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Mortgage Interest Deduction

ludin said:
I bought a home but I don't use the mortgage deduction. I don't have enough other deductions to exceed the standard.
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In this temporary cycle of historically low interest rates coupled with a rather lower cost house- such as first time home buyers and much older 'starter' homes- that is true.

For those buying 'up', or new construction, in periods of more 'normal' interest rates the deduction is important. Not everyone lacks for other deductions, many families do have personal deductions that add up.

Ending a deduction because some don't use it, or a drop in interest rates renders it moot for some doesn't make much sense. If the deduction isn't 'hurting' tax revenue at the current time then dropping it won't improve the tax revenues for the Central Government. However if interest rates spike like they have before, like the early 80's at 15% then the deduction does become a factor... :peace
 
MaggieD said:
House prices would definitely decrease. Those who put minimum down on their homes (plenty) would be in danger of losing them. The bottom end buyers of the housing market would dramatically decrease in. Umbers which would cascade all the way up the buying chain. And people who needed the tax savings in order to help them pay their mortgage could very likely lose their homes...and then, there we go again...

Changes like this often produce unintended consequences.

I was a successful licensed Realtor for many years.
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This is a pretty good article on the subject.

https://www.fool.com/investing/gene...ortgage-interest-isnt-actually-tax-deduc.aspx

"This article was updated on May 25, 2017, and originally published on Jan. 11, 2015.

No tax deduction is more misunderstood than the mortgage interest tax deduction. By law, taxpayers can deduct interest paid on their mortgage, but many middle-class taxpayers save little or nothing at all from the mortgage interest tax deduction.

In fact, while the average savings is $1,918 across all incomes, those who earn less than $75,000 per year typically save $800 or less each year by deducting their mortgage interest. "
 
jimbo said:
You think home buyers don't? I was in the business for 30 years. The interest deduction is near the top of the home buying decision.

It's also a major player in investment decisions. Take it away from investment property, rents will skyrocket.
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People are dumb if they are buying a home for a tax break unless they are buying a 500k dollar home or more.

You only get a portion of the interest as a deduction so unless you are in the 30% bracket then it isn't worth it for the average person.

If you are doing rentals that is a different story than a single home owner which most people are.
 
Winchester said:
This is a pretty good article on the subject.

https://www.fool.com/investing/gene...ortgage-interest-isnt-actually-tax-deduc.aspx

"This article was updated on May 25, 2017, and originally published on Jan. 11, 2015.

No tax deduction is more misunderstood than the mortgage interest tax deduction. By law, taxpayers can deduct interest paid on their mortgage, but many middle-class taxpayers save little or nothing at all from the mortgage interest tax deduction.

In fact, while the average savings is $1,918 across all incomes, those who earn less than $75,000 per year typically save $800 or less each year by deducting their mortgage interest. "
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In bit cities like Chicago, with their real estate prices, a modest home would cost $250,000 or so. 5% down with prevailing interest rates would result in a $1400 monthly payment for principle and interest, most all of which is interest on a thirty year amortization. WAG for their interest deduction would be $$14,000 annually. Add the deduction for approx real estate taxes of $3000 a year, and its no small potatoes. And believe me, that tax savings means everything to those buyers...
 
Winchester said:
You and a lot of other homeowners.
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The mortgage deduction was trivial to me. i needed a home and a afffordable one.
I found that exact thing. In a few more years I hope the value of my home increases.

That or I will turn it into a rental property. I kinda loathe the idea because renting to people is a pain
And getting them out of the house and them trashing it is a huge problem.

But I am going to need a bigger house and I will probably build so we can lay it out like I want to.
 
ludin said:
People are dumb if they are buying a home for a tax break unless they are buying a 500k dollar home or more.

You only get a portion of the interest as a deduction so unless you are in the 30% bracket then it isn't worth it for the average person.

If you are doing rentals that is a different story than a single home owner which most people are.
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The interest deduction affects middle to upper middle income buyers the most. This is where the housing starts during the bubble were concentrated.

