Steve-O found a
comment posted to the NYT:
The purpose of the federal mortgage tax deduction is to allow homeowners to use what is usually their largest asset -- their home -- as a nestegg for their old age.
According to
the NAR:
The tax system supports homeownership by making it more affordable. While it is true that only about one-third of taxpayers itemize deductions, it is also true that, over time, more than one third of taxpayers receive the benefit.
Of course the NAR will argue for the deduction as a tool to make housing affordable. However,
the reality of the mortgage interest tax deduction is different.
Dallas physician Steven Davidoff doesn't fit the stereotype of someone who needs a housing subsidy: raised in Plano, educated at Tulane University Medical School, working as a pulmonary critical care physician.
But Davidoff, 35, is like tens of millions of other Americans who benefit from tax policies that reduce the cost of buying a home. Most of them are like him – affluent enough to buy a home without help, but happy to use a tax deduction for mortgage interest, even though it will cost the federal treasury about $103 billion in lost revenue this year.
"I honestly view it as a bonus, not something that I [considered] when we were looking at homes," said Davidoff, who works at Texas Health Presbyterian Hospital Plano. "The larger the home, the larger your deduction can be. That certainly is an added benefit."
The mortgage interest tax deduction is welfare for the wealthy and
it does nothing to make housing affordable to the middle class. It just distorts the market. We all agree that the nation's deficit hole needs to be plugged up, and that $103 billion would make a good-sized plug.
15 comments:
If they'll take twice that much out of the permanent budget spend, permanently, and do that first, they can get rid of the mortgage tax deduction. Not before.
Dept of Education and Dept of Energy are two counterproductive and/or Orwellian departments that ought to be cut, with great and sudden brutality. All workers walked out same day with their box of personal items, buildings put on the market, related laws and subsidies nullified.
If we lose the mortgage deduction, and have to pay taxes on insurance, my wife will have to go back to work. That would suck, as she's the one coordinating the necessary repairs to our house.
The other side of eliminating the mortgage deduction is that it would then make sense to reduce the standard deduction to remove the mortgage piece that was put in in 1986. That would make everyone pay.
I disagree, my sister makes 17$ an hour in an average job and she was able to save up a down payment and purchase a modest home in the past year. Her mortgage payment (700$/mo) ended up being less than she was paying in rent, before property taxes. The interest deduction makes a big difference to her. She doesnt make a fortune and as you know when your a home owner expenses come up all the time. So it does in fact allow her to have a home and save for the future.
No one is going to complain if they set a ceiling on mcmansions. Set one and index it for inflation.
Anon, those numbers don't add up based upon the standard deduction. The deduction provides no benefits to people in moderately-priced houses. By moderately-priced, I mean by overall US standards, not bubblezone standards.
Why should a renter in LA subsidize an over leveraged homeowner in Orange County? Why should the owner of a modest house in Houston subsidize the owner of a River Oaks mansion? This is the reality of the situation.
Mr. Moderate, I am sorry for your situation, but I think that if something is unaffordable without a government subsidy the price is artificially inflated. If there was no housing subsidy, housing prices would reflect their true value and they'd be more affordable. Just like everything else government touches... education, medical care, agriculture...
Right on Lou. Over a lifetime the vast majority will never get the benefit they imagine...lost deductions and AMT vs rates going through the roof I'll give up the deduction. In a world with limited resources a hard look at how to be wise and in charge is something we need in future leaders. It is a shame we as a nation have wasted so much in support of so few.
As a first step, disallow any deduction above the jumbo threshold.
And don't allow different jumbo limits - have one nationwide (the lower).
Depending on your income level, that deduction won't mean nada for you.
What is wrong with my 6.2% effective Federal tax rate on a quarter million of income?
I guess I could get it lower if I started a 401k but I would rather pay the tax now.
Over a lifetime the vast majority will never get the benefit they imagine
A friend of mine scrounged and saved and bought a cheap house in a modest neighborhood in Dallas. He would listen to nothing about how the standard deduction is so higher that he'd get no benefit from the mortgage interest deduction. Not even from day one.
And lo and behold, after he bought his house, he finds... no tax break! Now he's p---ed! Oh well, dude, we did tell ya.
Meanwhile, I and others in these high-tax Eastern states, with our reasonably high incomes, and our overpriced mid-Atlantic houses, reap the benefits of the tax code.
A further note on this:
their largest asset -- their home -- as a nestegg for their old age
What I find in a lot of cases is that it becomes a huge financial albatross in their old age:
Huge house, huge heating and cooling bills, lots of maintenance, but since it's packed with all their stuff and their memories, they often DON'T downsize and reap the benefit.
I guess a reverse mortgage could work for that, but that just feeds money from the home equity to the utility and repair/maintenance companies.
Please, God, let me have the sense and ability in my old age to sell off this house and move into something I can manage!
The deduction is silly and in many cases counter productive.
Eliminate it.
I would consider eliminating the mortgage interest deduction if it is eliminated for the owners of houses rented to tenants. And multi-family dwellings as well. Why should they get a deduction? Oh, that's right, it's a business. Why should I as a home owner subsidize a landlord?
It cannot truly have success, I believe so.
If you are experiencing difficulty making your monthly mortgage payments, even if you are not yet behind, a loan modification could help you relieve some of the burden caused by financial or personal hardship, and allow you to keep your home.
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