Wednesday, May 22, 2013

Interest Mortgage Deduction....Advantage: Home Owner





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MORTGAGE INTEREST DEDUCTION FRONT AND CENTER IN CONGRESS

Topic Summary: As part of the ongoing effort by House lawmakers to craft comprehensive tax reform legislation in 2013, the House Ways and Means Committee welcomed testimony from real estate industry executives and economists on the merits of the mortgage interest deduction (MID). On the "keep things as they are side" caution was advised not to harm the very robust housing recovery by adding new tax policies that will lead to uncertainty for homeowners.

Just In: The national median existing-home price for all housing types was$184,300 in March, which is 11.8 percent higher than March 2012. The March increase is the strongest since November 2005 when it rose 12.9 percent from a year earlier, and the last time there were 13 consecutive months of year-over-year price increases was from May 2005 to May 2006.

Not if , but how. Many in Washington and real estate circles feel that something will be done to the cherished deduction this year. While pledging a "careful, thoughtful review," House Ways and Means Chairman Dave Camp asked several experts for their ideas on how to alter the MID to raise more revenue for the government. Any changes that come about or even discussed can have a chilling effect on the real estate industry and future homebuyers and sellers.

Fist Some Facts:
The deduction for mortgage interest has been part of the federal income tax code since its inception in 1913. Despite a century of additions, modifications, deletions and overhauls of the tax code, Congress has left the mortgage interest deduction untouched.

Current law allows a homeowner to deduct the interest paid yearly on up to $1 million in total acquisition debt for a principal residence and a second, non-rental home. Homeowners may also deduct the interest on up to $100,000 in home equity debt.
According to estimates from the Joint Committee on Taxation, (JCT) the mortgage interest deduction will cost (loss revenue) $75 billion in fiscal year 2015, real property tax deductions will cost $30.4 billion and the exclusion of capital gains on owner-occupied housing will cost $26.0 billion.
In 2012, 34 million households, or 22 percent of tax filers, claimed the home mortgage deduction. That cost the federal government $68 billion in forgone revenue, according to estimates from the JCT

Less than a quarter of the deduction's benefits, the JCT says, went to households making less than $100,000 in 2012, and the deduction is only available to the roughly one-third of households that itemize.
Ideas on The Table
There are three ways Congress could play with the home mortgage deduction: the direct way, a "back door" way and a gradual way.
  • The direct way to raise more revenue would be to reduce the amount of the deduction--for example, it could be limited to homes (mortgages) worth $500,000 or less, rather than the current $1 million dollar limit.
It could also be eliminated entirely for second homes. The most extreme measure would be to phase out the deduction entirely. Such attacks would be strongly fought by the real estate industry and hopefully homeowners.
  • The Sneaky Way.  Instead of specifically targeting the home mortgage deduction, a cap would be placed on all itemized tax deductions. The Obama Administration has already proposed capping such deductions at 28% for households earning more than $250,000. This would substantially reduce the value of the home mortgage deduction for high income taxpayers.
For example, Under the President's proposal, married taxpayers with adjusted gross income greater than $250,000 would normally see a $35.00 benefit for every $100 in itemized deductions but instead they would receive only a $28.00 benefit for every $100 in itemized deductions.
  • The Gradual Way. Some are suggesting just wind down the value of the deduction over several years to lessen the sting on the economy and home prices.
 Don't forget other deductions are also being talked about for reduction too. The ability to deduct property taxes cost the government $30 billion last year. A Home seller's ability to exclude capital gains on a home sale reduced revenues about $26 billion.
Timeframe: The tax writers indicate they want to get substantive tax reform done this year. We will be keeping a watch out for any news on this important issue facing current and would be homeowners.
 


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