I never figured out why that was a desirable benefit, sounds like a giveaway to the lending lobbyists/mortgage industry. Why wouldn't it be better for you to write off the principle?
(because you'd tend to pay it off sooner and save money?)
Agree. You’re still losing money even with the tax benefit hanging onto the mortgage. Just pay the thing off and be out from under that worry. One day circumstances may change and you won’t be able to afford that payment and you’d be out on the street. Same crazy thing with the idea it’s good to have credit card debt hanging over you and accumulating interest.
Sure, someone will jump on this saying debt is good and helps your credit score. Fine, let them have debt. I’ll stick to being debt free (knock on wood) and having excellent credit.
I agree with you about the mortgage interest, but if you got rid of it all at once a lot of people wouldn’t be able to afford their mortgages, mostly the recent buyers whose payments are almost all interest.
First of all, the mortgage interest deduction (and property taxes, which will go away in this proposal) is a huge deduction for most people. It can be the difference in purchasing and not purchasing a home. If you are living in an apartment and paying $2,500 - $3,000 or rent you do not get a write off for the rent. However, if you now change your withholdings from 1 to 9 and take that extra tax money each month towards a mortgage, in anticipation of a huge writeoff, you can now afford to purchase a home for about the same as what you are paying in rent.
The purchase of a house stimulates the economy and creates many jobs. From real estate, bankers, escrow, title, contractors, painters, hardware, all the way to landscapers. It is a big jobs creator and is usually a writeoff for many years. Then, when you refinance, pull money out & do improvements, there is more economic stimulation for several more years.
Secondly, nobody gets a deduction for paying principal of any loans – home, car, business. Likewise, when you get the loan, you don’t have to claim the loan funds as income. It is a fundamental accounting principal. The principal part is merely a balance sheet transaction that does not affect income or expense. The lender reduces Cash & increases Accounts Receivable. Both Balance Sheet transactions. The loan recipient increases Cash and increases Accounts Payable, then simultaneously reduces Cash and increases Assets (the home). Again, all balance sheet transactions. The payback of the loan is just a reversal of this process and again, does not affect revenue & expenses.
The mortgage interest is an expense – the cost of using other people’s money. So when you pay interest, the lender records Income and the payer records an Expense. These are Income Statement transactions and where the revenue & expenses takes place. That is why only the interest portion of a loan is a deduction. The bank records income, the payer records an expense.
Now, the doubling of the By the way, the disallowance of property taxes & state taxes in this proposal is going to be a huge deal, especially here in CA where both are big deductions.