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Why Now's the Time to Kill the Mortgage Interest Deduction

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The fiscal-cliff compromise on New Year's Day made substantial changes to existing tax law and permanently implemented a number of decade-old tax breaks for the vast majority of taxpayers. Yet even though some lawmakers have argued that the tax increases they agreed to marked the full extent to which they were willing to concede for the sake of higher government revenue, many believe that further revenue-generating measures may come in future battles over sequestration, the debt ceiling, and the passage of a federal budget.

One place that many policymakers have looked to as a potential source of revenue is to eliminate the mortgage interest deduction. With the housing market having suffered so greatly in the past five to seven years, fears that taking away the deduction would lengthen housing's decline deterred lawmakers from seriously considering cutbacks on mortgage interest. But if there were ever an ideal time to get rid of the deduction, it's now, because a number of factors are lining up perfectly to make its disappearance as painless as it's ever going to be.

What the deduction means
In simple terms, the mortgage-interest deduction allows taxpayers to write off the mortgage interest they pay as an itemized deduction. Interest on up to $1 million in mortgage debt is generally deductible, with the deduction available either for a principal residence or a second home.

The mortgage-interest deduction is a relic from pre-1986 tax law. Before then, all interest on personal loans was deductible, but the Tax Reform Act of 1986 took away deductions on interest on credit cards and most other personal debt, leaving mortgage loans as a concession to encourage home ownership.

Why now's the right time to kill the deduction
Proponents of the deduction argue that it's a key component to keeping home prices up. Especially in high-cost areas, the amount of interest has historically been quite significant, and the deduction can cut interest costs for high-income taxpayers by more than a third. Given what many perceive as the fragile state of the housing recovery, eliminating a tax deduction on mortgage interest could throw housing back into a dive.

Yet when you look at some of the factors that have driven the housing recovery, it's far less clear what impact getting rid of the mortgage-interest deduction would have. Consider the following:

  • Mortgage rates are still near all-time lows, with 15-year mortgages available for less than 3% and 30-year mortgages hovering well under 4%. As a result, thanks to depressed home prices and low rates, the amount of interest you'll pay is lower than ever and may not even save you anything on your taxes. For a $400,000 mortgage at 3%, you'd pay roughly $12,000 in interest. That's actually less than the standard deduction of $12,200 for joint filers in 2013, meaning that if the only expense you can itemize is your mortgage interest, you won't get any benefit at all from the deduction.
  • Even in high-priced areas, more people are paying cash for their homes than ever before. In California, nearly a third of all home purchases were done without any mortgage at all. With savings account balances paying next to nothing in interest, paying even 3% to 4% for a mortgage doesn't make much sense to those who have the financial resources to pay upfront. Moreover, those buyers are helping push home prices higher overall.
  • As much as homebuilders argue that eliminating the deduction would hurt them, economists agree that the biggest impact would be on the highest-priced homes, with more reasonably priced real estate seeing little or no impact from getting rid of the deduction. As a result, Toll Brothers (NYSE: TOL  ) and other high-end homebuilders might take a hit. But Lennar (NYSE: LEN  ) and other homebuilders that tend to provide entry-level homes might not see any impact at all, while Pulte (NYSE: PHM  ) , which provides a mix of different home types, would fall somewhere in the middle.
  • Moreover, homebuilders have already taken steps to survive the rise in rentals that could result from the loss of mortgage interest deductibility. Beazer Homes (NYSE: BZH  ) joined Wall Street's Kohlberg Kravis Roberts (NYSE: KKR  ) to create a REIT that buys homes and rents them out, while Lennar and Toll Brothers have made similar purchases through related divisions.

Think about it
It's never going to be an entirely comfortable time to get rid of mortgage interest as a tax deduction. But with the need for more tax simplicity, looking at ways to eliminate specialized provisions of the tax code is worth a further look. If we're ever going to move toward tax reform, now's the best time to look at phasing out and eventually getting rid of the mortgage-interest deduction.

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  • Report this Comment On February 07, 2013, at 11:50 AM, MKArch wrote:

    Dan,

    How long do you think mortgage interest rates will stay at 3%-4%? You also forgot the property taxes that get deducted with morgtgage interest.

    I'm not a rich person and I can tell you being able to deduct mortgage interest and property taxes is a huge bennefit to me and would kill me if they were eliminated.

