Someone at work told me about this, and I told them it couldn’t possibly be true. But, whaddyaknow, here it is. As a recent homeowner, I find this news troubling. Bush is proposing to meddle with the home mortgage tax deduction; essentially the only tax deduction available to regular citizens (i.e. not extremely wealthy, not heavily invested in the stock market, no offshore tax shelters, etc.).



Granted, the limit right now won’t affect the majority of homeowners. But, real estate prices are hardly static, and who would have believed 20 or 30 years ago that in 2005 homes would average nearly half a million dollars (or even a quarter million for that matter)? I believe this proposed law sets a dangerous precedent, and is aimed at eliminating the mortgage interest tax deduction entirely.

Plus, who would buy a home if there is no financial incentive to do so? Why not just rent and let some rich landlord deal with the headaches of roof replacement, plumbing repairs, etc.? One of the members of the panel proposing this legislation pooh-poohs the notion that the tax deduction is a major incentive to people to buy instead of rent. I disagree.

Does this proposed law set a precedent for creating future cuts to the deduction by limiting the amount of mortgage interest that homeowners can claim now?

Would this limit affect prospective homebuyers?
If so, how and why?
If not, how and why?

I personally don't see any politician sigining any bill that would actually stifle their personal or party's ability to garner votes, in which case a bill that cut mortgage deductions out completely would do just that.

I believe (if I'm reading correctly) the bill would cut the alternative min tax out, then also cut the mortgage deduction for anything over $350K, is that correct? I imagine that it would be somewhat of a wash for many tax payers and help politicians by getting rid of the unpopular AMT (which was paid by like 3 million voters).

The AMT, which is why this is being considered, generally affects people making over $75K, which I presume would be the group able to afford the more expensive homes.

From what I could find at the Office of Federal Housing Enterprise Oversight's website (www.ofheo.gov), it seems as if this probably won't anything to do with most Americans.

That being said, I doubt that politician, regardless of party affiliation, would levy a tax that struck down the majority of Americans (i.e. applying this tax to avg home owners whom would not benefit from the elimination of the AMT).

It probably won't limit the home purchasing market or someone's propensity to do so, in that the reality is that most American's in the market for a $350K+ home would likely not be as concerned about the deduction as someone buying a 125-175K home. (but this is pure conjecture....)

Well, since I am living in an area that single family homes are not far from 350K, and the fact that is slightly UNDER what I sold my last home at- and actually bought a home half the size of that house, for more than I paid for the first one originally- and there was only a five year period between purchases!- ya, I would be a bit concerned

For what it's worth, there is a foreign precedent.

There used to be a tax break on British mortgages for residential property (i.e. you couldn't get it for commercial loans, or on second homes that were not the primary residence) called Mortgage Interest Relief At Source (acronumised to MIRAS). The "At Source" bit meant that your mortgage provider deducted the tax relief at from your monthly payments before demanding the money, so the individual homeowner didn't pay the money and then claim it back, they just never paid it. (Our income taxes work in much the same way through the PAYE system - employere deduct the tax from the paycheck so you pay as you earn.)

This was first introduced (I think) in the early days of the Thatcher government, and you got tax relief on the first £30,000 of your mortgage repayments at your highest rate of income tax (up to 40%, depending on income). Interest rates were very high at the time, due to general economic mismanagement (or global market effects, if you're a Thatcher supporter ), so MIRAS was worth a lot of money even if you paid the lowest rate of income tax (25% at the time).

But over time, house prices and average incomes rose. Shortly before, and resiliently after, Blair got in, interest rates went down into single figures. The first £30,000 of a mortgage became a less significant chunk, and the MIRAS became worth much less than it used to be, in both absolute AND relative terms.

Plus, it was seen by Labour as a tax break for the (relatively) wealthy, and they planned to do more for those lower down (back in the early days, they still had some vaguely socialist ideas). They phased it out over their first three years in government, from 25%/40% to 15% for everyone, then the next year down to 5%, then it was gone altogether.

I bought my house in 1996 and it cost more than the threshold limit, so I got my full Thatcherite MIRAS. With interest rates high (by today's standards) at about 9 or 10% my MIRAS was worth perhaps £30 per month - less than the saving I got a few years later when I moved my mortgage to a new provider at a lower interest rate.

This illustration is intended to show that a politician CAN remove mortgage tax breaks without losing any electoral support (at the next election after MIRAS went, in 2001, Blair's majoirty INCREASED).

However, it also shows that timing is everything. AMT might be able to be phased out over a long period, so (like MIRAS) by the time it finally goes, nobody really notices. But Bush doesn't really have that long left, so he's left with a sudden cut-off or nothing. And, as aevans176 says, it's pretty unlikely that any sane politician would want to throw votes away by such a sudden cut-off. Whatever else we might be able to say about Bush (and I'm no fan), he isn't insane.

I’m trying really hard not to be too cynical here, but after reading more about this, I’m starting to think this is another case of throwing dollars at big business while screwing the little guy (i.e. most of us). According to this article, one of the “tax reforms” put on the table was a national sales tax, which is vehemently opposed by the big retailers. And the option to cap the tax-free status of employer health benefits; another item that will affect the little guy more than the wealthy.


$312,895 is for high cost communities?! High cost?! In these days when more people live in million dollar homes than ever before in history (and that doesn’t mean they are millionaires, it’s just the price of homes has skyrocketed)? And since the current law allows a married couple to deduct up to $1M in interest deductions, so that’s, what, a 75% cut in deductions?

$312,895 is far less than I paid for my itty-bitty 80-year old home in a less-than-premium area! It’s less than most Californians pay for their homes. According to this source, the national median home price is $190,000, but if you look at the major metropolitan areas, most are near or above the $312K limit mentioned by the Advisory Panel.

This whole “tax reform” panel is starting to emanate a foul stench. As for those who think it would be political suicide for Bush to approve these cuts, HE was the one who assigned them the task of finding things to cut to offset his repeal of AMT!! Every cut that has been seriously considered so far (including limiting state and local income tax deductions-gads) affects the middle class working American far more than the big corporations or wealthy “fat cats”.

And call me naïve, but isn’t it awfully stupid to attack the one economic sector that is healthy and growing?