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Mortgage Interest Deduction

Moderate Right

Moderate Right

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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.
 
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 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.
 
No. Making debt (and housing debt) tax free has not worked out well for us. It helped fuel a bubble, and benefits special interests with nothing in return to the general welfare.


If you cannot afford a house without a tax deduction on the interest you pay in your mortgage payment, then you cannot afford the house, and shouldn't be buying one. Buying one in that scenario because you are teased in with "oh but deduction on the interest" is penny wise and pound foolish, and you will regret it.
 
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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Cut it. Cut all the deductions.
 
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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Mortgage interest (and most other itemized deductions) already are phased out at higher income levels.

If they got rid of the mortgage interest deduction in exchange for a higher standard deduction an making medical expenses deductible (capped at something reasonable) above the line I'd be happy.
 
Great idea. Let's take away the mortgage deduction for everyone, and work on that "tax cut package" to benefit the wealthy people that pay so much of the taxes in this country.

Just another example of increasing taxes on the middle class.
 
I view home ownership as a great benefit to the local community.
The mortgage interest deduction follows a good political science idea,
Reduce the costs of that behavior you want to encourage.
They want to encourage home ownership, so they reduce the taxes on doing so.
I agree will cpwill, that if that deduction is the margin between your buying a home or not,
you are likely too close to the margin to be successful, but I also think
the deduction helps new homeowners with unexpected expenses.
 
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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Ou don't buy a house for a tax deduction. No one spends 200-400k to go ol yea. I am going to save 25% of my mortgage interest on my taxes.

If you can't exceed the standard deduction then your mortgage interest is useless.
 
longview said:
I view home ownership as a great benefit to the local community.
The mortgage interest deduction follows a good political science idea,
Reduce the costs of that behavior you want to encourage.
They want to encourage home ownership, so they reduce the taxes on doing so.
I agree will cpwill, that if that deduction is the margin between your buying a home or not,
you are likely too close to the margin to be successful, but I also think
the deduction helps new homeowners with unexpected expenses.
Click to expand...

I bought a home but I don't use the mortgage deduction. I don't have enough other deductions to exceed the standard.
 
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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As is the case with many income tax deductions, they (combined) must exceed the standard deduction to be of any value. That alone makes all tax deductions much more valuable to the rich than lower middle class since the standard deduction is a fixed amount based (mainly) on household size. Obviously, the rich can afford a mortgage (although perhaps not as large) reagrdless of the interest deduction so it simply serves as a tax break for doing that which would be done regardless (investing in a nice home).

Even without a tax deduction a mortgage is less expensive than rental of the same size single family home (since the rental price must cover the mortage, mantenance/repair costs and profit). The catch, of course, for a home buyer (mortgage holder) is with that 'rent' reduction comes the added costs of home maintenance/repair and the need to have a good credit rating, down payment or both. This also favors the finacially well off especially when it comes to buying a first home. The cost of replacing a major appliance or fixing a even an insured loss (paying the deductible) can easily double the monthly cost of home ownership over rent for such each occurance - many modest income folks don't (or can't?) budget for that and live paycheck to paycheck.
 
ludin said:
Ou don't buy a house for a tax deduction. No one spends 200-400k to go ol yea. I am going to save 25% of my mortgage interest on my taxes.

If you can't exceed the standard deduction then your mortgage interest is useless.
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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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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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In general I'm never in favor of redistribution taxes. Removing or graduating interest deductions is just that.
 
It might help to put some actual numbers to this.
Say a couple takes out a $200,000 mortgage on a home, at 4.5% and 30 years.
They likely have a combined income above $70K, and would have a tax burden of about $11,000.
In the first full year of the mortgage, they will pay mortgage interest of $8,900.
Since the income that is deducted from is at a 25% tax rate, the savings would be $2225, or $185 per month.
I think somewhere around year 15, the interest will fall below the standard 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.
Click to expand...

What many fail to see is that the "average Joe" is not going to have any single deduction (and perhaps not even combining all available deductions to itemize them) that exceeds their standard deduction. Have you stopped to consider how large of a mortgage interest payment (or other deductible expenses) is required to exceed $6K ($500/month) to $12K ($1000/month) which is offered as the standard deduction? On top of that, if you are in a low (10% to 15%?) tax bracket (have an "average Joe" imcome?) then you are getting a very small tax benefit for assuming a very large risk - having to bear the cost of replacing/repairing a home appliance or footing the deductible for fixing home damage on top of making your monthly mortgage payment.

