Our Ask To Continue To Allow Mortgage Interest As A Tax Deduction

The Lawhead Team Blogger — Wed, 28 Aug 2013 17:11:28 +0000

Mortgage interest as a tax deduction – the response from our senators.

The Lawhead Team recently sent an email to Barbara Boxer and Diane Feinstein in the US Senate asking for her support in continuing to allow mortgage interest as a tax deduction so millions of Americans can enjoy the benefits of home ownership and live the American Dream.

We received messages back from both Barbara Boxer and Diane Feinstein in regards to allowing mortgage interest as a tax deduction and wanted to share the responses with all our readers:

Dear Mr. Lawhead:

Thank you for taking the time to write and share your views with me. Your comments will help me continue to represent you and other Californians to the best of my ability. Be assured that I will keep your views in mind as the Senate considers legislation on this or similar issues.

If you would like additional information about my work in the U.S. Senate, I invite you to visit my website, http://boxer.senate.gov. From this site, you can access my statements and press releases about current events and pending legislation, request copies of legislation and government reports, and receive detailed information about the many services that I am privileged to provide for my constituents. You may also wish to visit http://thomas.loc.gov to track current and past federal legislation.

Again, thank you for sharing your thoughts with me. I appreciate hearing from you.

Sincerely,
Barbara Boxer
United States Senator

Dear Creighton:

Thank you for contacting me to express your concerns about proposals to limit the mortgage interest tax deduction. I appreciate the time you took to write, and I welcome the opportunity to respond.

As you know, Congress is currently debating ways to increase revenue and cut spending in an effort to address our national debt. One proposal to raise revenue would limit the value of itemized deductions, specifically for high income earners. President Obama proposed limiting the mortgage interest tax deduction in his Fiscal Year 2013 (FY2013) budget as part of an effort to reduce federal tax expenditures and address our growing debt and deficit. It is important to know that his proposal would have only reduced the tax deduction for individuals who earn over $200,000 and married couples filing jointly who earn over $250,000.

Congress voted on January 1, 2013 to pass the “American Taxpayer Relief Act” (H.R. 8), which temporarily averted sequestration spending cuts required by the Budget Control Act (Public Law 112-25) and prevented the implementation of significant tax rate increases on middle class Americans. Specifically, this legislation permanently maintains current tax rates for all Americans on income under $400,000 for individuals and $450,000 for couples. This legislation did not create new limits on deductions, though it is important to note that it did reinstate the Pease provision, which will, in effect, limit the value of tax deductions for certain upper income earners. It is also possible that future negotiations to reduce the debt will include proposals to limit tax deductions.

Like you, I strongly believe the federal government must do more to help distressed homeowners and stabilize the housing market. I am also concerned that with home prices in California high relative to the rest of the country, proposals to limit this deduction– depending on how they are structured – could disproportionately impact middle class Californians. Please know that I have made careful note of your support for this deduction, and I will keep your thoughts in mind as I work with my colleagues to address our national debt in ways that do not unduly harm California homeowners.

Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841, or visit my website at http://feinstein.senate.gov. Best regards.

Sincerely yours,
Dianne Feinstein
United States Senator

Mortgage Interest Deduction

The Lawhead Team Blogger — Fri, 31 Aug 2012 16:32:48 +0000

Mortgage interest deduction and the housing market.

The Lawhead Team came across a great article from Houselogic.com about mortgage interest deduction and we would like to share it with our readers.

The home mortgage interest deduction saves the average home owner thousands of dollars at tax time, supports home values at the community level, and helps American home buyers get into their first house.

Having a tax deduction for mortgage interest makes owning a home more affordable because the deduction lowers the amount of tax you pay. U.S. Census data shows 37% of home owners with mortgages spend more than 30% of their income for housing. Paying less for housing means having more disposable income for savings and other household expenses.

Increasing housing affordability increases the number of renters who can afford to buy a home of their own responsibly; increasing the number of home buyers helps keep home prices stable for those who already own homes by ensuring a steady stream of new buyers.

How the deduction works

In general, any home owners who pay U.S. taxes and who itemize their taxes can deduct mortgage interest attributable to primary residence and second-home debt totaling $1 million, and interest paid on home equity debt of as much as $100,000.

Mortgage interest deduction threatened

In recent years, the mortgage interest deduction has come under attack. Among the suggestions for cutting it back to deal with the deficit:

Reduce the mortgage interest deduction for upper-income taxpayers—they’d only receive 28 cents on the dollar, even if they’re in a 33% or 35% tax bracket and can now deduct 33 or 35 cents on the dollar.

Reduce the $1 million cap by $100,000 a year.

Change the mortgage interest deduction to a 15% tax credit.

In the past, members of Congress have suggested other mechanisms for eliminating or limiting the mortgage interest deduction. None of those has ever gained traction.

Arguments against mortgage interest deduction

Arguments against the mortgage interest deduction center on who benefits and whether the government should support home ownership. They say:

It primarily helps the wealthy, since high-income taxpayers are more likely to itemize their deductions and to own homes. About 90% of taxpayers earning more than $100,000 itemize, while only 18% of those earning less than $50,000 follow suit, the Tax Foundation estimates.

Taxpayers who don’t itemize deductions get to use the “standard deduction.” They do that because it gives them a bigger tax break than itemizing to use the mortgage interest deduction

Ending or reducing the mortgage interest deduction would create a deep source of money for reducing the budget deficit.

In the aftermath of the mortgage crisis, the U.S. needs to rethink its favored tax treatment of home ownership.

Arguments for mortgage interest deduction

Those who favor keeping the mortgage interest deduction say it helps middle-income families, who already pay nearly all U.S. income taxes. Plus, getting rid of the mortgage interest deduction would hurt home prices.

More than 60% of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000, estimates the NATIONAL ASSOCIATION OF REALTORS®.

A disproportionate number of those high-income taxpayers live in areas where housing is especially expensive, such as California and New York. In high-cost housing markets, lowering the $1 million cap would add a tax burden on families who already must pay high prices for homes.

Home owners already pay 80% to 90% of the income tax in our country, and among those who claim the mortgage interest deduction, almost two-thirds are middle-income earners, says NAR Chief Economist Lawrence Yun. So home owners, who are the pillars of federal income tax revenue, would have to shoulder a bigger tax burden.

Home values could fall 15%, says Yun, as buyers discount the value of the mortgage interest deduction in their purchase offers.

It’s faulty to link the mortgage meltdown to the country’s support for home ownership. The meltdown is rooted in lax underwriting and faulty ratings by credit rating agencies of the securities backed by the mortgage, says Yun.

Protecting the deduction promotes housing. In supporting the mortgage interest deduction, you help ensure that tomorrow’s families can follow the same path to home ownership that so many of us have already traveled.