Capital Hill or Hamburger Hill - Don't take my MID (Mortgage Interest Deduction) away from me !!! -

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

every dollar is very valuable

 

There seems to be a lot of talk about taking away the Mortgage Interest Deduction as a tax break. Common sense thinking would have most angered at this proposal.

Anyone know the history of Hamburger Hill? In comparison, from the outside looking in, one would think that Hamburger Hill was a waste of time, money, and lives. (but there was an actual reason for this battle) The same could be said by eliminating the Mortgage Interest Deduction, but that it would just be lost monies. Knowing that every dollar is valuable, our common sense instincts tell us that this is absurd, that the government is at it again, destroying our real estate market and our economy.

Au contraire, mon frère.. I beg to differ. For those that read me, you know that I like to dig deep and find meaning, showing all the pros and cons.

 

 

Pros & Cons

lists - pros and cons

 

Cons - I like to start with this first

  • Can't write off your interest on your taxes
  • It could lower home values (in my opinion, this is a weak argument) - this would be for more expensive homes
  • The Mortgage Interest Deduction (MID) costs the Treasury as much as 130 billion per year in lost tax revenue
  • Misleading claims that home ownership rates would decline
  • And the #1 con : that it would not be a very popular common sense decision amongst the public.

 

Pros - hold onto your seats

  • #1 - It will allow us to reduce our national deficit - raising ton of revenue. But more at the bottom.
  • It won't affect the majority of the tax payers
  • You need to understand the tax code, which I will give examples below.

 

 

taking a closer look at the mortgage interest deduction - picture from istockphoto

Looking at this closer -

When we do our taxes, we have 2 choices -

1.) We can itemize deductions - adding up mortgage interest, property taxes, medical expenses, charity, work related, etc, etc

2.) We can use the standard deduction of $5,700 for single return, $11,400 for joint return, and $8,350 for a head of household.

From my research, the deduction only benefits 1/3 of those who itemize their tax returns. Scott Burns gets into more details here : Possible demise of mortgage interest deduction may not be so bad. Scott talks about geography and itemizing. He also gives examples of the tax code. This is a good read.

We just need to study the facts, the implications, and not just assume.

 

 

 

Summary : I know some out there have argue, I want my money now. I want to throw some food for thought out there. What about those of you who have children or grandchildren. Our national debt should be of some concern, now and in the future, both near and far. Maybe I don't believe 100% in doing away with the mortgage interest deduction, but reducing some aspects. Possibly instituting a better tax system that would not discriminate. Some have mentioned the flat tax. The percent would be a number that would give about the same tax payment for a middle class family at the current rates with deductions.

Lastly, in regards to my first Pro above.... There are two issues and they are vastly different. The fiscal deficit is the government spending more than it takes in. The debt is the amount the gov't owes because of deficits. The debt is the issue, not the deficit. If we reduce the deficit, we still increase the debt. We must reduce the debt and the only way to do that is not to have the yearly deficit. We must spend less than we take in.

 

My opinion : I do truly believe that taking this away will not destroy the housing market. Most people when buying don't focus on the tax write off, even though it's implanted into many heads, especially from parents and such. One needs to fully understand the pros and cons, hence why I wanted to write about this. Here are a few good articles to help better understand this topic of killing of the mortgage interest deduction.

 

  • Should mortgage interest deduction be eliminated? - I found this article very informational. Please read the 3 people that said no, that were against this. hhhmmm  I found their answers to be generic. Some saying that it wouldn't be a popular decision and one stating that it might be a good idea from an economic efficiency point of view, but many would not find it popular based on political reasons. LOL.. sorry, but the those that voted yes gave actual good reasons why it would be good to get rid of the MID.

 

 

 

 

I was inspired to write about this was after reading this article, Lose the mortgage interest deduction, improve the real estate market?, by David Karp and many of the comments that didn't seem to fully understand this. Please read the comment by : John Mulkey.