    Although you didn't actually make the argument directly that more people should rent it sounds like that's where you are going with this. I've argued it before and I'll argue it again that you don't have any idea how important not having to make shelter payments in your older years is to a large portion of the population that are not sophisticated and DISCIPLINED investors.

  • Report this Comment On February 07, 2013, at 12:36 PM, PJuin wrote:

    MKArch, I am in total agreement with you.

    Dan fails to consider that most people living in high cost areas do NOT have cash to purchase their home and those who had purchased their homes may not be able to take advantage of the low mortgage interest rates if their home values are still under-water.

    What kept most of us with underwater mortgages going is the mortgage interest rate tax deduction. Without this deduction, there will be a lot more responsible homeowners choosing to default on their mortgage rather than choosing to do the right thing by continuing to pay a higher interest rate on the house.

    Homebuilders and Mortgage lenders are accurate in claiming that the removal of mortgage interest deduction will cause another panic in the market from current homeowners who are underwater with their mortgage or current home-shoppers who cannot afford to pay in cash in high-cost areas.

  • Report this Comment On February 07, 2013, at 1:10 PM, FrankBeFoolish wrote:

    I agree with you both, MKArch & PJuin.

    With mortgage interest and property taxes (do not forget car property taxes) and you pay state income taxes, you easily can beat the standard deduction. Now everything else is a plus, such as any gifts you give to charities, etc. unless tax rules change.

  • Report this Comment On February 07, 2013, at 1:32 PM, milfalcon wrote:

    A classic example of one person's special interest being someone else's sacred cow, and why it's virtually impossible to get anything done in Washington involving the tax code.

  • Report this Comment On February 07, 2013, at 1:34 PM, jkiso wrote:

    I have to agree with the previous commenters on this issue. For existing homeowners, the tax deduction is already factored into their finances and this would wreck a lot of households. I know you shouldn't assume tax rules will stay the same forever, but there it is.

    I think it would be worth seeing the projections on the effect of reducing the maximum threshold for the deduction from $1M to $500K, though.

    Or, add a sunset period to gradually reduce the threshold down (possibly to zero) on new purchases (may or may not include refis). This would allow a more orderly transition to the new value/price proposition of home ownership. It would probably spur house buyers hoping to lock in their deduction.

  • Report this Comment On February 07, 2013, at 3:27 PM, TMFGalagan wrote:

    @MKArch - Lock in your 3%-4% mortgage rate now and it'll be around for the next 15-30 years. @FrankBeFoolish - With the AMT, many people don't get to deduct state income and local property taxes. That said, my point isn't that people get *no* benefit from itemizing - just not nearly as much as you'd think listening to realtors and other proponents of the deduction.

    @milfalcon - Hear hear.

    best,

    dan (TMF Galagan)

  • Report this Comment On February 07, 2013, at 4:02 PM, MKArch wrote:

    I don't have any financial background besides what I've learned on my own and tutoring from my TMF H.G. subscription so I could be missing something but I've seen the get rid of mortgage interest deduction argument come up before and the primary rationale is usually a theory that a home is an investment and it's a lousy investment so therefore we should encourage more people to rent. Particularly so people on the margins.

    While I totally agree no one should own a home they can't afford I think the argument against home ownership is flawed on two basic levels. The argument I have seen in favor of renting vs. owning looks at the appreciation in value of a home over the long run vs. investing the money saved from renting. The basic argument is a home might double or triple in value over something like 20 years but if you invested the difference between rent and a mortgage it will return much more over the same time period.

    I did a little back of the napkin on another article last year and going by memory I think I assumed 30% (initial) difference between rent and mortgage and 3.5% inflation. Due to inflation rent is constantly increasing so that the difference decreases every year after the first until year 12 when they reverse and rent is higher than a mortgage. From that point on the renter loses ever more money every year. The net result is that if someone with a mortgage pockets the ever increasing difference and invests it they will do better than the renter in the long run using the same logic that the proponents of renting use.

    The second more basic argument for home ownership (when you can afford it) is that most people are not very good investors and probably even more important they are not disciplined enough to pocket the difference and so home ownership is the best investment most people ever make because of the forced savings alone.

