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Uh-Oh, Mortgage Interest Deduction Part of ‘Fiscal Cliff’ Maneuvering

The tax advantage American home owners have enjoyed for more than a century – the mortgage interest deduction – well, get ready to kiss it good-bye.

With 26 days and counting before we all fall off the “fiscal cliff,” that tax write-off American homeowners have enjoyed for more than a century – the mortgage interest deduction – well, get ready to kiss it good-bye.

Numerous reports concerning maneuvering on the fiscal cliff package have stated that a change to the long-standing policy that allows homeowners to deduct mortgage interest payments from their income taxes could be part of the remedy.  As homeowners (or potential homeowners), you should be outraged and opposed to any changes to the mortgage interest deduction (MID).

The administration’s proposal calls for limiting the value of the MID to 28 cents on the dollar for affected taxpayers, rather than 33 cents or 35 cents. “Affected taxpayers” are those where the value of itemized deductions are used for taxpayers earning more than $200,000 in annual income; or $250,000 for joint filings of married couples.

Now before you get all worked up into an Über Liberal rant, we need to immediately correct the misconception that only the wealthy benefit from the MID. In reality, it primarily benefits middle- and lower-income families. Almost two-thirds of those who claim the MID are middle-income earners; 65 percent of families who take the MID earn less than $100,000 a year, and 91 percent earn less than $200,000 a year.

Oh, and there’s this chestnut: There is also consideration of lowering the MID deduction ceiling to a home price of $500,000 and deleting its application to second homes and home upgrades. If that were in effect now, more than 35 percent of residences sold in San Mateo County last year would not have qualified for this benefit of home ownership.

So what needs to be done? Pretty basic stuff. Tell Congresswomen Jackie Speier and Anna Eshoo as well as Senators Dianne Feinstein and Barbara Boxer that, as your elected officials, it is imperative they remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest.

And in case you’re shy about this, you’ve got another 69,999,999 home owners who stand with you and are asking Congress to "do no harm" to the mortgage interest deduction and leave it as-is. It will be interesting to see who stands with us in support of the American Dream. Send your messages to:

Senator Boxer: https://boxer.senate.gov/en/contact/policycomments.cfm
Senator Feinstein: https://www.feinstein.senate.gov/public/index.cfm/e-mail-me
Representative Eshoo:  https://forms.house.gov/eshoo/webforms/issue_subscribe.htm
Representative Speier: https://forms.house.gov/speier/webforms/email_jackie.shtml

