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What if Real Estate Tax and Mortgage Interest Deductions Go Away?

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Real Estate Agent CT#0791143

Mortgage Interest Deduction (MID) Facts:

 

 

  • Approximately 51 of the 75 million owner-occupied homes in the U.S. in 2009 had a mortgage
  • $470 billion was deducted for mortgage interest in 2008
  • Total tax savings from MID in the U.S. was $117 billion

Real Estate Tax Deduction Facts:

 

  • A total of $172 billion was deducted for real estate taxes in 2008
  • Average tax payer claimed $4090 from taxable income in 2008
  • Total savings from real estate tax deduction in the U.S. was $43 billion

 

Danielle Hale, Research Economist


If the mortgage interest and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value3 of these lost savings could total $3.2 trillion. The value of all owner-occupied real estate in the United States in 2009 was $19.3 trillion4 . If the lost tax savings are fully capitalized into the price of houses, the average decline in value in the United States would be 17 percent. From the individual perspective, the median priced home in the United States in the third quarter 2010 was $177,800. A decline in value of 17 percent, as projected, would mean a loss in home value of $29,500 for the typical home owner.

3Present value calculation assumes 5 percent discount rate and 1000 year time horizon.
4As measured by the American Community Survey. The Federal Reserve Flow of Funds for 2009 estimated the market value of household real estate to be $17 trillion which would raise the estimate of the decline in value to 19 percent.

Dawn Crawley
Dawn Crawley Realty - Pinehurst, NC
Find Pinehurst Homes

Why would the loss of income tax savings effect the price of a home? I understand the emotion and feeling of loss associated with this tax deduction, but we have to be realistic about our tax structure. People will buy homes for many reasons, and I don't remember one that bought a house for the tax right off in my personal experience. Pricing is more effected by supply and demand and in the long run it will be better for our country if we get rid of all deductions and simplify the tax code. Then maybe the overall income tax rate will come down.

Dec 31, 2010 12:20 AM
Deb Halsey
Greenwich, CT
Backcountry Specialist

Legislators have been talking about changing the tax code for years - but more eminent, is eliminating tax deductions. People may not buy homes for tax reasons, but for decision makers and wage earners,  it is a huge consideration. If you are not assessing your total financial situation when making a purchase, your head must be in the sand.

Dec 31, 2010 12:28 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Not good news and quite likely to occur.  Congress and the president cannot stand to see a tax deduction and, bit by bit, they are eaten away by inflation, loss of property value and more.

Keep it simple.  They see money.  They want money.  They will take money.

IMO, one reason Congress and the president hate the real estate tax decuction and the MID is because it extends to all property owners.  Congress and the president much prefer to pick and choose who received any tax breaks.  It's a powerful vote getting force. 

 

Dec 31, 2010 12:56 AM