    To the person who mentioned sacred cows I'd point out that people who deduct mortgage interest tend to be in the 50%of the population that actually do pay taxes and are just getting to keep more of their own money with this deduction. In addition to this I'd be willing to bet a small wager that in the long run the cost of government support for for marginal people stuck with massive rent payments in their older years outweighs the potential lost tax dollars if they mortgaged instead. In other words beware the law of unintended consequences of pushing people into renting.

  • Report this Comment On February 07, 2013, at 4:04 PM, MKArch wrote:

    Dan,

    The point I was making about how long will 3%-4% last is that it's going to affect people looking to own a home long after 3%-4% mortgages are gone never to return again.

  • Report this Comment On February 07, 2013, at 4:21 PM, TMFGalagan wrote:

    @MKArch - Understood. But that's why making the cut now is good timing. By the time rates rise, home shoppers will already have gotten used to the idea of not incorporating a deduction into their pricing. That should blunt the blow compared to what would happen if you eliminated the deduction when rates are high.

    best,

    dan (TMF Galagan)

  • Report this Comment On February 07, 2013, at 4:27 PM, akutach wrote:

    Looking near term at the impact on current homeowners completely misses the problem of a taxing system that pushes people into owning a house. This has created a number of huge market distortions.

    The interest rate deduction feels great on April15, but the reality is that only two groups benefit from it:

    Banks by having a permanent government subsidy that increases the size of loans, and

    People with sufficient means to pay for their house outright who can then use home equity to get a really low-cost loan with deductible interest as one tool to be used in a balanced portfolio.

    What you don't easily see is that the price you agreed to pay for the house, and are now on the hook for the mortgage is higher because everybody bidding essentially gets the same benefit. So we're all willing to bid up to an affordable level that accounts for the interest rate deduction. The bidders don't win because they pay the same amount (income tax, property tax and principle combined). The seller doesn't because they had an inflated cost basis to begin with. The banks who inflate their loan portfolio by 20% by price inflation do. The double whammy for the banks is the special status in housing market puts them first in line for bailouts.

    Renter's get hosed. So my question is why is everybody so willing to stick it to the renters?

    If you're worried about your deduction, a simple solution would be to phase out over a 20 yr period so that those who do rely on the deduction to make their budgets work would be able to play out their interest/tax benefit until the remaining interest payments are so small as to not be preferred over the standard deduction. For new loans, cap deductions at 20% level now, in 5 years at 15%, then eliminate in 10 years.

    Dan, The reason 1/3 of California purchases are all-cash is because such a high percentage of the sales are to investors. Not their disappointment with bank interest rates. Just because they're bought with no loan doesn't mean a loan is not used to finance the house shortly thereafter.

    If I had a house with 100% equity right now, I'd take out the max loan possible, invest in a basket of solid companies with great cash-flows (especially MLPs) deduct the 3.5-4% interest from my marginal tax rate, and bank the 4%+ dividends at deferred or reduced tax rate. I think that's a low risk profile for a long-term perspective. Note here that the policy makes it so obviously beneficial for me to take on more risk to game the tax system.

  • Report this Comment On February 07, 2013, at 4:34 PM, akutach wrote:

    It's not that people should rent or should by. The question is why does the government institutionalize with fiscal penalties for those who choose to rent.

    Yes, I rent. I will buy when it makes sense for me, and I will be forced to calculate in the tax benefits to make that decision. While I disagree with them, I know they are here to stay for people like me with 'moderate' income (by Obama's less-than-$250k/yr standard).

  • Report this Comment On February 07, 2013, at 4:42 PM, MKArch wrote:

    Akutach,

    Besides my argument that higher home ownership rates means less welfare payments in the future you are seeing the unintended consquences of a shift from home ownership to renting play out right now where rents exceed comparable mortgages almost everywhere.

  • Report this Comment On February 07, 2013, at 4:49 PM, mdk0611 wrote:

    1. To do it all at once would indeed disrupt the housing market. Rates may be low currently, but how many people are denied refi opportunities because of stricter loan qualifiers? Do it over 4-5 years, like the passive activity rules from the 1986 tax reform, and lessen the blow.

    2. And this ONLY should happen if spending cuts equal to 3X or 4X the revenues raised from the change are part of the same legislation. We can NOT solve the debt issue with tax incfeases alone.

    NO SPENDING CUTS NO CHANGE TO THE MORTGAGE DEDUCTION.

