Many of us who own homes can write off the mortgage interest paid on Schedule A. But who in America benefits most from the mortgage interest deduction, and what may happen to the real estate market and the overall economy if the deduction is limited in any way? These are key issues that are being hashed out in Washington, and tax reform in this particular area could very well be on the way.
A PEW research study in 2010 showed some interesting facts. Only 1/3 of the federal filers take the mortgage deduction, and only ½ of the homeowners. States on the east coast and west coast generally had the highest number of filers and highest average amounts of mortgage deduction taken.
Currently, the deduction is limited to 1 million total of mortgage debt. The amount of the deduction depends on the income tax bracket of the taxpayer. So if you are in the top bracket of 39.6%, you benefit tremendously from the deduction, far more than if you are in one of the lower brackets. Over the 5 year period the mortgage interest deduction is expected to save the American taxpayer $380 billion.
Ideas to limit include lowering the total debt amount to $500k or $750k, not allowing interest deduction on second homes, or making the interest deduction a credit with a certain maximum as opposed to a deduction for only those who itemize. This will allow more lower and middle income taxpayers to benefit from the write off. Many feel that the deduction should be restructured to potentially benefit those in the lower brackets, and spur them into home ownership as opposed to renting.
While we are talking about mortgage interest: There has never been a better time to look at your debt and make sure your house is in order. Rates are so low and it is my goal to consult with each and every one of my clients to make sure they have the best mortgage possible for their particular situation.
Click on the link below to hear Stu and Win Damon talk about this very topic on WNBP FM 106.1 and WNBP.com every Tuesday morning at 8:30.
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He also uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.
Source: CNN Money