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So this happened!

Let me start off by saying that I don't itemize and so we don't claim the Mortgage Interest Deduction, so my bias may well lay on this fact.

My wife and I scrimped and saved (eating a LOT of rice and beans) to put together a 20% down payment on a house that we could afford.  We paid up front another couple points to drop the interest down even more - so, we actively worked so that, in the end, and within our income bracket, we essentially made ourselves ineligible for the deduction.

OK - so I get the sense that part of the ideas being floated by the Republicans is to limit the Mortgage Interest deduction.   Why are we opposed to this?

Now before You all jump down on me about this, YES, I understand that they are proposing this as an alternate to raising the Top Marginal Rate, to which my response is "Why can't we do both!?" ... but, why are we defending the Mortgage Interest Deduction?

Without getting into how this deduction MAY have contributed to the housing bubble, let us deal with where we are now!

Take a look at this table from 2008 on  Percentage of People claiming the Mortgage Interest Deduction:

Mortgage Interest Deduction

As You can see if You click through on that link, the title of the page: Tax Savings from Mortgage Interest Deduction Vary Significantly from State to State

This is something that we basically all know intuitively - Some states have a lot higher housing costs than others, and so it would be obvious that the Mortgage Interest deduction is just as variable from state to state.  My question is "Why is the federal government involved in an issue that is so clearly locally determined?"

The table is from 2008, and I have no doubt that the numbers have changed since then, and I would guess that they have skewed even more.  

But just to summarize the table from 2008 - of all Tax Filers, the percent that claimed the Mortgage Interest Deduction was 26.83%, ranging from a low in North Dakota of 14.6% to a high in Maryland of 37.94% with average deduction claims ranging in Oklahoma of $ 8,372 to California of $18,876

Why isn't the issue of the Mortgage Interest Deduction more on the State and Local side than at the Federal level - not the 'historical reason', but the reason NOW!?  Why shouldn't the federal government LIMIT this deduction?

So, as we can agree (I hope) - this deduction is 'unfair' geographically - with, essentially, some localities 'subsidizing' others.

Now, if we look at this table from 2005 on who itemizes, and extrapolate percentages of who uses the mortgage deduction - this table from 2003 we can see the clear income inequality of who is using the Mortgage Interest deduction.

The mortgage interest deduction is pretty inequitable - both geographically and income.  Why are we wanting to preserve this?

There are no shortage of additional issues to deal with in discussing the Mortgage Interest deduction:

Should it be available to Second / Summer / Vacation Homes?
How is it applied with regard to Income Property?
Should it be limited based on Income?
Should it be variable based on location?

I have thought a bit about including a poll, and I have decided on the most basic information collection poll to go with, and as such, I unfortunately won't be including any Pie in this poll, and I would actually ask that You rec this diary just so that I can collect this data from the readers of this blog.

Next Up -- The Charitable Giving Deduction!


Did You claim the Mortgage Interest Deduction in Your 2011 Tax Filing

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Comment Preferences

  •  Tip Jar (9+ / 0-)

    "I want to keep them alive long enough that I can win them to Christ," - Rick Warren, Professional Greed Driven Scumbag

    by josephk on Fri Dec 07, 2012 at 09:57:00 AM PST

  •  I think (11+ / 0-)

    We will see the mortgage deduction capped at $500k mortgages, and perhaps an elimination of the 2nd home/boat mortgage deductions.  And I think that would be fair.  

  •  Who has suggested this? (2+ / 0-)
    Recommended by:
    tardis10, puzzled

    I know there's been lots written about this the last few days. But I have yet to hear anyone that's been elected suggest that the mortgage interest deduction be eliminated, capped, or otherwise limited. I haven't heard a Republican member of congress say it. I haven't heard a Democratic member of congress or anyone from the administration say it.

    Other than the Republican's Romneyesque vague proposal to limit deductions to raise revenue, has there been anyone in a position of authority to suggest that the mortgage interest deduction is part of the discussions?  

    •  This idea does (0+ / 0-)

      show up in Bowles-Simpson's report,pretty much as condensed by whizdom above.

