Monday, December 17, 2012

In a time when the U.S. government is looking for tax hikes and ways to cut back and reduce the federal deficit of $16 trillion, the homeowners' mortgage interest deduction is on the chopping block. While the whole deduction might not be scrapped, modifications and limitations to it could affect many homeowners.


According to the Christian Science Monitor/TIPP survey, Americans would rather lose the charitable giving tax deduction than the mortgage interest deduction. The National Association of Realtors (NAR) reports that's because it's a middle class key incentive that helps Americans build wealth.

Suggestions from economists range from implementing an overall cap on itemized deductions, to eventually having a flat credit for the mortgage interest deduction. Other ideas include capping the amount of the deduction, say, at $500,000 instead of $1 million "or the rate at which mortgage interest deducted would be lower than the top marginal tax rate," said Jed Kolko Chief Economist of A complete abolishment of the mortgage interest deduction "could greatly destabilize the economy," says Dr. Lawrence Yun, NAR Chief Economist.

Approximately half of the amount of tax deductions taken by Americans are housing- related. Homeowners who haven't paid down a lot of principal will be hurt the most. Millions of Americans take a tax deduction that can amount to anywhere from an average of thousands of dollars to tens of thousands of dollars per year thanks to the mortgage interest deduction.

Those in favor of reducing or eliminating the mortgage interest deduction claim that it could save the federal government $108 billion annually. Some argue that the mortgage interest deduction is not used by many. New research by USA Today showed that in 2010 only 26 percent of homeowners countrywide used the deduction on their taxes and wrote off their interest paid on their mortgage. However, the study points out that not all taxpayers can use this deduction. It's "only available to those who itemize deductions." A taxpayer's mortgage interest, charitable giving, and other expenses need to be greater than the standard deduction offered.

Expensive housing states like California, Washington, Hawaii, Virginia, Maryland, and Nevada would feel the pinch. Those states can see on average a tax break from the mortgage interest deduction alone of about $12,000 a year per taxpayer which is over the standard deduction for a married couple, filing jointly in 2012 ($11,900).

Many believe that if the mortgage interest deduction is modified or eliminated it will send the real estate market into a tailspin and cause the progress that the market has made to shrink. Opponents also believe this will hurt future buyers who are currently renting.

The National Association of Home Builders says that 73 percent of those it surveyed are opposed to any changes in the mortgage interest deduction. The California Association of Realtors found that 79 percent of buyers listed the mortgage interest deduction as extremely important when it comes to deciding if they'll purchase a home.

