Skip to comments.Mortgage interest deduction focus of debt debate
Posted on 09/04/2011 9:07:32 AM PDT by SmithL
Washington -- Ending tax breaks for oil, corporate jets and hedge fund managers is nearly every Democrat's favorite way to reduce the federal debt. But one of the biggest tax breaks of all is heavily skewed to wealthy residents of San Francisco, San Jose and California's other upscale coastal cities.
It's the mortgage interest deduction, and its benefits are heavily concentrated in a handful of pricey cities, none of which votes Republican.
As the new super committee of Congress sets about finding another $1.5 trillion in deficit reduction by Thanksgiving, tax breaks of all kinds, including the interest deduction, are getting new scrutiny. Beloved by the public and the real estate industry, the deduction will cost the government more than $1 trillion over the next decade.
But few homeowners, even those claiming the deduction, know how skewed it is by region and by income. For young, affluent San Franciscans, it is tailor-made.
Just three metro areas - greater New York, Los Angeles and San Francisco - receive more than 75 percent of the subsidy, according to a 2004 study by economists Todd Sinai and Joseph Gyourko. Mortgaged homeowners in the San Francisco and San Jose region receive $4.6 billion a year from a tax break for what are known as McMansions, according to a study this year by John Burns Real Estate Consulting in Irvine.
The tax break is available to anyone who borrows up to $1 million for a mortgage - including for a vacation home - or takes as much as $100,000 in a home equity loan.
(Excerpt) Read more at sfgate.com ...
There you go- the underlying philosophy that your money belongs to the government and any that it lets you keep, is an “expenditure” by the federal government
BTW- I doubt if any of those pricey houses pictured in the article even have mortgages
Mortgage interest deduction helps the middle and upper middle class. Let the “super committee” tell obama it is OK to suck away extra tens of thousands of income the middles and upper middlers are now using to pay for housing (and qualified for their loans by assuming) ... give it to the feds to waste....and watch what happens.
No mention in this article that the AMT already bites people in this income group and limits all deductions
The deduction is yet another attack on citizens. Look at the mass refi plan of the Adm.
This study is woefully out of date. Home prices have tanked since 2003-4.
Everyone knows this, so I assume out-of-date reports are being used on purpose to push the statist agenda.
What does that mean? Lenders--i.e., banks, Fannie/Freddie, holders of RBS securities such as insurance companies--will all take huge hits to their capital. And, who stands behind that? The taxpayer.
I would guess that, in keeping with the Obama war on success, any such change would occur for higher priced properties, or in the form of income-based phaseouts, in which case it wouldn't cover all homes, and would primarily amount to a stealth increase in marginal tax rates for the relatively better off.
Ww lost our ability to deduct the first time it was cut(1989?) so this really means zero to those us us who live within our means.,....
Same here, could never use it.
Re post 8:
I’m not sure what your point is. If you have the means to buy a home as opposed to borrowing the money, it usually makes sense to do so. However, most homeowners don’t have that choice, as evidenced by how many homes have mortgages.
So, given that money is going to be borrowed by most people, it follows that making the cost of borrowing more expensive is going to hurt home values.
Another brilliant idea by liberal turkeys. Let’s wreck home prices
even more, they haven’t dropped fast enough.
Of course it’s going to hurt home values but not as much as you think.
There are a lot of people making bad wealth creating decisions because of that interest deduction. If we were to eliminate that incentive to be stupid with money, Americans would be much better off. For instance a lot of people who are not good with money made the decision to buy homes because of Fannie/Freddie guarantees and the interest deduction. Now that the bubble has popped, they’ve had what little they could save wiped out.
Negative cash flow predicated on building fake equity does not increase home values.
I think it’s high time we got home prices to their natural level. It’s beyond me why another housing bubble should be encouraged.
Just for the record, I think 10 to 15 percent if it's done across the board. If it is just done by lowering the exempt amount from $1mm to, say, $400K, there will be compression of prices--higher priced homes will be hurt some, lower priced homes might actually be helped as people will shift down in their purchases.
Okay. Let’s say it’s 15%. What you’re saying is that the government has inflated home prices 15% above their natural value with this deduction. Do you think that’s a good thing?
Of course not. In fact, I think that policies like CRA have inflated home prices a lot more than 15% from trend--look at any chart, like the Case Schiller index.