Cliff Keith December 6, 2012 at 04:18 pm
Great information. If Redwood City residents want to have to make room for their children to move back in with them they can just do nothing.
Lou Covey, The Local Motive December 7, 2012 at 05:46 pm
The only problem I have with this is that we are having an either/or discussion when it doesn't have to be. We all have to make some sacrifices here. I don't know why the deduction has to apply to second homes, vacations homes or for incomes over $200,000.
Andrew Peceimer December 10, 2012 at 03:18 pm
Lou, Do you really think 200K per year on the peninsula is a lot of money? Would 200K per year qualify me to buy your home with a FHA loan?
Paul Stewart December 10, 2012 at 05:56 pm
Cogent observation Lou. The second home application was intended to allow those who own rental properties to take advantage of the the MID. Not sure how the remodels/rehabs got in there but they are included. Oddly, in the discussion, the application to +/- $200K wage earners has not been discussed... only lowering the property price upon which you can claim a MID.
Cliff Keith December 11, 2012 at 05:10 pm
Andrew, no $200K is not a lot of money on the San Francisco peninsula. In most parts of the country it is though. And yes that income would qualify you for a home, however, it would depend on your debt and probably would not be in the neighborhood you desire. But you already knew that.
Did you know America's first colony, Jamestown, start out as a socialist state? William Bradford decided after the first year socialism didn't work in America and that was the birth of the Free Enterprise System as we know it today.
Cliff Keith December 11, 2012 at 05:41 pm
That's funny Chris Corbett, however, not true anymore for Anna.
Andrew Peceimer December 11, 2012 at 08:45 pm
Cliff did you know that the US Tax system is more more of a socialist state than countries such as Venezuela? Frequently the US media calls Chavez a Socialist but if you look at their property taxes, sales tax, retirement tax, death taxes versus ours we are the Socialists. It is only getting worse under Govenor Brown and President Obama. 10% unemployement in CA......
Lou Covey, The Local Motive December 11, 2012 at 10:13 pm
Andrew, actually yes. at $200K a year, you could pay off my home in about 5 years and still live comfortably,
Dan Robinson December 11, 2012 at 10:47 pm
Congress passed the Mortgage Interest Deduction to carry out their policy. The government wanted to encourage home ownership vs renting, as well as aid the construction industry and indirectly the nation's economy. A great deal of the tax code was written to direct our behavior.
Cliff Keith December 11, 2012 at 10:48 pm
If you mean our various taxes that goes to support the masses then yes I concur.
Cliff Keith December 11, 2012 at 10:50 pm
That is right Dan and is exactly why we need to keep it in place.
Cliff Keith December 11, 2012 at 10:57 pm
Just a point of fact to consider.
Losing the Mortgage interest deduction will disproportionately affect the middle class because a larger proportion of the middle class takes the deduction. In California 89% of those who took the mortgage interest deduction earned less than $200,000. Losing the deduction would cost the average California taxpayer over $3,900.
JoAnn Bell December 11, 2012 at 11:45 pm
I wonder why there is a MID anymore for anyone! I have never known or heard of anyone purchasing a home INSTEAD of renting solely because of the MID. People who can afford homes generally will purchase a home. People who cannot afford to purchase a home will continue to rent (like me). There is no Federal renters' credit. I just don't understand why homeowners should get a break, when they already are able to live in their own dwelling rather than rent. If anyone needs some tax relief it's the renters who have NO control right now.
Mark Burns December 12, 2012 at 12:38 am
The MID allows families to purchase a 10%-15% higher price home. Or just to be able to purchase a home at all. With that they get better schools, they move closer to work, they control their long-term costs by fixing their expenses with a mortgage. Without the MID move up markets slow down. Folks with $3M+ homes are not particularly affected by the MID but homebuyers in the $100K to $1M range (the bulk of the country) will be significantly affected. Seniors will have values flattened or reduced on an investment that was meant to sustain them in retirement.
But let's understand what the MID costs and what the housing industry produces. According to the National Association of Home Builders, Housing Investment and Services accounts for 15.1% of GDP. In 2011 GDP was $13.3T. That means the housing industry generates $2 Trillion of economic activity in the country. On the other hand, the MID reduces Federal revenue $131B. That's 6.5%. What other investment has our government made in the economy that helps generate that much of a benefit and return?
Jo Tog December 12, 2012 at 02:05 pm
Only Democrats should have the Bush Tax Cuts expire on them. They never wanted it in the first place. Majority in Ca are democrats and now are complaining about how not extending the Bush tax cuts for them will hurt them. Give me a break. Romney had a good idea; any billionaire who owns more than one home should not benefit from the mort int tax credit for all their property, except; the one home they live in full time. Rich Billionaires, and there are many, have multiple homes with mortgages. These properties have allowed the billionaires to benefit from the int tax credit. But, you didn't vote for Romney, you voted for the communist.
Andrew Peceimer December 12, 2012 at 04:20 pm
JoAnn,
I bought my home at the time in large part because of the MID...so now you have heard of someone... :-)
Cliff Keith December 12, 2012 at 04:40 pm
Everyone who buys a home does so in part because they have been over burdened with Fed, and State taxes and are looking for tax relief through the MID. It's not much but it helps. (As a side note shelter is the main reason.)
FYI: As a landlord, if I don't receive my MID on my rental property I will raise the rents to cover my loss. I don't think I am alone on that one. It's the same for all the parcel taxes that are passed by voters. That increased tax is passed on to my tenants. This is the reality of it all.
Andrew Peceimer December 12, 2012 at 06:13 pm
Cliff when the rental market goes down, how do you pass on the all the new parcel taxes to your tenants?
Cliff Keith December 12, 2012 at 06:56 pm
Obviously you can't. I don't see a downward movement in rents. Several reasons: rents have not adjusted to the market/economy since the 80's and the current rise will not come back down as in past rental markets, home buyers in the 25-34 year range are still shy/fearful about buying a home and want to remain renters, with the decrease of available home buyers, investors are swooping up most of the affordable housing making the current rental market unable to purchase, the hardest group hit by loss of buying power/income in this recession were the entry level home buyers or the group between 25-34 years of age.
Cliff Keith December 12, 2012 at 07:00 pm
I apologize as I was being a bit flippant about rising rents as a pass through of additional costs to a landlord/property owner, however, I was doing so to make a point. You can tax, penalize, take away benefits from landlords, but history has proven that these costs are only passed on to those who can afford it least and who are meant to benefit from such legislation...the tenant.
Mark Burns December 13, 2012 at 11:58 pm
The market dictates rents.
A rental property, for tax purposes, is a business. The mortgage interest, taxes, insurance, maintenance, etc. are expenses and rent is revenue. Rents may exceed expenses or may not. Depreciation helps but is recaptured upon sale of the property. You might make money now or you might make it down the road. The mortgage will eventually pay itself off (in most cases). The property may appreciate or it may decline in value. Rents are not dependent, contingent, nor related to any of these other factors. I agree with Cliff, rents seem to be on an upward cycle and look to continue that way for the foreseeable future.
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