Lower income purchasers get so many perks that the market is no longer based on reality. Low or no down, interest subsidies, outright gifts ala Csrter. Churches given repos to be renovated and resold to low income buyers.
 
MaggieD said:
First, I admire your ingenuity. Secondly, a word of caution. Your home is not zoned for this kind of rental. Why should you care, you ask? Well, if one of your roomers stops paying their rent and chooses not to leave? The police can force you to let them stay in your home until you have completed legal formal eviction proceedings. Costs money. You're getting no money from them. And you're living under acrimonious circumstances for months and months at the very least. So, you might say, "I could take them to court for the rent." Yes, you could. But you would lose. The court will not help you because you're doing something illegal and you don't have, as the court would tell you, "clean hands."

Courts look at that particular circumstance the same way they'd look at the dope dealer suing his customer because he didn't pay him for cocaine. Same thing.

One hint. When a mover moves in, take a photo or two of their room to show its condition. Then when they leave, if they've damaged it, you have proof they did so. The court WILL enforce damages.

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Fortunately, I had no problem with my tenants paying rent. In fact, when I moved out (overseas) and started renting the entire house "by the books" the same tenants plus their new addition continued to pay the rent and kept the place in decent condition. I ended up selling it to one of them for a decent profit after the depreciation that made it a tax advantage was used up and the capital gains law was being changed (again).
 
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ttwtt78640 said:
Fortunately, I had no problem with my tenants paying rent. In fact, when I moved out (overseas) and started renting the entire house "by the books" the same tenants plus their new addition continued to pay the rent and kept the place in decent condition. I ended up selling it to one of them for a decent profit after I used up the depreciation that made it a tax advantage was used up and the capital gains law was being changed (again).
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I'm very glad it worked out so well for you!
 
MaggieD said:
In bit cities like Chicago, with their real estate prices, a modest home would cost $250,000 or so. 5% down with prevailing interest rates would result in a $1400 monthly payment for principle and interest, most all of which is interest on a thirty year amortization. WAG for their interest deduction would be $$14,000 annually. Add the deduction for approx real estate taxes of $3000 a year, and its no small potatoes. And believe me, that tax savings means everything to those buyers...
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We can always find outliers and yeah it's a problem in expensive locals. That being said I'd rather see house prices drop in these areas than them being propped up with tax writeoffs.
 
ludin said:
The mortgage deduction was trivial to me. i needed a home and a afffordable one.
I found that exact thing. In a few more years I hope the value of my home increases.

That or I will turn it into a rental property. I kinda loathe the idea because renting to people is a pain
And getting them out of the house and them trashing it is a huge problem.

But I am going to need a bigger house and I will probably build so we can lay it out like I want to.
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Trivial to most homebuyers.
 
Winchester said:
Trivial to most homebuyers.
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Exactly. A couple making $150k with $15k mortgage interest and $3500 property tax saves less than $2k in tax because of that.

Someone making $1.5M with $15k interest and $3500 property tax has their deductions limited so much that they end up benefiting from the standard deduction instead. Even if they had $45k in mortgage interest their tax savings, due to limitations, would be less than $1500. It's simply not the huge benefit most people think it is.
 
Lutherf said:
Exactly. A couple making $150k with $15k mortgage interest and $3500 property tax saves less than $2k in tax because of that.

Someone making $1.5M with $15k interest and $3500 property tax has their deductions limited so much that they end up benefiting from the standard deduction instead. Even if they had $45k in mortgage interest their tax savings, due to limitations, would be less than $1500. It's simply not the huge benefit most people think it is.
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that is why people that go ol the mortgage deduction is so important. not really.
it amounts to a hill of beans when it is said and done unless you are in the rental business.

no one buys a 150k dollar house with the mindset that they will save 2k in taxes.
 
Winchester said:
It will hit the upper middle class the hardest. That being said kill it and all deduction and move to a standard deduction for everyone.
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Everyone already can take a standard deduction.

The (somewhat) solution is to increase the standard deduction when we eliminate deductions that are widely used
 
Lutherf said:
Exactly. A couple making $150k with $15k mortgage interest and $3500 property tax saves less than $2k in tax because of that.

