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?