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.
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.
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.
- Two huge misconceptions about killing the mortgage interest deduction by Morgan Housel - Another very interesting article showing facts and good opinions over misleading thoughts.
- Who does the mortgage interest deduction benefit? by Ezra Klein - Excellent article because he displays graphs showing who this would affect.
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 :
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 ....***