End of the mortgage interest tax deduction?

[Egr61]

It was in the news again today about how they want to end this deduction. The day that happens is the day I quit paying my mortgage and wait for them to foreclose. I'm underwater on my mortgage and I'm trying to think of reasons to keep paying on it. The tax deduction is one reason, because I'm paying at least $1000 in interest every month.

What are these guys thinking? It seems to me that ending this deduction would further devastate the housing market. I realize they're talking about also changing the tax rates, but it still looks like they want to sock it to struggling middle class home owners.

[RichM]

It was in the news again today about how they want to end this deduction. The day that happens is the day I quit paying my mortgage and wait for them to foreclose. I'm underwater on my mortgage and I'm trying to think of reasons to keep paying on it. The tax deduction is one reason, because I'm paying at least $1000 in interest every month.

What are these guys thinking? It seems to me that ending this deduction would further devastate the housing market. I realize they're talking about also changing the tax rates, but it still looks like they want to sock it to struggling middle class home owners.

And this is news?

[tobee43]

It was in the news again today about how they want to end this deduction. The day that happens is the day I quit paying my mortgage and wait for them to foreclose. I'm underwater on my mortgage and I'm trying to think of reasons to keep paying on it. The tax deduction is one reason, because I'm paying at least $1000 in interest every month.

What are these guys thinking? It seems to me that ending this deduction would further devastate the housing market. I realize they're talking about also changing the tax rates, but it still looks like they want to sock it to struggling middle class home owners.

i didn't hear it today...and i'm a cnn 24/7....but no surprise ...remember when CREDIT CARD interest was deductible?? LOL!!! ahhhhhhhhhh those were the days!

[helpmeout]

If they end the mortgage interest deduction, they will no longer have any capital gains to tax once the house is sold as the interest added to the purchase price of the house will more than likely be for more than what it was sold for. Resulting in no gain at all.

[despritfreya]

If the stupid folks in Washington follow through on this threat they better be prepared for the complete collapse of the housing market. Gotta love those that "run this Country". What a bunch of morons.

Des.

[RichM]

If they end the mortgage interest deduction, they will no longer have any capital gains to tax once the house is sold as the interest added to the purchase price of the house will more than likely be for more than what it was sold for. Resulting in no gain at all.

That sort of thinking looks toward the future, something our government hasn't been capable of doing in many years. If it were, we wouldn't have thrown away a trillion dollars in short-sighted bailouts and "stimulus" programs -- almost all of which were spent on government projects, which are the least efficient expenditures in terms of economic stimulation, because such high percentages of the funds are wasted.

The main and overriding objective of government today is to take as much money away from the people as possible, and to do so as quickly as possible. Let future generations clean up the mess.

-Rich

[msm859]

If they end the mortgage interest deduction, they will no longer have any capital gains to tax once the house is sold as the interest added to the purchase price of the house will more than likely be for more than what it was sold for. Resulting in no gain at all.

What capital gains? Everyone's house has lost value. Besides the mortgage interest deduction is a middle class tax break. The super rich don't have mortgages. And I think there is a cap anyways that limits them getting one on their houses anyways. The republicans won't be happy until there is no middle class -- only the proletariat and bourgeoisie.

[Peeps]

Let me point out that I think that DC is filled with clueless boobs... so I am in no way defending them

But...

From what I've read, the interest deduction would still remain 100% available to anyone with a mortgage under $500k. The deduction isn't going away, it's just getting a lowered threshold (currently it is set at $1M). Many folks who count on the deduction would still get it.

[despritfreya]

. . .the interest deduction would still remain 100% available to anyone with a mortgage under $500k. The deduction isn't going away, it's just getting a lowered threshold (currently it is set at $1M). Many folks who count on the deduction would still get it.

Even if this is true, (and I do believe the "wealthy" need to contribute a hell of a lot more than what they do), it puts this Nation on the slippery slope of disaster. Once we go down that path eventually it will be expanded to all of us. Very bad idea. Remember, the folks in Washington have no clue what the average citizen is dealing with. They live in their ivory towers and give "lip service" to the "Joe Plumbers" of this world.

Des.

[RichM]

Let me point out that I think that DC is filled with clueless boobs... so I am in no way defending them

But...

From what I've read, the interest deduction would still remain 100% available to anyone with a mortgage under $500k. The deduction isn't going away, it's just getting a lowered threshold (currently it is set at $1M). Many folks who count on the deduction would still get it.

Peeps, $500K ain't what it used to be in some places. The mixed-use, industrial / residential neighborhood I live in in Queens (one of the boroughs of New York City) is solidly working-class. No one would accuse it of being "affluent" by any stretch of the imagination. But it would be pretty tough to find a house here for less than $500K. The one I rent is a modest two-family, and would easily fetch $850K. The single-family, two-bedroom townhouses they just put up a block away are selling at $675K. So "wealth" is relative when it comes to real estate value. $500,000 in Podunk isn't the same as $500,000 in New York City.