  • Report this Comment On February 07, 2013, at 4:57 PM, mdk0611 wrote:

    And included in my definition of spending cuts would be savings from entitlement reforms.

  • Report this Comment On February 07, 2013, at 6:05 PM, PJuin wrote:

    I agree with mdk0611. Many homeowners in California are still underwater with our mortgages waiting for the day that we can finally refi to the current low interest rates when both our home prices have steadily improve and our extra payments have steadily reduce our mortgage.

    Removing the deduction outright will result in panic and a second housing crash. Most homeowners CANNOT AFFORD another hit! Any change to the current mortgage deduction needs to be measured on impact to home prices and the economy and phased out over a number of years.

    Putting it in perspective from a silicon valley resident, IT should and would not migrate an environment without first testing and measuring the impact to production and allow some time to migrate in stages to lessen business impact, and IT should and would always have a backup plan in place even before the migration takes place.

  • Report this Comment On February 07, 2013, at 8:28 PM, TheDumbMoney wrote:

    Hi Dan,

    I think you are missing the two best arguments in favor of the MI deduction, and the only reasons I support maintaining it in some form for now:

    1) As a matter of general tax policy, it is the only clear way in which the tax code allows people in high-cost-of-living states or areas to offset the "flat" nature of federal taxes. (I.e., to offset the inequitable fact of live that a person making $100K in NYC pays exactly the same taxes as a person making $100K in Louisville, KY.)

    The MI deduction functions as a partial (only partial) offset of the inherently inequitable position that the persion in the above scenario in NYC is in. A buddy of mine grew up in outer Brooklyn, way out near the Verazano Bridge, and it's still $2000/month for a small 2bd apartment where he is. And that's a 50 minute subway commute from lower Manhattan. I get there is a premium for places like NYC, but it's insane.

    What should be done away with is the MI deduction as applied to second homes, that portion. If one can afford a second house, cost-of-living is no longer an issue. And, I would also support a lower cap on the deduction, say to interest on the first $500,000 of the loan.

    (And lest you point to deduction of state taxes, remember that not all high-COLA areas are high tax jurisdictions. Alaska is not. South Florida is not. Dallas is not.)

    2) Age inequity. We all know that the two elephants in the future deficits room are defense, and healthcare (for old people). But who does not need or take loans on houses, by-and-large? Old people. And who does have loans, who needs loans, who are taking loans? Young people. We are already facing a point where the old people have saddled those maturing to adulthood with $15 trillion or so in liabilities for benefits they (and we) have enjoyed, roughly speaking, and which the young and future generations will have to pay for in some fashion, even to the extent that debt is eroded by inflation and/or GDP growth.

    Now I'm not a deficit freak, but in such a scenario, where we cannot agree even to raise the age of Medicare eligibility, where we are paying ever greater percentages of our tax dollars to pay for healthcare for the old, at a level of care unimaginable even 50 years ago, what sense does it make for us to unilaterally cut one of the few things that actually disproportionately benefits the young and those of prime working age? What sense does that make? Now, as part of Grand Bargain, sure. But not unilaterally.

    These are the reasons to support the MI deduction, not the nonsense from the homebuilders, etc. It is true getting rid of it now is as good a time as ever to do so. (Well, I would argue 2004 would have been a better time.) But that's not the only consideration. Discussing it unilaterally is inequitable.

    I'll close with this: do you find it at all a coincidence that the rise in public willingness to get rid of the MI deductions almost perfectly corollates with the paying off by Baby Boomers of their mortgages (or the rounding-retirement realization they'll never have one), and their increasing entry into retirement? Does this set off any warning bells in your head? Any flashing red lights of worry about what is really at work here on a deeper cultural level, and why the arguments that didn't seem so good 20 years ago suddenly seem so great, even, shockingly, to many Baby Boomer 'conservatives'?

    All the best,

    TDUM

  • Report this Comment On February 07, 2013, at 8:45 PM, TMFGalagan wrote:

    @TheDumbMoney -

    Thanks for the comment. I'd argue the opposite view of your cost-of-living argument. If you're irrational enough to want to live in a high-cost area, then be my guest, but don't expect low-cost-area residents to subsidize it.

    As for your other point, my intent here wasn't to say "cut the mortgage interest deduction instead of something else" but rather just to say that if you're gonna cut it, now's the perfect time to do so.