Comments: 7
November 13, 2013 3:15 PM
Maricarmen says:
The short sale, by itself, will not afcfet your credit. But you will have to pay off the old mortgage when you sell. If you can't do that, then you're in big trouble.You can always buy another house if you pay cash. The problem is getting anybody to lend you any money.As for The bank will not just let you walk away how are they going to stop you? It's not a crime to own money. But when you are behind in payments, they might get a court judgment and take any money, cars, furniture, etc. that you have. Any if you get any money later, they can come back and take that except for about $200 a week to live on (depends on the state).
November 13, 2013 8:17 AM
Lamis says:
first of all it really is hard geittng a mortgage at your age. most banks will probably say no. they require good credit and proof that you are steadily employed (more than a year at the same job for most banks). in order to have good credit, you must have built it up through other loans (student loans, credit cards, etc) that you have been making regular payments on. if you are only 18 and 19, its hard to imagine you have a high enough credit rating to get a mortgage. plus, you will have a hard time geittng a mortgage unless you have a huge down payment saved up.second of all, i wouldnt recommend geittng a house together when you arent married and are so young. if you split up then you will have a lot of assets to split up, and since you arent legally married (or common law), that could be complicated. and no one wants to imagine the possibility of breaking up but its a possibility especially at that young age and when you are just starting to be adults and work full time, graduate school, etc. i understand your argument about throwing away money on rent payments, but i honestly wouldnt do it if i were you. i would get a low rent apartment for two years until you are 20 and even MORE stable, and then think about it. if you have a low rent payment, then the two of you can put away a certain amount each pay check for a downpayment on a home. then in two years (if you are still together, or even if you are alone) you can put a good downpayment on a home and get a lower interest rate on your mortgage, and be more financially secure.
January 25, 2013 9:00 PM
Navas says:
Definitely send out the dispute letetrs on the collections. If nothing else, it buys you a couple weeks time. Do not tell the credit bureaus about them if they don't reply though. Definitely try to negotiate the balances on those collections. Never send a payment until you have a written payoff amount from them first. NEVER. Before you try to negotiate, be sure you can pay them by Western Union or something within 24-48 hours, so have money ready. Start offering 10 cents on the dollar, they'll probably talk you to 50 (half of balance). Just don't pay til you have a fax or something confirming it, otherwise 2 years later someone will come after the rest.Once you've paid all of them, dispute the accounts with the credit bureaus. Any inaccuracy of any kind is ok to dispute. Most collectors won't respond to disputes on paid accounts. This way, the bureaus are required to remove them from your report. If it doesn't work the first time, keep trying. It takes 45-60 days for each cycle, but it's worth it.Child support would only show up on your report if you have a delinquent balance. The only way to clear this is to speak with the county you are paying. If you are set up on a plan to get caught up, and have been performing as promised for 6-12 months, you might be able to get them to stop reporting the delinquent balance, since you are effectively now paying as agreed .Dispute the late payments on the mortgage. Make your lender prove it somehow. Some lenders delete specific data on payments after some period of time. Demand to know the precise date each payment was actually posted. Demand to know the precise time the check was received by them. If those dates don't match, dispute the late report. Demand anything else you can think of. See what happens. Try, try again.
January 25, 2013 9:00 PM
Maryany says:
Question 1 sounds as if the taegrt is first time home buyers and not established families.I believe that the entitlement programs have to be re-engineered with a GREAT emphasis on fraud. Penalties should be addressed. The words under the table seem to be a common- joking phraze, and should be strongly patrolled. A flat line tax seems to be a good idea to me. Many loopholes could be closed.Fanny and Freddy need to be spanked and given new guidelines. Changes should not be done for political gain, especially when coming up to an election year. We need to find more honest polititions who care about this country and put patriotism ahead of pet projects.
January 25, 2013 11:16 AM
Yohann says:
Tax increases will take cash out of the cosenmurs hands. Arguing that reducing the mortgage deduction does not alter buying but rather only alter how much is bought is valid for first time home buyers. The majority of who this applies to are people that already have a mortgage. Reducing the mortgage deduction will in fact reduce the cash in the cosenmurs hands.I appreciate the need to reduce the deficit but I see that this adminstration, this congress, as well as prior administrations and prior congresses have put us in a no win situation. Two drastic needs that we have right now are in conflict with each other. On one hand we need to grow the economy and increase jobs. On the other hand we need to reduce the deficit and national debt. Both reduced spending and increased revenues will put a strain on the ability for our free market economy to fix itself. Granted there is a certain amount of wasteful spending that can be eliminated without a negative impact on the economy.It is so frustrating that politics plays a part in economic policy. This is why we are in the position we are in today.
January 25, 2013 11:16 AM
Alberto says:
According to the interest triacng rules, this interest is deductible as investment interest. This is assuming that you literally used the proceeds of the cash advance to purchase the stock. There is no requirement that investment interest be secured by the investment. (Qualified home mortgage interest must be secured by the home, but that is a different animal.)Assuming that your credit card debt does NOT get paid off, you will need to keep track of the stock you purchased with the loan. If you sell the stock and do not use the proceeds to purchase another investment, the credit card debt will become nondeductible personal interest from that point forward.Investment interest paid is only deductible to the extent that you have investment income during the year. The portion that is not deducted gets carried forward to following years. The portion that is deductible gets carried to Schedule A, Itemized Deductions, and is limited by those rules.The link below is to Form 4952, Investment Interest Expense Deduction.Incidentally, margin interest is NOT automatically deductible as investment interest. If, for example, you use a margin loan in your brokerage account to purchase a cruise, that interest is personal, nondeductible interest.
January 24, 2013 11:50 PM
Rubens says:
I agree there needs to be tax reform. When 50% of the puilbc pays no taxes, that is a problem. If we could lower the top rate and broaden the base, cut corporate subsidies (especially boondoggles like ethanol), and then reform entitlements, I think we can get there. We need a growing economy to make the numbers work, but we also have to cut government spending, and that is hard to do when so much of the puilbc pays no taxes. When we hammer the over $250,000 per year people with higher taxes, we hit small businesses that are sole proprietorships. Job creation is our problem; job destruction is what the current administration produces with its heavy-handed approach to regulation, endless extended unemployment benefits, and crazy health care schemes. Why is all of the money on the sidelines? Because we hammered the small banks with Dodd-Frank while leaving Fannie Mae and Freddie Mac untouched. We bailed out car companies and Wall Street, and used stimulus to pave roads that didn't need paving, initiated Cash for Clunkers, Dollars for Dryers and other kooky ideas, and drove ourselves into unsustainable debt. We need a new president, and then a fresh, thoughtful approach to deficit reduction and economic growth. Sorry academia, the last presidential election will go down as one of the most profound blunders the American voters have ever made.
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