Mortgage Interest Tax Deduction: back on the discussion block with the Deficit Panel!

By
Mortgage and Lending with Seacoast Mortgage Corporation, RI (20021119LB & 20031576LL), MA (MC2107) & CT MLO 10920

The deficit panel is reviewing the “mortgage interest deduction”. This deduction saves homeowners $134 BILLION in taxes. By modifying the deduction over time, the government’s plan is to reduce the deficit, accordingly. But what about the homeowner impact??!!

Wall Street Journal News 11/11/10 on this subject:

What implication does this have on the homeowner?

1) The real estate market will further suffer! The financial benefit of owning vs. renting is the interest tax deduction. By eliminating it, or significantly modify it, will cause consumers to continue to rent.

2) Less available consumer dollars for spending. The tax deduction saves $$, thus allowing consumers to spend and GROW the economy: thus creating and maintaining jobs for all of us.

The proponents of the plan say:

1) This deduction favors the upper class.

2) Most people use the standard deduction: why should homeowners be able to itemize, thus allowing for greater deductions than the standard.

3) We will be able to significantly reduce the national deficit.

It is not just the upper class who owns homes. Especially with the pummeled prices in the real estate market, the doors have been opened for all classes to purchase lower priced homes. Homeowners should be “rewarded” from their government for helping the real estate market by purchasing a home. Home purchase increases consumer spending in many areas.

This plan has been discussed since President Bush was in office. It has now resurfaced with this administration.

This is NOT a good way to reduce the deficit. Especially now! The real estate market is suffering enough. This idea will certainly deliver a death blow to the real estate market.

Posted by

Ann Sabbagh, President

"The BEST compliment is a client referral: Thank YOUUU!"

Seacoast Mortgage Corporation

401-305-6906 or 508-243-1190

Residential & Commercial Financing

MLO10920

RIAR: teacher for "The Mortgage Course"; "Valuation of Commercial/Investment Real Estate"; "Reading Financial Statements"

 

"When you choose me as your mortgage consultant, you also choose a financial planner who cares about YOUR financial strength."

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Rainmaker
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Jeanne Dufort
Coldwell Banker Lake Country - Madison, GA
Madison and Lake Oconee GA
I've read a draft report - and the discussion on limiting deductions for mortgage interest centered on eliminating this for 2nd homes, and for mortgages above $500K. Have you seen a credible source that suggests other limits?
Nov 13, 2010 10:43 AM #1
Rainmaker
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Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Ann:  Removing the mortgage interest deduction isn't going to happen.  Not a chance.  If it ever came to a vote, I think anyone who voted FOR removing the deduction... could start packing up their office... as that would be their last session in Congress.

Nov 13, 2010 11:10 AM #2
Rainmaker
803,908
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

In the Nov 12th Wall Street Journal, there was another article about the Deficit Cutting Commission.

The Deficit Cutting Commission, co-chaired by a Republican and a Democrat, was charged with identifying ways to reduce spending from 8% of Gross Domestic Product (GDP) to 3% in 2015.  They went further and have proposed ways to get it down to 2.2% of GDP.  By doing so, they have shown it is possible to do so and have provided options, some popular as well as unpopular. 

Obviously, the mortgage deduction would fit into the unpopular category in this forum.  By providing more savings than targeted, the commission has provided a way for the unpopular proposals to be negotiated away. 

They have also put all of the proposals in the open - the ability for politicians to hide and not state where they stand is diminished by the commission doing so.  There is something to dislike across all political spectrums.  That means it actually has a better chance of succeeding in a perverse sort of way - hopefully there will be a collaborative effort to hit the targets rather than a right/left schism.

Focusing only on one of the proposals ignores the bigger effort needed to succeed.  Healthcare, defense, social security - all have been targeted.  Business taxes are receiving treatment similar to personal taxes - a reduction in the tax rate for ending current deductions and tax credits.

IF, again IF, the mortgage interest deduction was eliminated, it would most likely (have to) have a very long adoption period before actually taking effect.  Some sort of transition would be necessary.  The trade-off for a lower and simpler tax does have merit.  The devil will be in the details of making the transition.  Frankly, I do not see it occurring because the political will/backbone to do so is lacking.  It is going to take a much more collaborative and cohesive national legislature to make it happen - just don't see it occurring unless there is a unifying national event which brings the country together.

The work of the commission is a good thing - focus on the entire proposal rather than a small part of the overall. Understand the whole proposal, be informed, not reactionary.  That does NOT mean I am in favor of eliminating the mortgage deduction.  Rather, I am willing to see what is proposed and what the true impact will be before making a decision.

Mel

Nov 13, 2010 11:26 AM #3
Rainmaker
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Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Elimination of the mortgage interest deduction will remove thousands of dollars from the pockets of homeowners who are already struggling. This will cause more foreclosures which will deepen and prolong the recession.

Nov 20, 2010 02:19 AM #4
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Ann Sabbagh

President, Sr. Loan Officer
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