    And regarding generational politics, it's no surprise that Boomers are flexing their political muscle. It'll just get worse in the years to come.

    best,

    dan (TMF Galagan)

  • Report this Comment On February 08, 2013, at 12:52 AM, TheDumbMoney wrote:

    Hi Dan,

    On the first point, I think that is spoken like somebody who wasn't born in a high-cost area and/or doesn't have all of one's family and personal connections there. There is nothing irrational about wanting to remain near one's family and friends, even if the price of housing has quadrupled there since one was a kid. While we as a country celebrate emigration, immigration, and general migration in this country (and corporate America practically idolizes it), I'm not sure the tax code also should unintentionally incentivize it.

    Alternatively, as many have now written about, these high cost-of-living (mostly blue) states and areas do by-and-large end up sending way more money to the Feds (and then to states like Alabama) then they get back. (The conservative group that funded such studies actually stopped funding them when they showed so clearly how the money flows, which is why there has been none in the last few years.) So it's just as true that people who are irrational enough to want to live where there are fewer job opportunities get subsidized for that choice. It's just a less obvious subsidy.

    As for the generational politics, just because the Boomers are flexing their generational muscle, that doesn't mean I have to accept the arguments they are now willing to embrace to justify getting rid of the things they loved 20 years ago. Your argument that now is a perfect time to cut the MI deduction also betrays a certain implicit fear I think that it actually would have a large effect on the housing market at certain times. I think almost any time is almost as good as any other (9/2008 through 9/2009 excepted) to cut it, from a pure market-reaction standpoint. My point is that the only 'perfect time' to cut the MI deduction is when it can be situated within a larger framework of cuts that shares generational and other pains and burdens equitably. This starts with a basic recognition that cutting it is much more about generational politics (and class politics) that it is about what homebuilders think it will do to their business next year or whether people are paying all cash for homes at any given time.

    Best,

    TDUM

  • Report this Comment On February 08, 2013, at 12:30 PM, jmg169 wrote:

    Dan,

    What you are really arguing for is the adoption of the Simpson-Bowles framework for tax reform. Eliminating the mortgage deduction as a stand-alone change and not reducing overall tax rates would be a devastating move. While I do believe that no mortgage deduction would lead to more pricing transparency in home prices and interest rates, to implement that step alone would cause an instant recession for a lot of homeowners. You would have to phase this in for new home buyers, and allow existing arrangements to stay in place for current mortagees. Better yet would be a flat tax with a meaningful standard exemption. I prefer a consumption tax, but fear that we would eventually end up with both consumption and income taxes at some point. What say you, fellow Fools?

  • Report this Comment On February 08, 2013, at 1:40 PM, akutach wrote:

    TDUM,

    The cost of living in high-cost areas is that much higher exactly because of all the subsidies (no capital gains of up to $500k, and IM). You may have decided whether your home was affordable in the context of the tax benefits, but so did the others who were bidding for the same property, and the ones who bought the comparables used to start the asking price. It's priced in - it doesn't help affordability.

    Alan

  • Report this Comment On February 08, 2013, at 2:03 PM, TheDumbMoney wrote:

    Hi akutach,

    The cost-of-living is typically higher in high-cost areas because: 1) there are/is more jobs/money there, which means more people looking to spend on things like houses, which drives prices up because of inelasticity in the supply of houses (not land) for the people to buy; and 2) (related) because there are typically more people, there are more regulations, meaning the cost of things like gas and land (zoning regs, particularly those favoring suburbanization) are higher. (Or to put #2 another way: a city needs stoplights, a village of 200 people does not.)

    Also, your final sentence argues against a point I have not made. Just be aware of that. I don't care about the market impact and what is priced in in my area (though actually I have been speaking hypothetically), and I never discussed it. I am interested in the MI deduction from generational and cultural perspectives, which are interesting to me precisely because the DON'T relate to the impact of the MI deduction in any particular physical area.

    Best,

    TDUM

  • Report this Comment On February 08, 2013, at 6:32 PM, aeroguy11 wrote:

    A big reason I think the mortgage interest deduction is positive is that it provides an advantage for individuals to own a home over REITs or property management corporations. Everything I have seen points to private home ownership (for middle class folks who can afford it) being a positive thing.

