Target: mortgage interest deduction
This is the time of year that you will be receiving the annual statement from your mortgage lender itemizing the interest paid on your mortgage for tax purposes. This year, however, the statement could contain a big fat target right in the middle.
Steven Mnuchin, who is president-elect Trump's nominee for the treasury secretary position, indicated that the administration's plan would "cap mortgage interest but allow some deductibility."
Statements like this is like waving a red cape in front of a furious bull. The furious bull in this case is the National Association of Realtors and its 1.2 million members against the tax reform.
Their position is that capping the deduction would hurt every homeowner, even those whose interest payments fall below the cap, because housing is all one cohesive market. Economist Richard McKenzie has estimated that the value of every home in America would decline by 10 percent to 15 percent the day after the deduction is capped.
The home mortgage tax deduction, which some say is simply a government subsidy for homeowners, is available to all who pay United States taxes and who itemize their taxes. They can deduct mortgage interest, which is attributable to a primary residence and a second-home residence up to $1 million, and interest paid on home equity debt up to $100,000.
According to the National Association of Realtors, more than 60 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000, which contradicts that it primarily helps the wealthy. Also, they contend that the mortgage interest deduction helps middle-income families who already pay nearly all U.S. income taxes.
Of course, the major reason the association is against capping the deduction is its effect on the health of the real estate market. Generations of Americans have relied on these deductions in making enormously consequential financial and cultural decisions dictating where they live and where they raise their families.
Those in government and elsewhere, who think eliminating the mortgage tax deduction is good for the economy, point to the additional source of revenue that would be available to the government to put towards budget deficits and federal projects. Perhaps readjusting the mortgage tax deductions over a period of years would have some merit, but a major change like this, which would affect almost every citizen in some way, whether they own or rent housing, must be phased in and approached in a very limited fashion.
If I heard that the mortgage tax deduction was in jeopardy before the election, I sure don't remember. With interest rates going up and probably hitting 4.5 percent by the end of this year, the housing market can't afford another hit. Just the discussion of the possibility of losing this tax deduction could result in potential homeowners reconsidering the benefit of owing their own home.
Also, included on the end of year mortgage interest statement are usually the property taxes and insurance payments, if your lender is responsible for paying these items. This year, two of the three, mortgage interest and property taxes are deductible on your tax return, but watch out for next year when that target may actually appear on the end of year statement. Personally, I don't think it will ever happen, and if it does, I'm not only selling my property, but I'll be looking for a new job.
