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^Not sure if its atypical but my wife and I definitely take a tax hit for being married. There is no benefit here. We miss out on both childcare tax credits and student loan deductions because our combined incomes phases us out while our individual incomes would not.
Understand where you're coming from, but the opponents of mortgage deduction (proponents of repeal) would tell you to not complain because your combined high incomes already put you at an advantage over the the poor folks who can't afford a home. I just brought up other deductions because if the logic is "we must remove the deduction because it's unfair to those who do not qualify", then the same logic should be applied across the board. Start taxing unmotivated weed-addicts on their habit and penchant for red eye instead of work and then we'll be able to pay for the King's Infrastructure a thousand times over, instead of worrying about how unable to buy a house they are.
I think its a bad move unless the plan is to grandfather existing mortgages. My reasoning is:
1. Most people buy a home in order to lock in a predictable payment amount each month and a fixed interest rate. To remove the deduction is in effect the same thing as saying "oh yeah, your interest rate wasn't really fixed anyway, it's going to be a percent or two higher than what you signed up for.".
2. Opponents of the interest deduction say it needs to go because it's not fair to those who can't afford a home, and also since people would have bought homes anyway it's just an unnecessary bonus. This means that a tax advantage for married couples is not fair to people who choose to be single and since they probably would have gotten married anyway, we need to abolish that. It also means abolishing tax advantages for dependents because those people would have probably had kids anyway. If the logic is sound at all, it generally means there can be no tax advantages for anyone for anything. What's good for the goose is good for the gander.
3. Particularly with rising interest rates, it's going to destroy the market for mcmansions. Not that I am a fan of mcmansions but the bottom line is some people who opted for those do not deserve to have their legs kicked out of them after they've already signed up for the purchase. This issue could be mitigated if the fed offered some sort of refinance program at an interest rate that allows them to match the total monthly payment they had prior.
4. It will negatively affect home maintenance in general and all aspects of the construction / remodeling industry. Many homeowners rely on that "bonus check" at tax time to cover unexpected repairs on their home that have occurred throughout the year or pay down higher interest debt. Some would say that wise money management is the responsibility of each homeowner, but keep in mind that the repeal is designed to help those less capable, those less financially responsible, which by the way is the very same crowd of folks who would likely find themselves in a bind with poorly projected maintenance costs and high interest debt.
So basically I think the deduction repeal is a seriously bad idea. If they want to put it in effect for new mortgages, then fine, at least people are aware of what they are signing up for, but unless that money comes back to the homeowner some other way, and all else stays equal, then people are going to start buying much smaller homes, maintaining them less, or making some other tradeoff to make up for the loss.
People have factored in this deduction to their long-term financial plans since the mid 80's, and made choices such as investing in the stock market rather than paying their home off early based on that deduction. To change it now is kind of like just saying "okay if you make over $50k per year, we are going to need to subtract a portion of your 401k and give it to the poor, sorry we didn't tell you about this 30 years ago, but sucks to be you".
Well most people buy a home as a place to live not as a tax write off. And no one has ever gotten rich spending $3 to get back $1.
The standard deduction will increase from ~$13k to $30k. This will capture something like 95% of people who itemize currently.
The mortgage deduction will still be there up to a reasonable cap, and if you can itemize more than $30k you will still be allowed to do it.
You cannot deduct car interest or credit card interest (although you could at one point) yet people are still financing cars and charging their cards like it's going out of style. Car loans are at historical highs.
So in summary, the mortgage deduction will still be in place just in a different manner.
Well most people buy a home as a place to live not as a tax write off. And no one has ever gotten rich spending $3 to get back $1.
Nobody ever got rich from the deduction either. What they do get back is, for most people, just enough to help with a few unexpected and inevitable expenses that occurred throughout the year, not enough to plan an exotic vacation. And, those dollars can help out tremendously with difficult to predict maintenance issues. This is a problem that renters don't have. And since the fundamental basis of the repeal and the need for it is that "its not fair to renters", it seems like a bad plan to me.
I don't have a problem with policy changes like this or anything out as long as they are rolled out carefully and not sprung on people who signed up for and budgeted for a different scenario, especially something as critical as budgeting for housing cost.