It would be better if it had never been done. But, we are where we are, and if you let the air out all at once, there will be consequences--some of which I've listed. If home prices drop 15% because of a sudden adjustment, in addition to the drop they've already experienced, there will be a lot more underwater banks and securities.
Now, if an adjustment policy were to take place over some longer period of time, like 8 to 10 years, the shock would be diminished, and I'd be willing to discuss the policy on its merits (which are actually substantial).
I can see phasing it out in oh, say 10 years, as many have already planned the deduction into their lives and budgets around the deduction. Once in place it’s not something that should be jerked out from under homeowners. The deduction is hardly just for the “wealthy.” Are they trying to catch up the remaining home owners that they didn’t grab through foreclosures?
-—”There are a lot of people making bad wealth creating decisions because of that interest deduction. If we were to eliminate that incentive to be stupid with money, Americans would be much better off. “
Ah, a rational person here among a bunch of RINOS.
I can’t believe all the Freepers who go ballistic on “RINOS” yet when the Home Mort Deduction is up on the table for elimination, they’re squawking bloody murder.
Don’t you people get it that the Fed meddling with the markets and with people’s buying decisions is WRONG. The FED had deemed that “homeownership is good, therefore, we will subsidize one class of people over another.” Don’t you guys see this is the same kind of “social engineering” that President Obeyme Chewbacca does every day??
I have a hefty mortgage, but OUT OF PRINCIPLE, I’m all for eliminating/phasing out the deduction. That’s what having a fiduciary sense about the country means (I can divorce my own self-interests from my decision-making) and make ETHICAL choices.
All you people here whining about the potential for losing the deduction are allowing your personal self-interest to get in the way of evaluating the issue from a purely ethical standpoint.
Furthermore, getting the Fed out of the Home Mortgage Deduction business would seem to be compatible with both the Tea Party platform and the Libertarian platform: Less Fed Meddling in the affairs of private individual choices.
AMEN! Like I said our interest has never been enough to deduct so this means nothing to me.I’ve always thought it was backwards....why should those who can afford a $300,000 home be able to while those of us who bought the under $100,000 not be able to.End it of all or let everyone have it.
“and if you let the air out all at once”
But if you don’t let the air out all at once, we create uncertainty as people wonder what their home will be worth once the deduction is gone.
That’s where we are today. We all know there will have to be some sort of fix to the real estate problem, we just don’t know what or when it will be. We all know the banks are going to take loses from bad real estate loans, we just don’t know how much they will be or when they will be put on the books. We all know the SEC et. al. will come up with financial reform regulations, we just don;t know what they will be or when they will go into effect. And so on and so on.
I think the best thing to do would be to take the housing price kick in the shorts as quickly as possible so we can get back to building wealth.
Washington just needs to stop. It needs to overturn all the previous meddling and let us do what makes sense according to the natural state of the economy.
As I recall, that deduction was phased out over a period of several years.
In the case of homes, people made a purchase decision while factoring in the interest deduction. Phase it out gradually over 10 years or so and let the market adjust accordingly.
“...why should those who can afford a $300,000 home be able to while those of us who bought the under $100,000 not be able to.”
You seem to be completely ignoring the vast difference in home prices in various areas of the country. We live in NJ, it is impossible to buy a single family home here for under $250,000.00 Those numbers go higher the closer you get to NYC.
A home that goes for 250K here might well go for 100K elsewhere and 250K elsewhere might buy what would be considered a mansion.
Plus, as another freeper astutely pointed out on another thread on this subject a while ago, if people are not able to take the mtg. int. deduction they probably can’t take the rest of the schedule A deductions, such as taxes, charity, etc.
I don’t know why ANYONE on the right supports this at all. It is going to be nothing more than a huge tax increase on the productive middle class.
And, it is going to permanently ruin the real estate market, it will never recover.
The ignorance on this subject if frightening. I sincerely doubt that John & Cindy McCain or John & Teresa Kerry have EVER taken this deduction.
Let’s focus on the spending folks that’s where the problem is.
No that is not true you must have a minimum of $4000 per year,This knocks out most people who owe less than $100K on their mortgage.
I am not ignorant on it at all my family has been in real estate since I was a child.I just do not think it is fair that it favors people who buy expensive homes while penalizes those who don’t.It would be better to do away with it or le everyone have it no in between.
“It would be better to do away with it or le everyone have it”
There is an upper limit on the deduction, but no lower limit. If your interest is so low that it doesn’t help you to take the deduction (which I assume is what you are saying) how can the tax code help you with that?
