Posted on 07/28/2011 1:12:56 PM PDT by illiac
WASHINGTON (Reuters) - Lawmakers are eyeing a popular tax deduction for mortgage interest as they look for ways to fill record budget deficits, although any changes are likely to await a broad reworking of the tax code.
Two forces are conspiring in a way that could put the long-cherished deduction on the chopping block: a need to raise more revenues and a feeling among policymakers that government incentives for housing have been too generous.
"It's a confluence of several factors. First, it's such a large tax break," said Donald Marron, director of the Urban-Brookings Tax Policy Center. "And the tax treatment of housing is much more favorable than we provide for most other investments people undertake."
(Excerpt) Read more at finance.yahoo.com ...
“I can’t see how they could make it apply to existing mortgages which were contracted with the mortgage interest deduction factored into the decision.”
Why, because the government can’t mess with the obligations of contracts? Newsflash, they do that all the time.
The answer is: The rest of them.
I don't think when you bought your house would have any effect on the tax owed. They create new deductions and eliminate existing deductions all the time. However, I can see this causing a big spike in the number of foreclosures...
Moron politicians need to remember doing away with tax shelters that supported investment in commercial real estate as part of the Tax Reform Act of 1986. The value of commercial real estate dropped precipitously overnight, the leveraged structures immediately ceased to cash flow, and banks took huge losses, almost 100% as a result of the tax law change.
When banks started failing because of the change, politicians blamed poor banking practices. But the commercial real estate losses, and commercial real estate loan losses, were almost entirely instigated by the change in tax law.
Fast forward to now, when both commercial and consumer real estate values are in the tank and banks are failing right and left. While the tax shelters needed the tax deduction to make the leverage transaction work, there will certainly be very significant decreases in single-family home values as a result. That will aggravate an already weak housing market and weakness in the banking sector, which has been just about beaten to death over the last four years by the economy, real estate values, unemployment and a ridiculous proliferation of onerous regulation.
In truth, I am not so much opposed to the idea, but even in good economic times, this needs to be phased in over several years. But the worst thing is, it would be very hard to pick a worse time to do this. In the current environment, this borders on INSANE, but given the timing, it is likely motivated by malicious intent.
Government in general has pretty much got it's way, however, my point being is, I'm glad I own because for many that deduction is what makes their home affordable.
Being unemployed, I'm glad I took care of bill's, didn't overspend, and ALWAYS lived within my means so I have enough of a cushion to survive until we get a true leader at the helm.
I find your login to be a very interesting one. ; )
Actually, this would not interfere with the obligation of contracts. The government is not required to keep a particular deduction just because you relied on its availability when making a business or investment decision. The contract is between you and the lender - not between you, the lender and the government (unless you have an FHA loan).
So...
Renters will have higher rents as landlords will pass along their higher costs.
Housing prices will sink even more as people use the mortgage deduction to recapture some of their interest payments throughout the year. If you pay $100 in interest and get 33% back, it’s a reason to buy and stay.
The basis for a lot of Government spending for schools, cops, etc. is property taxes and assessments. These will also increase as more people will fight to have their homes re-assessed due to this government intervention.
The Marxists want 100% of all private property, all money, all goods, all services, all land and every aspect of your life, including your doctor, teacher, job, internet access or travel to be eminating from government.
It’s sick.
Absolutely. Abolish the Department of Education first. Energy and Commerce can be subsumed into other departments if they are even necessary. Health and Human Services should be dealt to the States. After all of that, look at taxpayer deductions, if at all.
the millionaires and billionaires will really feel this one...of course no one who makes under $250K will pay a single penny of more tax, obama said so
sarc
schweet! there goes my only write-off
thank goodness... now i’m at a flat tax of 50%.
just awesome
/sarc
up next, 401ks ... and then the confiscation starts
why would you want to?
for the privilege of paying property taxes and living in neighborhoods overrun with cheap houses given up by people who cannot afford them when financial terms change in the middle of the game?
bought by...? Or given away by the govt?
isn’t the usual argument there will be so many other more beneficial for the middle class to invest?
“Actually, this would not interfere with the obligation of contracts. The government is not required to keep a particular deduction just because you relied on its availability when making a business or investment decision. The contract is between you and the lender - not between you, the lender and the government”
Yes, I know. That’s my point (partly).
Same with us.
A few thoughts:
a) While I am homeowner who gets a significant tax benefit from it, I am not philosophically opposed to eliminating this deduction. I don’t see any particular reason why home mortgage interest should be deductable. However, if the HMI deduction is ever eliminated it should be offset by equal tax cuts.
b) That said, eliminating it now would be INSANE. The average homeowner currently taking the deduction would pay about $3,000 a year more in taxes. This would force many more into foreclosure. Also, those who bought their homes during the bubble would be some of the hardest hit, as the bulk of monthly payments on newer mortgages is interest as opposed to principal. It would also strongly affect recent buyers, who bought after the bubble.
c) Not only would foreclosures skyrocket, home prices would plummet, putting more and more homeowners underwater on the mortgages. If the average homebuyer needed to pay an extra $250 a month in taxes, it would shave nearly $45,000 off the purchase price that would fit their budget.
Points b and c could create a perfect storm that could cause the bottom to fall out of already depressed housing prices.
We need MASSIVE spending cuts, not tax increases.
Fortunately, I highly doubt this can pass as it would be political suicide for most of congress and the president.
Well put and I agree it would be political suicide....
I wasn’t suggesting that it would be a good idea to buy two. I was pointing out that the elimination of that deduction will have an adverse effect on the price of real estate.
Maybe enough to provide homes for all those apartment dwellers who've been subsidizing interest mortgage deductions for freeloading home owners.
I doubt very much if any lender referred to the interest tax deduction on the face of any promissory note or recordable mortgage instrument. All they show is the P&I breakdown, the tax and insurance escrows - that sort of thing. In short, all the stuff you should be expecting to pay. No mention of a portion that you might get back in the form of an income tax credit. The notary or attorney might make mention of it at the closing, but that's about it.
If this change would only apply to subsequent loans, they wouldn't be considering the change. Not enough money there, fast enough.
You're right - the new law will only apply to fat cats who own jets... /s
It is not an additional tax, just a reduction of the taxable income. We don't get that reduction for other interest we pay -- auto loan, credit cards, etc.
Remember -- we are taxed on our income -- on our labor and our gains. The deductions just let us keep a little more of the fruit of our labor.
Regardless of whether the mortgage interest deduction is right or wrong, it is currently in place and if they take it away, it is a TAX INCREASE on everyone. This includes renters because the landlord/property owners will pass the increases on to their tenants.
FUBO
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