What is the Mortgage Interest Deduction?
The home mortgage interest deduction allows taxpayers who own their own homes to reduce taxable income by the amount of interest paid on the loan which is secured by their principal residence. The mortgage interest deduction was created in 1913 under the theory it would encourage home ownership.
There are a few important limitations to this deduction. Taxpayers must itemize deductions and the deductions must exceed the standard deduction. In addition, the deduction is limited to interest on debts secured by a principal resident or a second home.
Mortgage Interest Deduction & Fiscal Cliff
As Congress and the White House negotiate the first major rewrite of tax laws in decades – the mortgage interest deduction has come under the spotlight.
There are varying opinions regarding the necessity of the mortgage interest deduction. The National Association of Realtors strongly supports the deduction claiming that eliminating the deduction would endanger property values. Opponents argue that the deduction subsidizes the real estate industry. Others say the deductions disproportionately favor high-income earners.
President Obama has proposed throughout his Presidency that the mortgage interest deduction should be clipped for taxpayers in the highest tax brackets.
Detailed proposals regarding the mortgage interest deduction have not been put forth yet.
Heated Debates Expected
Heated debates on the mortgage interest deduction can be expected. Moody’s chief economist Mark Zandi says that despite our personal opinions, the mortgage tax deduction has become ingrained in the psyche of the home buyer over generations.
Learn more about the issue and decide for yourself. Here are several news pieces discussing the mortgage tax deduction and the possible impact of its elimination:
- Washington Post
- Chicago Tribune
- Fox News (video)
- Milwaukee Journal Sentinel
- Los Angeles Times
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