The mortgage deduction helps absorb a blow to the housing market that typically occurs whenever interest rates rise. The more painful the interest rates get, the more the deduction. So it actually helps those poor renters with the possibility or option of owning, even when interest rates get occasionally out of hand.
I haven't seen any talk of them doing away with the MID, without some type of tax reform/simplification that essentially offsets it.
In fact, if nothing else, it would be called a "tax on the rich" if it were eliminated.
If a household gets total deductions of $100K (seen elsewhere, Dec 1), that's pretty hefty.
Exactly. The mortgage deduction is just baked into the standard deduction. Whether you use it or not. Makes perfect sense and simplifies taxes for 95% of the population, to the point where they don't have to pay a CPA every year or spend 10-15 hours just sorting through their data.
It will still be there. For folks who have $30k+ in write-offs you can still write off your interest. Very few people can write off that amount yearly.
Nobody ever got rich from the deduction either. What they do get back is, for most people, just enough to help with a few unexpected and inevitable expenses that occurred throughout the year, not enough to plan an exotic vacation. And, those dollars can help out tremendously with difficult to predict maintenance issues. This is a problem that renters don't have. And since the fundamental basis of the repeal and the need for it is that "its not fair to renters", it seems like a bad plan to me.
I don't have a problem with policy changes like this or anything out as long as they are rolled out carefully and not sprung on people who signed up for and budgeted for a different scenario, especially something as critical as budgeting for housing cost.
The mortgage deduction helps absorb a blow to the housing market that typically occurs whenever interest rates rise. The more painful the interest rates get, the more the deduction. So it actually helps those poor renters with the possibility or option of owning, even when interest rates get occasionally out of hand.
Have you read the proposed changes? Do you understand what they are doing?
Part of that is because they've been discussing it for years. If your point is that other changes will result in the same amount of money in a homeowners pocket anyway, I'd say that is all fine and good, but not really the aspect of this that bothers me the most.
I simply don't like the idea that starts with the fact that many folks buy a home as part of an overall financial strategy, which for many involves stabilizing their cost of housing so that they aren't subject to unpredictable and uncontrollable expenses, such as rent increase by factors that could not have been foreseen. Then to suddenly change the financial profile of what that home really costs them is a bit of an unfair switcharoo. The homeowner doesn't have the option of coming back after living in the home and saying to the bank "Hey I know I originally signed up for 4% on the original paperwork, but the wife and I have talked it over and we believe 2.75% would be more fair for all involved, so that's what we will be paying going forward". (They of course could maybe refi if the rates did drop but that costs them money too and is clearly not what I mean by that example). Because the government has that power and the homeowner doesn't, it is an undesirable scenario for the homeowner.
I have the same level of opposition to the idea that the government can suddenly reform retirement plans, and say "we have decided that tax-deferred investments provide an unfair advantage to those who had have had access to 401k plans throughout their career, and because that option is not available to everyone we have decided that all 401k or IRA holders will need to start paying a 2% annual tax on their existing balances, and furthermore when you do retire and withdraw the money, taxes on gains will be computed based on your highest earning year during the time the 401k was active, or during the year the 401k plan was first started, or you retire, whichever rate is greater."
Allowing the government to completely negate the benefits of retirement plans at their whim is something that hasn't happened yet, but if it can happen to taxes and mortgage interest, it can happen to anything.
Does that make sense? I'm not debating the merits of MID repeal itself. In fact I always felt the cap on the loan amount should be closer to the average US home price and not $1 million or whatever.
What I'm against here, is the notion that it's somehow okay to drop unexpected bombs on a taxpayer after they've signed up for a 30 year commitment -- it is effectively changing the terms of that commitment and could be viewed as breach of contract in a sense (though not technically since the interest deduction is not part of the agreement between the homeowner and bank). Put the bomb down in front of new mortgage applicants all day long and let them make their decisions with adequate information -- I'm fine with that. But don't spring it on folks who did due diligence on financial planning, only to get blindsided by policy changes.
Exactly. The mortgage deduction is just baked into the standard deduction. Whether you use it or not. Makes perfect sense and simplifies taxes for 95% of the population, to the point where they don't have to pay a CPA every year or spend 10-15 hours just sorting through their data.
It will still be there. For folks who have $30k+ in write-offs you can still write off your interest. Very few people can write off that amount yearly.
So, it isn't really a mortgage interest deduction, as no mortgage is required?
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