  • Report this Comment On February 09, 2013, at 4:14 PM, ValueInvestor999 wrote:

    Canada has no mortgage interest deduction and their home industry is doing very well.

  • Report this Comment On February 10, 2013, at 12:31 AM, akutach wrote:

    TDUM,

    I didn't mean that MI was the cause of prices rising in high cost areas.

    My intention was to point out that MI creates a further subsidy to prices in high-price areas (beyond the real causes you correctly pointed out) via the tax benefit. But because the benefit (effectively an interest rate reduction) is generally available to everybody, it inflates the home price (principle) "that much higher".

    So while yes it does shift some tax burden a little from high-cost to low-cost areas, the net effect of MI is a lower rate on a higher principle and thus no change of cost.

    I'm not sure I believe that tax shift is real since compensation in high cost areas start with a cost-of-living adjustment which raises the tax rate from which MI subtracts. I speculate here and know only anecdotes within a few industries.

    Alan

  • Report this Comment On February 10, 2013, at 1:04 PM, NofakeJake wrote:

    I find it comical now that the elections are over both parties have dropped any discussion of a flat tax. I agree that removing the mortgage deduction as a stand alone item is ridiculous.

    Additionally, the are no major geographical inequities to a flat tax.

    We need real tax reform, not adjustments to tax deductions.

    No time for rebuttals, just my two cents.

  • Report this Comment On February 11, 2013, at 2:12 PM, lindygold wrote:

    The unarguable effect of the mortgage interest deduction is that it encourages higher debt and punishes higher equity. Are higher individual debt levels better or worse? I guess that depends on whether you're a banker or a debtor.

  • Report this Comment On February 12, 2013, at 11:55 AM, thku4grace wrote:

    A smarter move would be to cap the amount that can be deducted. But it wouldn't be a dollar amount but at a certain level of interest. For instance, put in a cap at 5% interest. That would make adjustable rates very unpopular thus pushing everyone into fixed rates. It would also make it difficult for banks to find new borrowers when interest rates climb above 5%. It wouldn't affect anyone with a rate below 5%. This would have a greater slowing effect on housing and the overall economy when the economy starts to heat up too much. Just tapping on the brakes a bit.

  • Report this Comment On February 13, 2013, at 9:20 PM, Tax1advisor wrote:

    I really do not believe that y'all can argue about this one...to me, rediculous.

    So many other things become deductible that as long as you are on the standard deduction, you lose out.

    It seems that on most returns until and if there is the home interest deduction a taxpayer will not be able to itemize.

    Remove this deduction and housing will be hosed until and if rents skyrocket.

    The ultimate question is about home ownership...is that a desirable goal in our country? Deal with the economics of the middle class who fuel this country and you will keep the deduction. Turn the middle class into renters....well all I have to say is good luck to those who wanted to eliminate this deduction!

  • Report this Comment On February 15, 2013, at 3:35 PM, JMar48 wrote:

    I will gladly trade a mortgage interest deduction for a flat tax.

  • Report this Comment On February 15, 2013, at 3:43 PM, dangfool101 wrote:

    Dan -- I would agree that the mortgage interest deduction creates a subsidy for expensive homes and provides some upward pressure on home prices, but for those of us who live modestly the loss of the deduction would be a disaster.

    It would make more sense to have a declining deduction, perhaps 100 percent of the first $100,000 in interest, 75 percent of the next $100,00 and so on.

    The mortgage interest deduction was one of the few mitigating forces in the steep decline in home values that we saw in 2009-2011. For some, it made the difference between keeping their homes or walking away.

    Elimination of the deduction would do far more damage than the additional revenue could ever fix.

  • Report this Comment On February 15, 2013, at 4:27 PM, djjmj wrote:

    JMar48 I'm with you. I could survive losing this deduction if a 999 plan or something to that effect were put in place. California dreaming....I know.

  • Report this Comment On February 15, 2013, at 4:30 PM, DuxburyCMA wrote:

    I'm in favor of eliminating all interest deductions for individuals if at the same time and in the same vein all interest deductions for corporations and other taxpayers (e.g., partnerships and trusts) are simultaneously eliminated.