Someone making $1.5M with $15k interest and $3500 property tax has their deductions limited so much that they end up benefiting from the standard deduction instead. Even if they had $45k in mortgage interest their tax savings, due to limitations, would be less than $1500. It's simply not the huge benefit most people think it is.
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A couple making $150K is in the 25% bracket. Not sure how 25% of 18.5K comes to less than 2k. More like 4.5k
 
sangha said:
Everyone already can take a standard deduction.

The (somewhat) solution is to increase the standard deduction when we eliminate deductions that are widely used
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I should have added if they get rid of itemized deductions make the standard deduction high enough to make the deduction loss revenue neutral overall. And yeah I knew there already was a standard deduction.
 
washunut said:
A couple making $150K is in the 25% bracket. Not sure how 25% of 18.5K comes to less than 2k. More like 4.5k
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You got to wack off the standard deduction that they already would have to figure out tax benefit. (18.5k minus 12.6k) * 25%
 
washunut said:
A couple making $150K is in the 25% bracket. Not sure how 25% of 18.5K comes to less than 2k. More like 4.5k
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They only save tax on the portion that's in excess of their standard deduction. If you've got $18.5k in itemized deductions but your standard deduction is $12.6k you only save tax on $5900. In my calculation I also included the calculated sales tax as part of the deduction.
 
MaggieD said:
I could support removing the mortgage interest deduction for some...having it out phased out for those in high income brackets, and removing it for all but one's principal residence. Plus perhaps removing the deduction for those purchasing homes over, as an example, $3,000,000.

Removing the deduction for everyone would take many buyers out of the market. That would be bad for the average joe.
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I agree with your views on this. There should only be a deduction for only your principal residence and then the value of the mortgage than is eligible for interest deduction should be capped to some reasonable number that is within 90% of homes excluding only the top 10% or so. You mentioned 3 mil - perhaps that would work.
 
haymarket said:
I agree with your views on this. There should only be a deduction for only your principal residence and then the value of the mortgage than is eligible for interest deduction should be capped to some reasonable number that is within 90% of homes excluding only the top 10% or so. You mentioned 3 mil - perhaps that would work.
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IIRC, the MID is already capped at $1 million, though I may be wrong
 
Lutherf said:
They only save tax on the portion that's in excess of their standard deduction. If you've got $18.5k in itemized deductions but your standard deduction is $12.6k you only save tax on $5900. In my calculation I also included the calculated sales tax as part of the deduction.
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There are other deductions as well. Charities for a couple making 150K would be large on average. State taxes if you live in the NE or california. For that matter property taxes are grossly understated if you live in the tri-state area.
 
washunut said:
There are other deductions as well. Charities for a couple making 150K would be large on average. State taxes if you live in the NE or california. For that matter property taxes are grossly understated if you live in the tri-state area.
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I never cease to be amazed when I see what people are paying in property taxes for many areas of the NE and some areas in and around Chicago. PA in particular blows my mind.
 
Moderate Right said:
I was reading something the other day where Trump was *considering the possibility* of eliminating the mortgage interest deduction while working on a tax cut package. Apparently many who rail against income inequality claim that the mortgage interest deduction increases income inequality because it favors the wealthy over the poor so eliminating this would be a way to kind of reverse this. I can see that viewpoint from their perspective. Now I don't really want to make this thread about tax cuts at all but about a debate over the mortgage interest deduction as to whether it should be kept or not or reworked in some fashion. I personally think people should be encouraged to buy homes but I wouldn't be against phasing out the deduction at rising income levels. In most cases I would also be against mortgage interest deductions for second homes except in very specific situations, oddly enough lawmakers who need a second home in DC as well as their home in their home states, comes to mind.
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I got 4 more payments left. Getting rid of the mortgage interest deduction is wrong. You want incentives for people buying property.
 
Lutherf said:
I never cease to be amazed when I see what people are paying in property taxes for many areas of the NE and some areas in and around Chicago. PA in particular blows my mind.
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It is brutal but is the reality. In many towns, property taxes well over 10K is the norm.
 
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