Besides, as has been mentioned, the mortgage interest deduction is there for capital gains reasons. It's not any sort of "gift" to homeowners, regardless of how wealthy they are. It's something they are entitled to for basic business reasons.

Even though real estate values have fallen, historically they have always risen, and are expected to again. So when someone sells their home in the future they will have to pay tax on the "profit" they made based on the sale price minus the cost of acquisition, capital improvements, and certain other costs (costs of sale, etc.). Mortgage interest is a major part of the cost of acquisition, and as such it is deductible from the sale price.

This isn't something unique to home ownership. No matter what you sell, the profit is taxable. But that profit is based on the sale price received minus the cost of acquisition and sale. So using an oversimplified example, if I sell you a widget for a hundred bucks, and I paid $40.00 for the widget, $10.00 for someone to ship the widget to me, $5.00 for me to ship the widget to you, and another $10.00 per-widget for overhead, my profit per-widget is only $35.00.

Mortgage interest is part of the acquisition cost of a home, regardless of whether that home has a value of $100,000 or $1,000,000. It's not a "gift." It's just part of the way profit is calculated, whether you're selling a widget or a McMansion. If the interest is not deducted during the lifetime of the mortgage (as it is now), then it will be deductible at the time of sale as part of the acquisition cost.

The present law merely allows the deduction to be taken on an as-you-go basis, rather than all at once at the time of sale. This practice primarily helps working-class and middle-class people to buy homes. The wealthy could buy homes without it (but would still be entitled to the mortgage interest deduction at time of sale, if they had a mortgage).

In addition, if the interest were not already deducted during the lifetime of the mortgage and were instead deductible in one lump sum at the time of sale, it would result in some home sales actually yielding a capital loss to the seller, and therefore no capital gains liability at all. It would also reduce the capital gains for all home sales by the amount of interest paid over the lifetime of the mortgage, as part of the cost of acquisition.

So, if that were the case, most homeowners who would realize an after-deduction capital gain from the sale of their homes would be advised to not sell until their first full year of retirement, when their overall income and tax liability will likely be lower. Those who would realize a capital loss, on the other hand, would be advised to sell in their last full year of employment, thus reducing their overall tax liability because of the capital loss from the home sale.

So in the end, it really gets down to the same thing: Eliminating the as-you-go mortgage interest deduction would be another short-sighted money grab for the government now, which would result in reduced tax revenues in the future. The interest will remain deductible, one way or the other. It's difficult to imagine how Congress could legislate away a legitimate cost of acquisition from the calculation of profit. That's too basic a business principle for even Congress to do away with.

Or in other words, this proposal is nothing more than another example of Congress trying to "solve" a fiscal problem by making it our children's and grandchildren's problem, instead.

-Rich

[msm859]

Even if this is true, (and I do believe the "wealthy" need to contribute a hell of a lot more than what they do), it puts this Nation on the slippery slope of disaster. Once we go down that path eventually it will be expanded to all of us. Very bad idea. Remember, the folks in Washington have no clue what the average citizen is dealing with. They live in their ivory towers and give "lip service" to the "Joe Plumbers" of this world.

Des.

Agreed. A problem with lowering the threshold is it is very discriminatory towards the many people who live in places were real estate is high. My son and his new wife are looking at starter homes in Los Angeles $500k does not get you there. Since housing cost is a major part of everyones budget it helps equalize the relative tax burden. If I live in CA and make $30k a year more than someone in say Alabama but my housing costs are $30k more our tax burden should be the same. The mortgage interest deduction helps achieve that.

[despritfreya]

RichM,

Forget the complicated notion of capital gains and taxes, something I simply cannot wrap my head around, the real problem I see is this - at least from my experience . .

The mortgage interest deduction allows me to receive a nice refund. That money is then recirculated into the economy. I, like many Americans, look forward to the refund which, if the Government takes the deduction away, will disappear as well. My spending habits will change. Further, without the deduction what is the point of home ownership? We all know that owning a home is a bottomless pit. If there is no real financial benefit in the here and now, what is the point? I might as well go back to renting where I do not have to lift a finger to even change a light bulb. Home purchases will drop, construction industry will collapse, thousands will be out of work - oh, but we have that now, don't we. And, guess what, government action (or in action) was partially to blame for the condition of the economy now.

Bottom line - just simply another stupid idea coming out of the leaders of our Nation.

Des.

[helpmeout]

What capital gains? Everyone's house has lost value. Besides the mortgage interest deduction is a middle class tax break. The super rich don't have mortgages. And I think there is a cap anyways that limits them getting one on their houses anyways. The republicans won't be happy until there is no middle class -- only the proletariat and bourgeoisie.

It's not always going to be that way nor is it that way for every single house (a good portion of them, but not all). My house is still worth considerably more than what I paid for it. When I filed, I wasn't upside down. Probably is now due to the bank tacking on all kinds of fees and what not since I haven't paid since Feb.

I agree with your statement about republicans, though. Wish they would have put their money where their mouth is when they were spending all of that money on wars in other countries. Especially Iraq.