The Mortgage Tax break

[boston bean]

According to this article from the NYT

http://www.nytimes.com/2010/11/13/business/economy/13mortgage.html?partner=rss&emc=rss

The proposal, part of a draft by co-chairmen Alan K. Simpson and Erskine B. Bowles, suggested that the tax code could be streamlined, and income tax rates drastically lowered, by eliminating the $1.1 trillion in annual tax expenditure entitlements — subsidies and breaks given to targeted businesses and individuals. The commission chairmen also offered the option of capping the deduction at $500,000 on mortgages, rather than the current limit of $1 million.

........But tax policy experts say that for all its popularity, the value of the deduction in public policy is debatable. It was intended to encourage homeownership, but housing economists point out that countries like Canada and Australia, which do not allow mortgage interest deductions, have homeownership rates similar to those of the United States.

“What the subsidy is doing is driving up prices by encouraging well-off people to take out bigger loans, to buy bigger houses,” said Roberton Williams, a fellow at the Tax Policy Center. “So I think there’s a question about whether that is something the government should be doing with tax money.”

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Notice the word subsidy....

This amounts to a tax increase on the middle class. However, we wouldn't want to consider taxing billionaires or multi-national corporations to raise a few hundred billion for some fiscal responsibility?

Jesus, they want to squeeze every drop of blood from the stone that aint got but two drops left.

If they remove the deduction, I wonder if I can somehow offshore my housing expense to get a tax break? If I had the know how, I would turn myself and family into a corporation for tax purposes and free speech rights.

[ProgressiveProfessor]

1. Those that advocate for this ignore what it would do to housing prices

Yes, they can go lower here in CA

[Roma]

6. You say that like it's a bad thing, what's wrong with

more affordable housing.

[ProgressiveProfessor]

9. The interim financial carnage would give me pasue

Even more people upside down on thier mortgages, and the walk away rate would skyrocket, especially in non recourse states. For many people home equity it is their only effective retirement savings which would take massive hits. In CA the property tax, already down, would take drop even further permanently.

I see you point, but the road there may be more than we can afford in several different ways.

[Mimosa]

2. The mortgage deduction is part of what keeps Americans buying homes

There simply is no plus side to getting rid of the mortgage deduction.

[stray cat]

3. They could certainly reduce the cap, no middle class family gets a 500,000 deduction

[intheozone]

7. $500,000 refers the amount of the mortgage, not the deduction amount. nt

[WolverineDG]

11. what kind of house has a loan with $500K in interest?

:wow:

dg

[kelly1mm]

13. The deduction is not for 500k in interest per year, rather, it is on the

interest paid on the first 1 million of the mortgage under current law. Say you have a mortgage of 750k. The 1st year your payments would be about $49,000 at 5% for 30 years. Of that, about 38K would be interest and the rest principle. Right now, the taxpayer could deduct the whole 38k in interest from gross income on Schedule A. If it was limited to a 500k mortgage then only 2/3rd of that would be deductible, or about 25k. Assuming that taxpayer is in the 28% tax bracket, the "value" of that deduction would be about $10,650 now and about $7,000 if it was capped at the interest on a $500k mortgage.

[WolverineDG]

15. I own a home; I know how the deduction works nt

[JHB]

4. If the proposal were merely about a tax provision of debatable utility...

...then the sensible thing to do would be to grandgfather in all current mortgages (up to, say, 30 years), and any after a given date (several years in the future) would not be elligible for the deduction. That way, mortgages incurred when the deduction was part of the calculation on affordability would not be affected, and new ones could factor the lack of deduction into their structure.

But that's not the goal of this proposal, so any sensibility flies out the window. The goal here is to squeeze middle and working class families more to offset huge drops in the tax rate for the affluent, rich, and super-rich.

[boston bean]

5. I wonder what would happen when someone tried to resell their home and the new buyer

with the new rules, wouldn't want to pay nearly as much as the seller paid.

It would be a huge loss.

[JHB]

16. Right, but loss for who?

That tells you all you need to know.

Or were you referring to my hypothetical grandfathering scenario?

[indypaul]

8. This would just be another hit to the real estate market that

it could not afford at this time. There are estimates that
this deduction represents between 10 to 15 percent value to
a home. Loss of this coupled with the depressed market of
today would put many, many more homes under water.

[WolverineDG]

10. If the mortgage interest rate was a subsidy, the government would pay me back dollar for dollar

It doesn't, so it's not a subsidy. :eyes:

Don't expect much sympathy here for losing that deduction. The strongest advocates for eliminating it are here on DU & they think those of us who actually *need* the deduction are wealthy, money-grubbing leeches.

dg

[1monster]

12. It would mean my taxes went up in excess of $2,000 per year. We are barely

scraping by now having lowered the quality of the food we eat, being late with payments on a regular basis, our one real extravagance, the visit to the book store twice a month has dwindled to once every two months...

I'd probably have to sell my house just to pay my income tax.

[Abq_Sarah]

14. Keep the deduction for the primary residence

And get rid of it for 2nd homes.