  • Report this Comment On February 15, 2013, at 4:39 PM, truthfully wrote:

    Hi Dan,

    It seems to me that you are of the opinion that the government should have MORE of our money. If that is the position of MF I personally would like to discontinue my membership and get a full re-imbursement of my money.

    As a realtor I CAN tell you that it would effect the average homeowner. The interest has already started to rise and the FHA (government) has already raised the mortagage insurance on their loans to 1 3/4 and it can no longer be dropped after the loan reaches a certain level. You should also know that the average homeowner moves every 5 years, what will interest be then? Your readers are making more sense than you are.

    It is also a proven fact that renters are the smallest group of people that invest. In fact most of them don't. As one of your readers mentioned most people don't save and the home is our greatest form of building some form of equity in old age, we all assume Social Security won't be there for us as the Government has used it all up. Perhaps you should do some fact checking before you write articles. If you need help in finding the correct info please let me know. Right now renting is MORE expensive than renting and getting worse. Why would you want to reduce ANY of our deductions wouldn't it be better if that money stays in our pockets for what ever We need, perhaps investing ?

  • Report this Comment On February 15, 2013, at 8:16 PM, dianekosgood wrote:

    Wow, as a subscriber to Motely Fool I am really alarmed that you are an advocate for the end of the mortgage deduction. The Bank bailout should have REQUIRED all loans to be streamlined refinanced to a lower rate for a reasonable fee of about $2000 for the paperwork and titlework. This would have prevented a huge number of foreclosures and a lot middle income people from losing their homes. As a homeowner, Realtor, and owner of rental properties I have seen first hand the pain and financial devastation that many are still experiencing. Removing the mortgage deduction would make home ownership MUCH MORE DIFFICULT for young people to achieve. I am assuming that businesses could still right off the cost of rent and mortgage, but not regular working people??? When you rent you own nothing. Fine on a temporary basis, but a poor long term plan. All those people who are paying cash have equity or money in the bank. How about the people who just lost everything or the young professional couple who is just starting out? Interest rates have not been this low in the last 40 years. This is the kind of thinking that wipes out the middle class and makes for lots of have and have nots. The deduction could easily be limited, but not eliminated.

  • Report this Comment On February 15, 2013, at 9:25 PM, LongWayRound wrote:

    Great article Dan but from an economic standpoint the deduction is hugely regressive and unfair, so I wish you would lead with that argument rather than it not being much of a revenue source. Rates will go up someday but the regressive nature of the deduction will always be there and that's the true shame of this deduction.

    The us tax code is ridiculously slanted towards picking winners and losers -it's embarrassing and should be scrapped ASAP.

  • Report this Comment On February 15, 2013, at 10:42 PM, edranoff wrote:

    A problem, among many, with the current tax code is the manipulation of the code to benefit one interest or another. If one truly wants to see real positive reform you should focus on HR 25 the FairTax. It eliminates the income tax, including payroll taxes. Keep an open mind and explore the FairTax at FairTax.Org. You may also want to read The FairTzx Book or FairTax: The Truth. Both are eye opening and thought provoking. Currently there are 60 sponsors to HR 25 and it is gaining momentum.

  • Report this Comment On February 15, 2013, at 11:54 PM, whyaduck1128 wrote:

    If you don't have a mortgage, the deduction is a "special interest" and you want it gone. It doesn't help you.

    If you have a mortgage, you want to keep the mortgage interest deduction. Whether the deductibility is a key factor in your personal finances or not doesn't matter. The deduction helps your taxes, so you want it.

    And that, ladies, gentlemen, and all those in between, is the issue in a nutshell. As usual, where you stand depends on where you sit.

  • Report this Comment On February 16, 2013, at 8:04 PM, ChrisBern wrote:

    Good article. IMO all government subsidies should be eliminated, including the housing subsidy (aka mortgage deduction).

  • Report this Comment On February 17, 2013, at 1:16 AM, Tman71 wrote:

    Eliminate the deduction if we pass the Fair Tax.

  • Report this Comment On February 19, 2013, at 4:14 PM, truman1987 wrote:

    I feel that the mortgage interest deduction limits should be much lower. A million dollar mortgage? Second homes? Come on. Good for you if you have done well enough to afford a second home, but the second one is on you. Other taxpayers shouldn't be helping out on that.

    How about this? Double the interest deduction for everyone on the first $100k and then phase it out over after $200k. That helps out on home ownership.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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