      "George RR Martin is not your bitch" ~~ Neil Gaiman

      by tardis10 on Fri Dec 07, 2012 at 10:30:01 AM PST

      [ Parent ]

      •  Right (2+ / 0-)
        Recommended by:
        tardis10, gramofsam1

        But other than vague references to the Bowles-Simpson quasi-report, I haven't heard anyone specifically identify the mortgage interest deduction as being part of anyone's plan.

        I don't think it's a bad idea, but unfortunately, this is one more tax preference that benefits the middle class and upper middle class that has almost no effect on the super wealthy. As an example, this would not affect Mitt Romney's income tax. He didn't deduct any mortgage interest. Nor do many wealthy people. And even those that do, this proposed cap wouldn't change things much. For those with income of $1 million, it would increase their effective tax rate by less than 1% of income.

    •  Lots of republicans have brought up this vague (2+ / 0-)
      Recommended by:
      Kane in CA, Nowhere Man

      reference to 'eliminating deductions and loopholes'. They just don't dare to say it out loud.

      •  That was kinda my point (2+ / 0-)
        Recommended by:
        Nowhere Man, tardis10

        They're afraid to actually say it. Is it in the news because of republicans (or democrats for that matter) whispering about it as a trial balloon? Is it out there because the NAR is making a pre-emptive strike against it?

        It is something that should be discussed out in the open. But right now it's only whispers.

  •  I am curious (2+ / 0-)
    Recommended by:
    bubbanomics, MrBigDaddy

    How do you become ineligible to take the mortgage interest deduction? You lost me on this one.

    The 47% also "pay all the taxes that are legally required and not a dollar more" but when Romney does it he thinks it's a virtue, while when they do it, he thinks they are deadbeats.

    by jsfox on Fri Dec 07, 2012 at 10:28:09 AM PST

  •  Which states have the highest unemployment? (2+ / 0-)
    Recommended by:
    Kane in CA, Terrapin

    California, Florida and Nevada.

    Part of why unemployment is so high there is because construction jobs evaporated.

    •  but unrelated to mortgage deduction (2+ / 0-)
      Recommended by:
      Utahrd, tardis10

      Unless you take the view that the mortgage deduction contributed to the real estate bubble.

      One argument against the mortgage deduction is that it contributes to things like the real estate bubble. But it doesn't actually save anyone money, because house prices rise to consume the benefit.

      Without the deduction, we'd have about the same house ownership (other countries don't have the deduction), but the house prices would be slightly lower.

  •  I always wondered why (0+ / 0-)

    no other interest categories were made deductible (I'm not sure others were not deductible, but I don't remember any). Except perhaps for the size of the interest payment. But if you added all the others that I had been paying at various times they would have amounted to a fair amount also. What was so special about the interest on mortgages? I still claimed it and it did make a material difference to my disposable income, but not a large one. I also felt just a tad guilty about it all along, too.

    Moderation in most things.

    by billmosby on Fri Dec 07, 2012 at 10:33:56 AM PST

  •  Definitely eliminate second-house deduction (3+ / 0-)
    Recommended by:
    malibu1964, icemilkcoffee, bear83

    Always thought it should only be primary residence only.

    Not sure on the income property, though. My house (which is my one, only, and primary residence) is a two-family. Perhaps if income property deduction was only allowable if said property was primary residence.

    As for the dollar amounts geographically, remember I could buy 2 houses in Kansas for what I paid here in Massachusetts. Location, location, location.

    "The less time you have, the more you need to use it wisely." - Cpt. Avatar, Starblazers

    by DeathDlr73 on Fri Dec 07, 2012 at 10:36:02 AM PST

    •  Income property is not deductible (1+ / 0-)
      Recommended by:

      Although if the income property is an incoming generating business, the interest could be deducted as a business expense. Also there is a 27(?) year depreciation allowed for rental properties.  So every year you could deduct 1/27 of the value of the property (of course, when it comes time to sell, you would have to use the depreciated value as basis, and you would have to pay capital gains based on that)

      It's complicated

      •  Complicated is right (0+ / 0-)

        On my current taxes, any improvements made on the second floor (which is a seperate residence I rent out) are amoritized on a 10-year term.