One possible fix, which many will likely consider tax cheating, is to do as I did - buy a home, rent out rooms and don't report the rental income. I could easily find reliable tenants (who would pay me less rent than their current apartment charged) and their tax free rent greatly exceed the small tax advantage of writing off a percentage of my mortgage interest payment. By renting out two (of three) bedrooms my home mortgage was covered - tax free.
 
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Moderate Right said:
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.
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I am sure you have evidence of this. I am sure you would not just make it up to soothe any hackishly partisan anxiety of yours
 
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ttwtt78640 said:
What many fail to see is that the "average Joe" is not going to have any single deduction (and perhaps not even combining all available deductions to itemize them) that exceeds their standard deduction. Have you stopped to consider how large of a mortgage interest payment (or other deductible expenses) is required to exceed $6K ($500/month) to $12K ($1000/month) which is offered as the standard deduction? On top of that, if you are in a low (10% to 15%?) tax bracket (have an "average Joe" imcome?) then you are getting a very small tax benefit for assuming a very large risk - having to bear the cost of replacing/repairing a home appliance or footing the deductible for fixing home damage on top of making your monthly mortgage payment.

One possible fix, which many will likely consider tax cheating, is to do as I did - buy a home, rent out rooms and don't report the rental income. I could easily find reliable tenants (who would pay me less rent than their current apartment charged) and their tax free rent greatly exceed the small tax advantage of writing off a percentage of my mortgage interest payment. By renting out two (of three) bedrooms my home mortgage was covered - tax free.
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That depends on where you live. If you live somewhere with high real estate taxes, that alone can exceed the standard deduction. As a tax preparer, I have seen many people where this is the case

But yeah, there will be a lot of people who fit your description. Plus, I remember reading somewhere that they are also considering eliminating the deduction for state and local taxes
 
sangha said:
That depends on where you live. If you live somewhere with high real estate taxes, that alone can exceed the standard deduction. As a tax preparer, I have seen many people where this is the case
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True, but how many low to modest income folks could afford to live in such an area? What I did was to rent out 2 of my 3 bedrooms and simply not report the rental income - that made my mortgage (which included the property taxes) a net zero.
 
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.
Click to expand...

I would expect it would not be removed from investment/rental properties as I would expect/ interest, the mortgage and repairs to the property would be deductions applied to the income generated from that property. Assuming the owner is declaring the income of course
 
ttwtt78640 said:
True, but how many low to modest income folks could afford to live in such an area? What I did was to rent out 2 of my 3 bedrooms and simply not report the rental income - that made my mortgage (which included the property taxes) a net zero.
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I think you may have missed my edit. I added a comment that touches on that.
 
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.
Click to expand...

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.
 
Lord Tammerlain said:
I would expect it would not be removed from investment/rental properties as I would expect/ interest, the mortgage and repairs to the property would be deductions applied to the income generated from that property. Assuming the owner is declaring the income of course
Click to expand...

The reality is the interest deduction will never be removed from anybody.

If there's an income difficult to hide, it's real property income. Too many people involved. And some report to the IRS. In addition rentals often produce no or negative taxable income.
 
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.
Click to expand...

There is already a cap on interest on mortgage debt (1mil). And no it wouldn't take buyers out of the market, but house prices might decrease marginally, and I mean marginally, to make up the difference.
 
ttwtt78640 said:
What many fail to see is that the "average Joe" is not going to have any single deduction (and perhaps not even combining all available deductions to itemize them) that exceeds their standard deduction. Have you stopped to consider how large of a mortgage interest payment (or other deductible expenses) is required to exceed $6K ($500/month) to $12K ($1000/month) which is offered as the standard deduction? On top of that, if you are in a low (10% to 15%?) tax bracket (have an "average Joe" imcome?) then you are getting a very small tax benefit for assuming a very large risk - having to bear the cost of replacing/repairing a home appliance or footing the deductible for fixing home damage on top of making your monthly mortgage payment.

One possible fix, which many will likely consider tax cheating, is to do as I did - buy a home, rent out rooms and don't report the rental income. I could easily find reliable tenants (who would pay me less rent than their current apartment charged) and their tax free rent greatly exceed the small tax advantage of writing off a percentage of my mortgage interest payment. By renting out two (of three) bedrooms my home mortgage was covered - tax free.
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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.

IMG_0695.JPG
 
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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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You and a lot of other homeowners.
 
Winchester said:
There is already a cap on interest on mortgage debt (1mil). And no it wouldn't take buyers out of the market, but house prices might decrease marginally, and I mean marginally, to make up the difference.
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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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