Posted on 12/11/2012 10:37:48 AM PST by whitedog57
There was a nice piece in the Los Angeles Times on the fate of the mortgage interest deduction. President Obama’s deficit commission (aka, Simpson-Bowles) proposed lowering the limit on mortgage principal eligible for a deduction to $500,000 from the current $1 million, removing any break for interest on a second home and turning the deduction into a tax credit capped at 12% of interest paid.
“This is a sacred cow to the real estate industry, and it’s almost an entitlement to homeowners,” said Anthony Sanders, a real estate finance professor at George Mason University. “They could cut it in half and it would not harm a lot of middle-income households.”
According to the Internal Revenue Service, in 2010 only 25% of households used the mortgage interest deduction (of all tax filers). There were 142,856,282 income tax returns filed in 2010, but only 36,362,426 of those filers claimed the mortgage interest deduction.
When I said that the middle class would not be harmed, what I meant was that only 9.82% of households earning between $50,000 and $100,000 used the mortgage interest deduction (although this income segment accounts for 33.41% of all mortgage interest deductions claimed).
But if we consider “the rich” (defined by the Obama Administration as earning $250,000 and more) claim only 1.42% of mortgage interest deductions of all filers, although this groups claims 11.27% of total mortgage interest deductions.
*Given that the homeownership rate is 66% in the US, even I am surprised to see the relatively low level of households actually claiming the mortgage interest deduction. Unless the IRS numbers are wrong, of course.
(Excerpt) Read more at confoundedinterest.wordpress.com ...
Not really. A lot of the taxpayers who don’t take advantage of the mortgage interest deduction either own their homes outright with no mortgage, or they don’t pay enough interest to make it worthwhile to itemize their deductions (and therefore simply take the standard deduction on their tax returns).
I am in favor of doing away with the mortgage interest tax deduction, if it was part of a broad tax overhaul that a)lowered and flattened all the tax rates and b)eliminated all deductions, exemptions, credits and exclusions; if, in other words, there was one set of rates, period, and that’s what everyone paid, period, regardless of how they spent their income during the year.
Individuals, just like corporations, deserve a tax code that does not try to bend their economic activity toward tax avoidance, but allows and encourages them to make the best financial decisions for themselves, decisions neither helped more nor disadavanted more than other decisions simply by the tax code.
Conservatives claim to be about SMALL government and then vote their own personal self-interest when it comes to the social engineering of big government through the tax code.
If you have a mortgage, pay it off. If you want a house, save every last penny you can and pay cash.
Bernanke and company would rather rape you than look at you.
This will leave a mark. Going back to the Clinton era economy is sounding better all the time, hell back then you (well they) could deduct the interest along with the principle..and you old used skivvies.
Do any shopping at a small business? Gun store, groceries, gas station, garden store, etc.?
Do you think they will eat the cost of the extra taxes, or pass the costs on to their customers?
And when the government finds out that cutting the mortgage deduction by half didn’t raise enough money, what do you think they’ll do next, now that they have their “foot in the door”?
A: Half it again to $250K or eliminate it entirely.
My interest and all my deductions never amounted to more than the standard. I never got to claim it.
The illusion of home ownership. It is BS. Stop paying your taxes on a paid for house and see how long you own it. Just ask ranchers/farmers whose land that was for years very rural and now in a suburban area what happens when taxes go up. They are forced to sell all or part to housing developers to keep from losing the family land.
Back in 2000, Steve Forbes promoted "a flat tax that’s a tax cut.” He wanted to eliminate the mortgage deduction, and he also wanted to eliminate the taxability of interest received. He got huge flak from the Realtors, and he tried to defuse it by emphasizing that most people would still make out under his plan. But he failed, signally.What he should have done was to emphasize the effect of the non taxability of the interest income: It would mean that the borrower was "selling a tax-free bond."If you were paying 5%, say, and the flat income tax rate was 20%, the lender in the current deductibility scheme would have to pay one-fifth of your interest payment to the IRS. Then you would claim that 5% interest payment as a deduction - and the result of that deduction would be to cut your tax liability by exactly the same amount that the lender had to pay the IRS. In other words, under a flat tax the precise revenue effect of interest deductibility is to cancel out the tax revenue from the income tax the lender has to pay. So eliminating the income tax on interest received would cut the borrower’s interest rate in a way which would exactly offset the effect of eliminating the deductibility of interest.
Forbes should have pointed that out and he should have emphasized and proved it by “dirtying up” his clean bill with a grandfather clause, saying that in-being mortgage interest rates would automatically be discounted by the tax rate. An automatic refinancing to a lower interest rate, exactly canceling the effect of the elimination of the deduction and eliminating paperwork for both the lender and the borrower.
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