        I can currently take the mortgage deduction because I live on the first floor. The second floor is rental income, but that's the way the house was built and designed. Losing the mortgage deduction because the house was suddenly classified as Income Property would be messed up.

        Unless I chop off the second floor, anyway.

        "The less time you have, the more you need to use it wisely." - Cpt. Avatar, Starblazers

        by DeathDlr73 on Fri Dec 07, 2012 at 11:56:24 AM PST

        [ Parent ]

      •  I don't understand your post- (0+ / 0-)

        what are you saying is not deductible?  Interest payments?

  •  we aren't out of the housing slump yet (1+ / 0-)
    Recommended by:
    Brooke In Seattle

    so any talk of eliminating or limiting the mortgage interest deduction would likely send shockwaves into the housing markets.

    Who will buy up those remaining foreclosures if there is no or limited deduction incentive to do so?

    •  Repeal probably should be phased in. (1+ / 0-)
      Recommended by:

      Also, it's not deductible in Canada.  Means (or should mean) housing prices are lower there.

      I'm sure the effects of removing it have been analyzed a lot.

      This is sort of the third rail of tax deductions (along w/ charitable) so don't expect drastic change.  But second homes, homes over $500K, and, yes, boats!, may go.

  •  Data is from 2008 - height of housing crisis ... (0+ / 0-)

    ... and therefore a bit questionable.  Still, I get their point about variability such as it is.  Whatever it is.  What is it again?  Oh, right, variable by geography.

    Look, we do only a very few things in America: we build cars, we build houses and we build war machines.  The mortgage interest deductions lends tremendous support to the housing industry - employer to millions of Americans.  On that basis, I am a supporter.

    It also ends up to be very non-progressive in how it is applied.  On this point I am open to ideas as long as the use of the deduction continues to help poor people into home ownership and provide a tax break for the middle class.

    Please do not be alarmed. We are about to engage... the nozzle.

    by Terrapin on Fri Dec 07, 2012 at 10:47:24 AM PST

  •  Pretty sure we build drugs and hi-tech. nt (0+ / 0-)
  •  What state do you live in? (5+ / 0-)

    And how much is twenty percent for you? I live in Los Angeles and currently pay a below market average rent of $1875 for a 2 bedroom 875 sq ft duplex apartment. Buying a moderately priced house here, not in our neighborhood where we are priced out, would be upwards of $450000 for a 1950's 2 bed or small 3 bedroom. if we wanted to move into a larger 2 bedroom or even a 3 bedroom home it would cost us between $2500 to $4000 to rent.

    We already scrimp and save to pay our rent and hope to save enough for 5 to 10 percent down in 5 years. Taking away the mortgage interest deduction in California would create a permanent class of renters vs. owners.

    •  It would do more than that (2+ / 0-)
      Recommended by:
      naiomih, gramofsam1

      It would lower home prices because a significant number of home owners in high-cost areas would suddenly become unable to afford the homes they already own. That would be me for example. I own a 2-BR condo in San Francisco. Without the deduction for mortgage interest and property tax I could never have afforded it. Or to be more precise, I could afford to own it, or I could afford to eat, but I couldn't afford both at once.

  •  MA has this right (1+ / 0-)
    Recommended by:

    mortgage interest not deductible, rent is deductible up to a limit

    This way lower income renters get a deduction.

  •  End the mortgage deductiond watch your house (2+ / 0-)
    Recommended by:
    Odysseus, gramofsam1

    value fall as people no longer can afford thier home they bought using the calculation at the time of purchase. Reneging on laws that some people included is wrong. Smugness is never a basis for good policy.

    Fear is the Mind Killer...

    by boophus on Fri Dec 07, 2012 at 12:37:08 PM PST

    •  That's true- we probably should never (0+ / 0-)

      have had the deduction, but it's become such a structural part of the housing market that ending it would create a lot of havoc.
      Maybe they could phase in a lower cap but even then they should probably grandfather existing mortgages.

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