You need Schedule A deductions that are MORE than the standard deduction, $11500 (I think) for a married couple $5500 for a single, in between for “head of household”.
The only reason not to take the deduction is if your interest payments and taxes, etc. are less than that. I mean, you could take it but it wouldn’t make sense.
That could well have been me as I have posted such and since I am a seasonal tax preparer.
It is well known amongst our profession that it is this line item that generally opens up the Schedule A (Itemized Deductions) for the tax payer. When you consider that there is a 7.5% of Adjusted Gross Income floor for Medical Expenses (ObamaCare takes that to 10%) and a 2% for such items like Employee Business expenses, the removal of Mortgage Interest can quite easily CREATE new tax liabilities where none existed before even if a general adjustment was made in the Standard Deduction.
Add to this what I consider to be the greatest unfairness of an elimination. It is one thing if this were a change of a recently added deduction but given the fact that the Mortgage Interest deduction has been in the code for generations, there are MANY taxpayers who have computed their budgets and made intelligent trade-offs based upon this 'certainty' in the tax code. It is hard to see how this tax deduction can equitably be removed unless we go to exclusive "Fair Tax" on some other equivalent consumption tax. I will be firm in my opposition in any other circumstance.
“most homeowners dont have that choice, as evidenced by how many homes have mortgages.”
No, most have bought into the notion that they need a lot more home than they really do.
I assume that means you do not take the mortgage interest deduction. Or do you, like Windbag Warren, say one thing and do another?
What about a 10% import tariff? NOBODY EVER CONSIDERS THAT? WHY?
Do they still allow deductions for second homes? If so, that should be the first to go.
If they do eliminate the mortgage deduction, it should be phased out in 20% increments or so - five years to give some people time to adjust.
My boy still has 25 years of working/taxing life ahead of him but is down to a five year payoff with his mortgage. He well understands the lunacy of paying $10,000 in interest to get a $3,000 tax deduction.
“I will be firm in my opposition in any other circumstance.”
Me too. I do taxes too and I’m also a bookkeeper, it is amazing how little even well-informed people are about the tax code and how little the media, even the conservative media informs them about it.
The payroll tax reduction that is currently in effect, that is stupid, it would have made more sense to reduce the employer’s share. At my firm we’ve already gotten hit up for extra taxes to replenish the state and fed’l unemployment insurance funds. Nobody realizes this, heck my bosses wouldn’t even realize this if I didn’t point it out to them.
In NJ the employee’s share of Unemployment maxes out at about 20k (I forget exactly how much, thank goodness I haven’t had to file one of those forms for years). For most of our staff this is around mid-year. I have people ask me year after year why did their net pay change.
I think it was your post I saw before, I was very happy to see it too.
And I’m one of those people. We just bought a house 3 years ago, I lived in rental apts for the first 50 years of my life. I don’t know how the loss of this deduction would effect me, I’ve tried to run the numbers a little bit, but I don’t have enough info.
Huntsman plan, for example, they talk about the 3 rates, but they don’t say what income level they’d kick in at. If I’m in the 14% bracket I think I’m OK, if I”m in the 24% bracket I’m screwed royally.
I’m getting very tired. I miss Bill Clinton even, at least Clinton remembered where he came from. What happened to work hard and play by the rules? I don’t think Obama even knows that people like that exist. Either you’re some victim, or you’re rich, in his mind. What an insult he is to everyday working people. He says he’s got “more money than he needs” and then he goes away to the tune of 50K a week; I guess he DOES have more money than he needs. So, as I asked the WH when I called to b*tch and moan, why does he take the salary? Kennedy didn’t take it, Bloomberg doesn’t take it, I don’t think Corzine took it. The man is just insulting.
I also really resent it when I read that elimination of the mtg. deduction will mostly effect people who live in the wealthy coastal “blue” states. Well I live in one of those states too, along with MILLIONS of conservative, patriotic tax payers.
I pay enough in taxes, not one penny more, that is what they’ll get from me.
It's the spending, stupid!
Do they still allow deductions for second homes? If so, that should be the first to go.Good for your boy, for he is wiser than many of us.
If they do eliminate the mortgage deduction, it should be phased out in 20% increments or so - five years to give some people time to adjust.
