advantage of any of the various programs to reduce the principal, although I should look into it. If they’re going to forgive the $70,000 that my house has lost in value, I won’t mind losing the interest deduction.
who knows what evil lurks in the hearts of men
November 29th, 2012
3:23 pm
@MJG….I appreciate your point about the virtues of working hard…i guess my question is this…what does a strong work ethic have to do with the mortgage interest deduction?
cmac
November 29th, 2012
3:26 pm
since the morons in washington are such excellent stewards with our money, let’s just send every penny to them. The longer I live, the more I hate ‘em all!!
who knows what evil lurks in the hearts of men
November 29th, 2012
3:52 pm
“If they’re going to forgive the $70,000 that my house has lost in value, I won’t mind losing the interest deduction”….
Who should forgive you for the loss in value? The government or the bank that you entered into the agreement with of your own volition when you thought it was a safe bet?
this is insanity….everyone talks about government gone amuck, and how the government shouldn’t be giving handouts to anyone, but then when it comes to the suggestion that the government is no longer going a break for interest that you signed up to pay so that you could borrow money to live in a house, the suggestion is that the government suddenly owes us money for the loss of value in an investment. You see the message there don’t you…”don’t tax me when I make a lot of money…and forgive my debts when my investments tank”. It’s so hypocritical!
How do people keep a straight face when they say the government should stop giving people money but then when the government says…”you’re right…we’re going to stop giving people money…but you fall under that umbrella of folks who are getting money from us” those same people turn right around and say…”yeah well, I didn’t mean stop giving me the money you’re giving ME…I meant the money you’re giving THEM!”
motherjanegoose
November 29th, 2012
3:53 pm
@ who…Those who are able to get and keep a mortgage may perhaps have a stronger work ethic? I have been told that it is getting harder and harder to qualify for a loan, so the applicants may very well have to be solid people who have stuck with their jobs. payed their bills and kept their nose clean. The deduction helps new home owners who have minded their p’s and q’s, get into a home. Not so much for me, as mine is mostly principal.
Denise
November 29th, 2012
3:53 pm
@So Denise….no I didn’t vote for President Obama because we are both Black.
Denise
November 29th, 2012
3:54 pm
@So Denise….In case you forgot, I’ve voted for White men since I was 18. Not a race thing for me.
motherjanegoose
November 29th, 2012
3:54 pm
@ who…is this not the same as, NOT IN MY BACK YARD.
who knows what evil lurks in the hearts of men
November 29th, 2012
4:27 pm
@MJG…so your point is that if one has “payed their bills and kept their nose clean”…THEN the government should give them money?
who knows what evil lurks in the hearts of men
November 29th, 2012
4:31 pm
@MJG…ok so you said..”The deduction helps new home owners who have minded their p’s and q’s, get into a home. Not so much for me” But you also said …”When we bought this house 15 years ago, we were worried if we could afford the mortgage. Now, we are on the tail end.” So apparently you were close enough to the edge of not being able to affort the house that you worried about it and presumably benefited from the tax break you received.
I’m just confused now…are you FOR the government giving money to people who buy homes or against it?
Bobo
November 29th, 2012
4:38 pm
Who knows what evil……you’re right about me wanting the government to piss up a rope, and you can do the same if you want to continue with your patronizing tone towards everyone who disagrees with you. While you CAN say that our tax rates are lower than 1980 and you’re right that I won’t find a resource to back up anything in the last 30 years, you CANNOT say that about post-WWII America for anyone EXCEPT for the rich. The average middle class person is getting hammered far worse than at any point before the Carter administration.
Philosophically speaking, I have a big problem with government intrusion into social ‘morality’ and complelling people to forcibly do more for the people who refuse to do more or waste the fruits of the efforts of others. Politicians want a blank check to spend endlessly and most of them have no business making decisions at all, let alone speaking for anyone else. We are at a period where REPRESENTATION of common men is virtually non-existent and TAXATION is completely out of proportion.
It’s time for an Atlas Shrugged moment in the U.S. where all of the working people get sick of it all and refuse to do anything until they are treated with dignity and respect. What could the IRS really do about it if 30 million of us refused to pay our taxes. If they garnish our wages, then we just all quit and apply for government benefits. It’s a zero sum game for the government. Of course people don’t have the courage or the willingness to be uncomfortable, such that they would actually do that to wage a peaceful revolution. Eventually this will come to bloodshed, be it 20 years or 50 years.
clem
November 29th, 2012
4:48 pm
take away deduction on second homes thru phase out by lowering the amount of deduction over 10 years. most folks in that situation should be able to figure it out. no to taking deduction away on first home unless there is a commensurate reduction in tax rates which is unlikely in current atmosphere. otherwise the rich will pay off their mortgages with cash and middle americans will be stuck with a huge tax increase on a necessity of life.
who knows what evil lurks in the hearts of men
November 29th, 2012
5:04 pm
@Bobo…i don’t disagree with much of what you say…I just disagreed with the parts where you presented your opinions as facts. oh..and I wholeheartedly disagree with your premise that a sensible solution to our countries woes is fixing it via revolution.
We’ve got problems, no doubt about it…but there are sensible, moderate solutions that could put this country right back on track to being one of the greatest in human history if a sense of national sacrifice BY ALL and common sense prevailed. And I agree with you…I do come off as sarcastic and patronizing when arguing points…..but we all have our styles…and I welcome you calling me out on it, because it’s only fair when I’m going to call you out on your vitriol and rage towards everyone who in your view is a dreg of society.