Mortgage-Interest Deduction-what is it and what does it mean? Conclusion
Last
week we published Part 1 of this story and today we present the
conclusion: Today we share with you an article that senior vice
president and managing officer of Intero, Alain
Pinel wrote, speaking about the fiscal cliff and it’s impact on the
recovering real estate market: Mortgage-Interest Deduction. If this is something
that isn’t continued it will effect many, many people and possibly put the
housing recovery in jeopardy. Do you know what the Mortgage-interest deduction
is? What it does? If you’ll be effected? The Dawn Thomas Team wants our clients
and homeowners to know everything that has the potential to have such a huge
impact-please read on to understand more…
“Theoretically, all borrowers may benefit from the tax break, although at vastly different degrees. The rule of 20/80 applies: the top 20% of the taxpayers eat up 80% of the benefits. The bottom 60% only represent 3.5% of the $130B we were talking about earlier. In the middle, most of the homeowners don’t qualify for the tax break since they don’t itemize deductions on their returns.
Based on the above, it is clear that States and regions where prices are high are impacted a lot more than others. They benefit more, which inflates the housing bubble to some extent, but they also stand to suffer more as well if the benefits go away. This would affect the demand for homes and put untimely pressure on prices. It is true that many of the high end buyers pay cash when purchasing a property, but most don’t and those buyers are badly wanted to keep the economy going. Real estate, as we have said again & again, is the engine that drives the economy.
On the other hand, a lot of good people suggest that the mortgage-interest deduction is the problem rather than the solution. They claim that it is such a tax incentive for home ownership that it artificially inflates demand and therefore prices, especially in markets where listings are in short supply. They also claim that the tax break encourages buyers to maximize the size of their mortgage in order to maximize their subsidy. I feel like saying “so what?”, but I must refrain from being too partisan on the issue.
Are we going to know what the final word is on the issue by January 1? May be. Probably not. The subject is so sensitive that it would be prudent (to say the least) to use a great deal of TLC and give the subject a lot of time and heavy thinking before making a decision and then implementing it… gradually. Don’t make waves!
The first thing that comes to mind is a reduction of the deduction. Several options are being discussed. One of them would be to limit or purely eliminate the mortgage-deduction on second homes. Another would be to reduce the cap on the principal amount, for example lowering it to $500k, vs. $1M today. Another one yet would be to put a limit on the deduction for those borrowers who are considered “wealthy”, whatever that means.
Last, there is some talk about resurrecting the idea of a tax credit that would be substituted to the mortgage deduction. Something like a 10 or 12 or 15% credit for the interest paid. Back in 2005, a White House tax-overhaul panel recommended this option, but the real estate industry shot it with big bullets.”
*click here for photo source*
“Theoretically, all borrowers may benefit from the tax break, although at vastly different degrees. The rule of 20/80 applies: the top 20% of the taxpayers eat up 80% of the benefits. The bottom 60% only represent 3.5% of the $130B we were talking about earlier. In the middle, most of the homeowners don’t qualify for the tax break since they don’t itemize deductions on their returns.
Based on the above, it is clear that States and regions where prices are high are impacted a lot more than others. They benefit more, which inflates the housing bubble to some extent, but they also stand to suffer more as well if the benefits go away. This would affect the demand for homes and put untimely pressure on prices. It is true that many of the high end buyers pay cash when purchasing a property, but most don’t and those buyers are badly wanted to keep the economy going. Real estate, as we have said again & again, is the engine that drives the economy.
On the other hand, a lot of good people suggest that the mortgage-interest deduction is the problem rather than the solution. They claim that it is such a tax incentive for home ownership that it artificially inflates demand and therefore prices, especially in markets where listings are in short supply. They also claim that the tax break encourages buyers to maximize the size of their mortgage in order to maximize their subsidy. I feel like saying “so what?”, but I must refrain from being too partisan on the issue.
Are we going to know what the final word is on the issue by January 1? May be. Probably not. The subject is so sensitive that it would be prudent (to say the least) to use a great deal of TLC and give the subject a lot of time and heavy thinking before making a decision and then implementing it… gradually. Don’t make waves!
The first thing that comes to mind is a reduction of the deduction. Several options are being discussed. One of them would be to limit or purely eliminate the mortgage-deduction on second homes. Another would be to reduce the cap on the principal amount, for example lowering it to $500k, vs. $1M today. Another one yet would be to put a limit on the deduction for those borrowers who are considered “wealthy”, whatever that means.
Last, there is some talk about resurrecting the idea of a tax credit that would be substituted to the mortgage deduction. Something like a 10 or 12 or 15% credit for the interest paid. Back in 2005, a White House tax-overhaul panel recommended this option, but the real estate industry shot it with big bullets.”
*click here for photo source*
This blog is courtesy of The Dawn Thomas Team who is an
award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos
650-701-7822. We help nice people with selling and buying homes from Palo Alto
to West San Jose!
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