 

 

UPDATE as of : 12/11/10 6 pm ~   Brian Brady made this comment on my facebook status when I posted this : 

"Eliminating the MID won't necessarily raise revenues but it is inherently unfair. The only reason we have a MID is to enrich the real estate industry.

The MID is a bad behavior subsidy as well; encouraging overborrowing and distorting the real estate market"

 

Another true con in which I didn't state, because I would have added more to the post. But Brian summed it up very nicely in my opinion.

 

 

 

DISCLAIMER - I am not a CPA, tax accountant, or an expert in this field. This is just merely my opinion, but also based on some researching that I found very interesting.  Never say no until you know all the facts. Sometimes our common sense can do us wrong.

 

 *** My next article, about Ben Bernanke's interview on 60 minutes last week - My thoughts and opinions about our economy - Completed - Put Economy on "Black" for all the marbles ....***

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Rainmaker
345,231
David Karp
Peachtree Realty Group, LLC - Woodstock, GA
Woodstock, Marietta GA Real Estate

Jeff, Good job digging deeper into this subject. Thanks!

Dec 11, 2010 05:40 AM #1
Rainmaker
1,202,713
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Consider this "suggested" my friend!  As always, well written and thought out.  Whether the reader agrees or disagrees, it intelligently gets the discussion open and rolling.  I too have asked what portion of home buyers know and understand the benefit of the interest deduction ... and then what portion of those buyers were initially motivated to buy a home by this knowledge?  Again, there will be much discussion about this in the near future.  Your post serves to educate us about that upcoming debate.  Again ... definitely suggested ...

Gene

Dec 11, 2010 09:08 AM #2
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

My friend Brian Brady made this comment on my facebook when I posted this : 

"Eliminating the MID won't necessarily raise revenues but it is inherently unfair. The only reason we have a MID is to enrich the real estate industry.

The MID is a bad behavior subsidy as well; encouraging overborrowing and distorting the real estate market"

Another true con in which I didn't state, because I would have added more to the post. But Brian summed it up very well.

 

DAVID.... .  my pleasure and thanks for the compliment.

 

GENE... . that's the whole thing, there will probably be more that disagree with killing the MID, but I just had to put some info out there that wasn't talked about in other posts.  We could pick this a part from many different directions. But I think it's a common sense knee jerk reaction for many to say, keep it, because they don't understand the ins and outs... I think it's false to say that our housing economy will fall a part if this is taken away... and it was good to find a few articles that not only believed the same, but gave compelling thought to why this would be a good thing to kill. And not necessarily kill, but to revitalize and change the tax system. And thanks for the kind words and for the compliment.

 

Dec 11, 2010 10:02 AM #3
Rainmaker
323,711
Michelle Minch
Moving Mountains Design Home Staging, Pasadena, CA - Los Angeles, CA
Home Staging Los Angeles and Pasadena, CA

Jeff: When I read the title of your post I thought you were coming down on the side of keeping the MID. You did a very good job of highlighting the pros and cons of the conversation. The MID will be very difficult to repeal. I'm all for, at the very least, capping it.

Dec 11, 2010 10:09 AM #4
Rainmaker
584,814
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

Washington will spend anything that is sent to them. They can cap it if they wish then they will get very little revenue.  Just pass a flat tax with a low rate.

Dec 11, 2010 10:58 AM #5
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Gerry Michaels
Glasswork Media Arts - Gettysburg, PA
GettysburgGerry Social Meida

Jeff, my biggest problem with the concept is that the tons of revenue raised will be pissed away, so what is the point? I guess you have more faith in the government being fiscally responsible than I do.

Great well researched and presented post, thanks

Dec 11, 2010 11:15 AM #6
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

MICHELLE..... . ah, the beauty of a title, just to get ones attention. ;o)  If they can incorporate this into a better tax system. We do need to change some of this. But what I wanted to get across is that even if the MID is killed, it won't be the end of the real estate market and or our economy. I saw someone else reblog a post that talked about this and most comments where negative, stating that if this happens, we are doomed and that the gov't is off its rocker.. not really, at least in my opinion. And thank you very much for the polite compliment.

