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Home Mortgage
Interest Deduction
By Kevin Saunders
Housing
deductions are the largest that the average American
generally claim in their annual return! With the average
wage near $60,000 and the average new mortgage near
$300,000 it can be sizeable. But what of its future? Will
home mortgage interest still be a deduction in coming
years?
The mortgage interest deduction is a curious tax break.
On the one hand, it is the most generous tax preference
the middle class gets. On the other hand, the richer you
are, the bigger a tax break it is.
Under current law, you can deduct mortgage interest and
property taxes of up to $1.1 million from taxable income.
So a homeowner with a $300,000 house and a $200,000
mortgage gets deductions that save around $5,000 in
taxes, depending on income and tax-bracket, while one
with a $1.5 million house and a $1 million mortgage
typically saves well over $30,000. Also some state and
local real estate taxes are currently deductible.
Who receives these tax breaks?
When a congressional committee examined the distribution
of homeowner benefits for 2004, it found that people
earning $200,000 and more a year, just one-half of 1
percent of all homeowners filing for deductions, pocketed
22 percent of the total write-offs last year.
Homeowners with incomes between $50,000 and $75,000 --
26.4 percent of all owners claiming deductions --
received just 16.1 percent of the total. Owners with
incomes of $30,000 to $40,000 represented 10 percent of
all mortgage deduction recipients but got just 3.1
percent of the total tax-savings pie.
Property tax write-offs showed a similar distribution.
High-income households were 3.8 percent of all owners
claiming property tax deductions in 2004 but received 15
percent of the total. Homeowners with $30,000 to $40,000
incomes were 9.4 percent of those claiming property tax
write-offs but received 3.7 percent of the benefits.
So why is this an issue for the government?
The mortgage interest deduction will cost the Treasury
$73 billion this year alone, according to congressional
estimates. Add to this a further $21 billion for other
property tax write offs and tax subsidies. That’s
$94 billion dollars in revenue the federal government
could be keeping in the treasury. This is a big incentive
for government to claw back real estate deductions,
especially with a war and natural disasters to pay for.
So what will happen?
The talk is that a flat 15% credit will be introduced and
that the total mortgage amount will be capped around the
$350,000 range. Also some types of loans such as equity
loans will be no longer tax deductible. These measures
are still ideas of the bush administration. There is
still the risk of these deductions or most of them being
removed altogether.
Personally, I still think that paying your mortgage off
completely in the quickest fashion is the best thing to
do. After all, do you want to be left with a large non
deductible loan if when they do remove these deductions?
You can get more information about the home mortgage
interest tax deduction directly from the IRS, in the form
of IRS Publication 936 (it's lots of fun).
If you are a first time home buyer and you are looking
for some of the nicest neighborhoods, look into Colorado
homes for sale in Colorado. You will find that Colorado real estate is some of the nicest
places to live in the country. You will notice that Broomfield
neighborhoods are great to live in also.
Copyright © Kevin Saunders. All Rights Reserved.
Kevin
Saunders is one of the founders of MortgageLoanHints.com, bringing you tips and
hints for paying off your mortgage quickly, helping you
to use the power of a mortgage loan to increase your
wealth and learn to take control of your own finances.
You can see more of Kevin's articles here: http://www.mortgageloanhints.com
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