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Whither the Mortgage Interest Deduction? Only 25% of Tax Filers Claim the Mortgage Deduction
Confounded Interest ^ | 12/11/2012 | Anthony B. Sanders

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 ...


TOPICS: Business/Economy; Government; Politics
KEYWORDS: cliff; fiscal; mortgage; taxes
Watch OBoehner butt heads with the National Association of Realtors, National Association of Home Builders and Mortgage Bankers Association!
1 posted on 12/11/2012 10:37:52 AM PST by whitedog57
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To: whitedog57

Thus it is shown how folks have been driven out of the idea of owning a home and instead are forced to rent. Or they live in big cities where one can only rent an apartment. Why not make rent a tax deduction? Of course, if people can’t own their own property, then it makes it easier for the government to control them by saying “Only the Rich can own property” which is what the colonialists came here to get away from, being renters and serfs of the politically powerful.


2 posted on 12/11/2012 10:44:22 AM PST by GreyFriar (Spearhead - 3rd Armored Division 75-78 & 83-87)
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To: whitedog57

Right now the deduction does not apply to homes worth over 1 million bucks. They may half it to 500k. Personally, it doesn’t effect me, I could care less.


3 posted on 12/11/2012 10:49:28 AM PST by TheRhinelander
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To: TheRhinelander
Personally it doesn't effect me. I could care less.

You are naive economically. There is no way this would not effect you.

4 posted on 12/11/2012 10:53:07 AM PST by C. Edmund Wright ("WTF?: How Karl Rove and the Establishment Lost....Again")
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To: whitedog57
“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.

No Anthony Sanders. An entitlement is not when the producers keep their money from the takers. An entitlement is when the takers vote the producers money into their pockets.
5 posted on 12/11/2012 10:55:37 AM PST by PA Engineer (Liberate America from the Occupation Media.)
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To: TheRhinelander

No way Obama pulls the trigger on this one, since halving the deduction to 500K would cost his party the vast majority of voters in the People’s Republic of California, and the Worker’s State of New York.


6 posted on 12/11/2012 10:56:49 AM PST by SecondAmendment (Restoring our Republic at 9.8357x10^8 FPS)
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To: whitedog57

HEY!! I claim it! Do away with this and it will bury me and my family!


7 posted on 12/11/2012 11:00:06 AM PST by lesko
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To: C. Edmund Wright

My house is worth far less than 500k. My effective federal tax rate was 8% last year.


8 posted on 12/11/2012 11:02:07 AM PST by TheRhinelander
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To: lesko

I claim it too.

Between this - and the possible AMT trigger....I’ve pretty much decided our family is doomed.


9 posted on 12/11/2012 11:02:47 AM PST by Scotswife
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To: whitedog57
The last four years were the "fun" part of socialism, spending partying. Now comes the "pay back".

Bread and circuses. All we need are the tunics and we are there...

10 posted on 12/11/2012 11:04:26 AM PST by central_va ( I won't be reconstructed and I do not give a damn.)
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To: whitedog57

Now is not the time to be twiddling around with anything that would depress residential real estate further. I don’t care what the justification might be. Leave it alone. If there’s a rational rationale, save it for better times when the market can absorb it. It cannot at present.


11 posted on 12/11/2012 11:05:04 AM PST by RegulatorCountry
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To: whitedog57

Interesting history, in that you post (and excerpt) from a single source:

http://www.freerepublic.com/tag/by:whitedog57/index?tab=articles

Is there a particular reason for you to excerpt this blog?

It’s your blog, right?


12 posted on 12/11/2012 11:18:40 AM PST by humblegunner
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To: whitedog57

Take away the mortgage interest deduction and you might as well kill Schedule A with all of the other Itemized deductions like State Taxes, Medical Deductions, Charitable Donations, Casualty Losses and the rest. I am one who waited for years to be financially able to put my 20% down for a mortgage. Where is President Obama’s legendary ‘FAIRNESS’ in taking away something that I had every reason to trust would continue in my budget?

(Oh, that is right, he hasn’t been able to pass one yet, doh!)


13 posted on 12/11/2012 11:19:24 AM PST by SES1066 (Government is NOT the reason for my existence but it is the road to our ruin!)
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To: RegulatorCountry

My thoughts exactly. The real estate market is making a feeble comback. Congress’s reaction: stomp it out.