ERIC.. . long time no see.. hope all is well... In any case.. yes, we do have a spending problem issues... flat tax with a low rate has been expressed by some experts. But maybe we can have one head accountant, and not congress and or the president, that monies saved from something like this, goes into one pot, and the accountant is responsible... giving public updates, and that we the people get to vote along with congress???  Yea, that would never fly and be a lot of work.. but something needs to change.  thanks

GERRY... .I agree...  but I think we need to start some where...  think about this.. if we could save even more money, yet conrgess and or the President spends even more, wouldn't it be more of a reason to run them all out then?  More proof that they are over spending? No, I don't have that much faith, but I do have ideas, in which I love to share.  I was told once by someone with contacts on Capital Hill, that some of my stuff does get read. So if they are listening.. just maybe... and thanks for the kind words and for the compliment.

 

Dec 11, 2010 12:02 PM #7
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Susan Goulding
Crown Key Realty, Tracy & Mountain House Real Estate - Tracy, CA
Northern CA - Tracy & Mountain House Real Estate

Very informative article.  Seems to reading the more money we give Capital Hill the more they foolishly spend.  Loved the pros and cons

Dec 11, 2010 12:23 PM #8
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Hi Jeff -  I appreciate your thoughtful analysis of the MID.  Most of the discussions I've seen are based more on emotion than in fact.  I believe it's good to analyze all our options and to simplify the tax code as much as possible. I'd like to think that more will look at the economic problems we face and be open to logical solutions.

Dec 11, 2010 12:53 PM #9
Rainmaker
1,026,546
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Daggone it, Gerry stole my answer!  I have ZERO, NADA, NIL, NO, NO, NO FAITH in the government not to throw it all away. It will not go to deficient reduction, it will go to some bridge to nowhere.  Good heavens, how much more proof do we NEED the govt is overspending?  Everyone knows it, but it's not going to stop until people stop voting by party line and for their own pet politicans who bring home the bacon.  Really, I have no opinion on what they do or don't do because the bottom line is, we're gonna get screwed one way or the other.  Until I see PROOF of substantive change, I will not change my opinion on that. I don't care what they do about the MID - frankly, I fear we have far bigger problems.

I certainly hope the powers that be are reading your stuff - and the comments - because people are ANGRY.  We are not all sheeple.

Dec 11, 2010 03:53 PM #10
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

SUSAN G. . .... . well, this post wasn't about Congress spending, but finding more ways to save... I can't do it all.. lol  And thanks for the polite compliments...

 

JOHN... .  bingo, emotional fact or emotional opinion. Did you read the article above ... Should mortgage interest deduction be eliminated? .. read the 3 that said no, don't eliminate it... hhhmm.. their answers seemed to be on the yes side, yet they wanted to oppose it more because the general public would be against it. Wow... that irks me.. The President and or anyone making decisions should not make the right choices based on people being upset, especially if it happens to be the wrong decision. hhhmmm... look at the economic problems with logical solutions?  Do you have the ruby slippers and have clicked your heals 3 times? Please take me to that place.. lol   That's been our problem the last 2 yrs... many logical and common sense solutions have been ignored for the scratching of the backs and handshakes that were made.. sad, but so true. .. no matter what the price. Anyhoo.. look what you have started, I can't stop.. wait until my Monday's post on our economy.. and thanks for the compliment.

 

SUSAN H. ... . this post wasn't suppose to be about the gov't not spending, but to find logical ways to save.. I can't do it all.. lol  Seriously, I need to start with the savings... and then work on the non-spending... baby steps.. ;o)  And thanks for the kind words.. I hope some on Capital Hill are reading also.. thanks

 

Dec 11, 2010 04:17 PM #11
Rainmaker
4,790,398
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Jeff, without weighing in on the pros and cons of this particular item (I'm kind of undecided), I find it fascinating how every one wants to rein in spending, balance the budget, etc. except when it comes to something that effects them personally.  They really want some one else to pay for it.