As far as that second home deduction goes, our congresscritters (of both parties) count on that deduction in order to have a nice place to live in Washington, while supposedly looking out for our best interest. I don't envision that deduction ever going away.
"No, most have bought into the notion that they need a lot more home than they really do."
While factually true, that's not a fair statement relative to the prevalence of mortgages. Yeah, if the house is a bit bigger than necessary, the mortgage will be too. But, most people who buy up buy perhaps 25% more house than they need. However, the mortgage downpayment is typically under 10%--sometimes a lot lower. So, typically over 90% of the house price is being financed.
If people bought smaller houses that they could more readily afford, their mortgages might drop by a quarter, but most of them would still have mortgages.
Congratulations for saving until you could buy. But, my comments are based on the behavior that is out there, not the behavior that would be more ideal and more thrifty.
—”I assume that means you do not take the mortgage interest deduction. Or do you, like Windbag Warren, say one thing and do another? “
Nice try, but I stated that I WOULD VOTE TO REPEAL THE MORT DEDUCTION.
Until everyone doesn’t get the deduction, I see no reason to treat myself differently.
I want ALL people to NOT have the deduction because I don’t think it’s the place of the FED to meddle with the markets.
Yes, I could prove a point by not taking the deduction, but in the current system, I’d be disadvantaging myself against all others.
No hypocrisy there, but nice try.
I have a large mortgage as well. I would be happy to give up the interest deduction as long as the rest of the country paid the same tax rate that I do. In fact, I would give up all deductions as long as everyone paid the same tax rate I do. The second American revolution would start the day everyone else got their tax bill!
Who owes less than $4000 a year? I pay more than that a month
“I cant believe all the Freepers who go ballistic on RINOS yet when the Home Mort Deduction is up on the table for elimination, theyre squawking bloody murder.”
This is nothing. You should check out the Social Security threads!
I squawk bloody murder every time FedGov raises taxes. The interest deduction is a good thing. Dont’t give an inch on taxes.
Man you must have one nice crib. Can you post a picture?
“The interest deduction is a good thing.”
No its not.
“The FED had deemed that homeownership is good, therefore, we will subsidize one class of people over another.”
The Fed? The Fed has nothing to do with setting housing policy. That’s a political decision coming out of Congress and the executive branch.
The home-ownership-for-all goal was promoted by both Clinton and Dubya- try googling the “American Dream Downpayment Initiative” and see who made a speech to HUD praising Fannie and Freddy and “free” downpayments for select minority home buyers. His initials are GWB.
I haven’t seen anyone here identify one of the major culprits in igniting the housing boom- in the late part of the Clinton regime a law was passed exempting from tax $250k from the sale of a house- $500k for a couple. No other asset class gets an exemption like this. It was a huge magnet attracting investment money into housing.
Soon after this law was passed the NASDAQ bubble popped. People were soured on stocks, and here you had housing with this wonderful tax exemption. Not to mention the usual mortgage interest deduction. In California in particular, the land of the jumbo home loan, housing prices rapidly were bid up to the exemption limits as flippers piled in.
But other than that I’m pretty much in agreement with you. Tax preferences distort the real estate market. It encouraged people to buy for tax reasons when renting would have been a better option. It also makes real estate more expensive. And AFAIK that $250k exemption is still the law.
No income tax is a good thing. I want to keep as much of my money as possible. You can label it anything you want. A tax is a tax is a tax.
-—”The Fed? The Fed has nothing to do with setting housing policy. Thats a political decision coming out of Congress and the executive branch.”
I was referring to the Federal Gov’t (Congress + WH + Supreme Court) as they are the ones who influence IRS tax policy (e.g. mort ded).
You thought I meant the Federal Reserve Board?
Of course not.
It’s unfortunate that even here on FR people are more than willing to eliminate any tax deduction as long as it doesn’t affect them personally.
Eliminating this deduction will adversely affect the real estate market. It’s already depressed and it will get knocked down another 10 to 20%
What more can this administration do to destroy our economy? Oh, I forgot, force the banks to write more loans for people with bad credit. The very thing that got us into trouble they’re forcing on the banks again. There is no end to this lunacy.
The behavior is out there because the symbiosis of mutual greed makes bad the norm.
Unfortunately people don’t mind taxes as long as the other guy pays them. The only fair way forward is either the flat or fair tax. But I am sick to death of paying 6 figures in federal tax and listening to those who pay no tax tell me I’m not paying my fair share.