14 posted on 12/11/2012 11:22:38 AM PST by firebrand
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To: TheRhinelander

It doesn’t matter what your situation is, any thinking person knows this would be a huge and sudden shock on the entire economy, including the values of every single home out there, regardless of the value. Not only that, selling any home would be more difficult, making them all in effect totally worthless.

You would be screwed too - perhaps more indirectly than directly - but you would be screwed. You don’t live in a bubble.


15 posted on 12/11/2012 11:22:45 AM PST by C. Edmund Wright ("WTF?: How Karl Rove and the Establishment Lost....Again")
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To: SES1066

My mortgage is so low that the deduction is less than the minimum automatic deduction, even itemizing. So it does not benefit me to claim it anymore.


16 posted on 12/11/2012 11:23:27 AM PST by rstrahan
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To: rstrahan

So do you think you are immune to this proposed change?


17 posted on 12/11/2012 11:26:44 AM PST by C. Edmund Wright ("WTF?: How Karl Rove and the Establishment Lost....Again")
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To: whitedog57

Home values will drop.
Rent will go up.
I have claimed this deduction for 20 years. It will hurt me and my family if it goes away.

But I have long complained about loopholes and deductions for certain industries and special interests. I feel I would be a hypocrit if I said “absolutely not”. But it should be one of the last deductions to go, not the first.


18 posted on 12/11/2012 11:38:31 AM PST by toast
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To: whitedog57

What this tells us is that there are really only a small percentage of homeowners that have paid their bills, their mortgages, etc. on time and are current enough to actually claim the deduction.

So many who don’t, or haven’t, paid their payments, playing cat and mouse with the foreclosure process - waiting for Uncle Obama to ‘reset’ the slate to ‘fairness’.

Then again, Obama has an awful awful lot of Section 8 home occupiers who could give a damn about claiming any deductions - they get a free deluxe ride on the tax rebates (that they never paid).


19 posted on 12/11/2012 11:41:32 AM PST by Gaffer
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To: toast

So many people have forgotten the allure of going into debt for a house. You’re young and healthy - working. Borrow on a home, get the deduction and PAY IT DOWN! The interest slowly goes down after the massive all-interest payments in the early years. Principal takes over and the debt gets smaller and smaller.

Before the bust, rising home prices led to equity borrowing, refinancing and equity removal and so on. After all, we had jobs and income and the payments could even stay the same or get smaller. Hello sailboat, new car, swimming pools etc.

Now the house ain’t even worth what we owe on it, and Obama is hell-bent-for-leather on taking away that little deduction that can still give us some cash back to pay the taxes on the damned house, car and boat, etc.

He NEEDS that cash so he can still pay his effing leeches. Those so-called Americans that don’t want to work but still live like us - solely because they still have the right to vote - for Obama.

It’s a fine damned mess, ain’t it? I’m just hoping that I’m still around when everyone figures out this dog don’t hunt.


20 posted on 12/11/2012 11:50:04 AM PST by Gaffer
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To: GreyFriar

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).


21 posted on 12/11/2012 11:56:29 AM PST by Alberta's Child ("I am the master of my fate ... I am the captain of my soul.")
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To: whitedog57

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.


22 posted on 12/11/2012 11:58:14 AM PST by Wuli
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To: whitedog57
Borrowing money for a house used to be a rational thing to do because the banking system was rational, but now that the banking system is run by a psycopathic kleptocracy, borrowing money is an irrational thing to do.

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.

23 posted on 12/11/2012 12:10:22 PM PST by E. Pluribus Unum ("The more numerous the laws, the more corrupt the state." - Cornelius Tacitus, Roman Senator)
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To: whitedog57

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.


24 posted on 12/11/2012 12:13:05 PM PST by WinMod70
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To: TheRhinelander

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.


25 posted on 12/11/2012 12:51:39 PM PST by kidd
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To: rstrahan

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.


26 posted on 12/11/2012 1:31:30 PM PST by Resolute Conservative
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To: whitedog57
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.

27 posted on 12/11/2012 5:31:10 PM PST by conservatism_IS_compassion (The idea around which “liberalism" coheres is that NOTHING actually matters except PR.)
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