Dec 12, 2010 12:32 AM #12
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The Somers Team
The Somers Team at RE/MAX Access - Philadelphia, PA
Real People. Real Dreams. Real Estate.

Jeff - Great post as it opens up the conversation.  I suggested it for a feature.  Like the way you presented both the pros and cons.

I do think if this was taken away, it would hurt the middle class the most.  Also, I look at this deduction as a mini-stimulus in that if taken away, it would be a large tax hike on the middle class and would hurt the economy.  And yes, I do think it would have some sort of impact on the housing market.  Not sure how significant it would be, but yes, it would have an impact.  No reason to raise taxes in this type of an economy as that in essence that is what it would be... a tax hike. 

There should still be an incentive to purchase homes for well qualified buyers - not with 100 percent financing, but the mortgage interest deduction still provides for that.

Will come back and see what the future comments are as well. 

 

Dec 12, 2010 04:07 AM #13
Rainer
345,824
Jennifer Prestwich
Henderson, Thornton, Broomfield and Westminster - Henderson, CO
Madison & Co Properties

VERY thoughtful and interesting post, Jeff.  This is opening my eyes to both sides of the issue.  I agree that most people don't put the MID at the very top of their mind when choosing to buy a home.  It seems to be more of an added bonus.  I think there will be a shake up for a while if it goes away, of course.  But Americans are nothing if not resilient, and we will recover and be even stronger in the end.  Great post- suggest!

Dec 12, 2010 10:34 AM #14
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Jeff, I'd hate to see it go away.  Getting a tax deduction has been a strong motivator for a lot of my clients, and I am seeing people who were in the market drop out until they see what's going to happen with this one.  Maybe my client base has a higher income and need the deduction.  Hey!  I need the damned deduction!

Dec 12, 2010 03:10 PM #15
Rainmaker
1,132,205
Claude Cross
Homes By Cross, Inc. - Charlotte, NC
Charlotte NC Homes For Sale
Jeff - I think this is ver informative and agree with some of the clients that the government will eventually spend this like any other revenue source. Lastly the heat from disallowing the MID will be hugely unpopular. Many in Congress probably still remember the last election
Dec 13, 2010 06:03 AM #16
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

 *** My next article, about Ben Bernanke's interview on 60 minutes last week - My thoughts and opinions about our economy - Completed - Put Economy on "Black" for all the marbles ....***

 

Dec 13, 2010 08:32 AM #17
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Yes, but let's eliminate all subsidies. Think of what still goes out to farmers for not farming. That's just one thing.

Dec 13, 2010 02:02 PM #18
Rainmaker
182,040
Sara Bonert
Zillow - Atlanta, GA
Real Estate Internet Marketing

Thanks for laying out the pros and cons.  I found the information about the credit card interest deduction very interesting in the Two huge misconceptions about killing the mortgage interest deduction article. I didn't realize that used to be deductable!  The articles you linked to definitely helped open my mind to the slight possiblity to the pros of doing away with MID.  However, the time to bring this up isn't now.  The housing market is too frail and has too many other issues to work through right now, than to lop something else on it. 

Dec 15, 2010 12:32 AM #19
Rainmaker
451,887
Drick Ward
NEPTUNE REALTY - Virginia Beach, VA
"RealtorDrick" - Experienced Representation

Excellent post and thanks for including reference links for background info - really gets the conversation started.  What the number crunchers miss, however, is the fact that home prices range throughout the country and in many places, most home owners indeed DO itemize because their Mortgage Interest and Real Estate Taxes make up the bulk of what they pay each month for housing.  The group that will stop buying houses is the minorities.  Much of the belief that owning your own home is a loft goal is driven by family structure - you learned it from your ancestors. If you remove the financial benefit of itemized taxes, all the money that person spent on housing is taxed at their full tax rate.  That will make owning a home less important to minorities and those struggling to get out of the lower end of the pay spectrum.  Within a few generations, minorities will rarely own real estate and since China will own what's left, Americans who own their own home will be the new minority.

Dec 22, 2010 03:51 AM #20
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