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
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.
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.
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?
I bought my home at the time in large part because of the MID...so now you have heard of someone... :-)
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.
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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