Mortgage income tax deductions may be lowered

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October 13, 2005

Mortgage income tax deductions may be lowered

"America Needs a Better Tax System" is the title of Statement by the Members of the President’s Advisory Panel on Federal Tax Reform.

I can't agree more with this statement, but when I heard that the honorable panel will recommend reduction of the mortgage interest deductions on your income tax, I felt somewhat strange. Mr. Bush instructed the panel to make sure that any revised code continues to promote home ownership. So, the panel said Tuesday, that while preserving tax incentives for home buyers is important, it was considering changes necessary to address issues of fairness and economic growth.

Currently, the interest on mortgages up to $1 million may be deducted at a home owner's top income tax rate. That is, the rate on which their last dollar is taxed. So the more homeowners make, the higher their tax rate, the more tax benefits are for them in mortgage deductions. Do you see anything wrong with that? I don't, you work hard, you deserve a break.

When you sell your home, which you have owned for at least 2 years, you can keep $250,000 free of any capital gain taxes, if you file income tax as a single person.
If you file jointly as a married couple, you can keep cool $500,000 without uncle Sam taking a big chunk. I like this one, it promotes marriage, nothing wrong with that.

So what is the problem? People sell their homes, buying new ones, spending money on everything from cars, boats, vacations to nursing homes they may need or whatever, providing jobs and further growth. Or they give to charity.
But you see, "those breaks are heavily skewed toward high-income tax payers", according to one panel member, James Michael Poterba, who is associate head of the economics department at MIT.

Another grievance is the deduction disproportionately benefits homeowners who itemize their deductions. If homeowners don't itemize, they just take the standard deduction, which they would get even if they didn't own a home. So itemize then, what is the issue?

Bunch of baloney if you ask me. I am the quint essential middle class American, and I do need the mortgage tax breaks, period. I already pay too much taxes, as far as I am concerned. And I do itemize, what is wrong with those people who don't?

May be, to further the growth and become more fair to the less fortunate Americans, less money, if at all, should be waisted on foreign aid.

But back to the proposals that the panel is considering and some of which can make it into final report, which is due Nov. 1.

- Reducing the mortgage amount on which interest may be deducted from the current $1 million.

- Replacing the mortgage-interest deduction with a tax credit, allowing all homeowners with a mortgage to get a tax break, not just those who itemize.

- Reducing the tax rate at which mortgage interest may be deducted. New rate would be a middle-income tax rate, say 15 - 25%t. That would preserve the benefits of home ownership for middle-income taxpayers, according to Poterba.

- Reducing the total capital gains exempted from tax.

- Combining the latter two - reduction of capital-gains exemption with lower deduction rate on mortgage interest.

To me it all sounds insane. The recommendation must be adopted by Congress, to become a law. And it has supposedly a very slim chance of passing in current Congress. Small consolation indeed, if you think that something like this is even being considered.

Read more about possible less friendlier mortgage tax breaks

Posted in Mortgages at October 13, 2005 01:27 PM

Bad Credit Online Magazine - Daily News and Advice on Credit, Debt and Mortgage : Mortgage income tax deductions may be lowered

October 13, 2005

Mortgage income tax deductions may be lowered

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