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mortgage interest deductions from 2010

Mortgage Interest Deduction Going Away?

The Jobs Act and Tax Cuts bill modifying the mortgage interest deduction was signed into law on December 22nd, 2017.

I thought this 2010 article about the same topic would be interesting to see how it unfolds. A “hot topic” in previous administration proposals put the mortgage interest deduction on the chopping block also.

Interest Deduction

The mortgage interest deduction gives you the ability to itemize the mortgage interest you paid during the year. This will reduce your net taxable income by this amount.

The elimination of the mortgage interest deduction for second homes and primary residences over $500,000 was proposed on November 10th, 2010 as part of the President’s bi-partison deficit reduction commission.

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Who Deducts Mortgage Interest?

The reality about the mortgage interest deduction is that most tax payers opt to take the standard deduction as opposed to itemizing their deduction as is necessary to claim the interest tax credit.

The national average of tax payers that itemize deductions is 29.24% which is slightly above the national average of 26.83%.

Political and personal views aside, I do not see this as a seriously concerning issue for most home buyers in California or any other state for that matter.

As I see this story more and more in the news I felt it appropriate to keep an eye on it and translate it as best I can to offer another opinion in order for you to make more informed decisions about how this would or would not affect you.

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Final Thoughts

If you are currently writing off mortgage interest for a second home or equity line of credit on your primary residence, this may have some impact on your net income calculation and possibly affect your tax liability.

We’ll keep an eye on it and report what we hear, when we hear it.

This never came to fruition.  But it’s interesting to see what the conversation was in 2010, right?

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Nikki Canina says:

    Wow, I’m shocked that you can say this is not a huge issue for homeowners. This will raise the cost of home ownership significantly above what it is now, due to losses in current tax deductions we benefit from now. In effect, this will drive the price of home ownership up, resulting in people only being able to afford a lesser priced home. This will put downward pressure on home prices because now, in effect, they would be more expensive to own. I’m not sure what your point was about some people itemizing and others not… that just seems like dust in the conversation. Also, political insecurity… how does that relate to monetary loss for homeowners? Not sure where that comes from. If you are going to write articles like this, be objective. If it’s just to negate the truth in order to sell more homes, well… isn’t that the whole reason this recession exists in the first place? Not good practice, rise above that.

    • Scott Schang says:

      Thank you for your conversation Nikki, you bring us some important arguments.

      The argument that this will raise home prices is not one that I necessarily agree with 100%. There are many artificial influences in the housing market right now that are manipulating the market in a way that will eventually have be corrected.

      Banks are not foreclosing on loans that have been in default for over a year causing a huge inventory of homes that should be on the market – which would create downward pressure on prices due to the increase in available inventory. I personally believe that the banks need to cut their losses, give principle balance reductions to homeowners that are severely underwater and foreclose on all loans that are not being paid.

      I am afraid that many of the failed loan modification programs have simply delayed the inevitable and prolonged the housing crisis significantly. Work with folks that are paying their mortgages to prevent strategic foreclosures, foreclose on loans that are not being paid (because they certainly are not offering modification solutions) and let this market work itself out using the basic principles of supply and demand.

      I know that’s a little off topic but I think it addresses the bigger issue of affordability and home pricing being affected that you addressed.

      As far as homes being more expensive to own – interest rates are lower than they have ever been. This is not enough to make buyers comfortable with home ownership. Money is as cheap as it’s ever been in the home mortgage markets and this is due to the government artificially manipulating this market as well.

      The logic was “let’s make money cheap and people will spend it” – I think this backfired. People are not looking for cheap money as much as they are looking for some shape or form of stability. Every government program designed to “help” the housing market has resulting in nothing more than more confusion and delays.

      The ability to deduct mortgage interest does not come into the play when qualifying for a home mortgage. Underwriting guidelines have been tightening all the while interest rates are dropping, essentially canceling most of the benefit of the “cheap money” by making it harder to qualify through tighter debt to income ratios, higher credit scores, higher down payment and mortgage insurance requirements.

      Regarding the itemizing statement – Tax payers have the ability to either take a standard deduction OR itemize their deductions, which is where you can specifically take the mortgage interest deduction. I was actually very surprised that less than 30% of people itemize their deductions. In the end, it probably works out to be mostly the same for most tax payers.

      My comment about political insecurity was really just in reference to people that use this “news” as a way to make a political statement about the current administration. Past administrations have discussed eliminating or modifying the mortgage interest deduction, which did not transpire, but the point is that this is not a new concept or suggestion and it certainly is not “party specific”.

      I often find that people use this type of news as a way to try to leverage their political views. That’s not me 🙂

      Finally, the ONLY reason why I said that this might not be “that big of a deal” is because it only applies to homeowners that have a first mortgage over $500,000.

      Since the median price of a home in the US hovers right around the $200,000 range, so I don’t think that the majority of (first time) home buyers would even come close to having to worry about this.

      Again Nikki, thank you for your comments and contribution. This is a great discussion. I am certainly not saying that I’m right about any of this – I’m actually just stating my opinion, for what it’s worth.

      I have no alterier motives in bringing up this topic. I just thought there could be some interesting conversation about it 🙂

  • Ramona Lee says:

    I heard that current homeowners can only write off mortgage for the first five years of the loan. Is that true?

    • Scott Schang says:

      Hi Ramona, I am going to get a tax advisor friend of mine to verify this – but I believe currently you can write off mortgage interest for as long as you are the responsible party for the home and you are paying interest.

  • Mike Smith says:

    Having been in the real estate business since college (45 years ago), my experience tells me differently. Many (myself included) base the purchase decision on cash flow…with the interest deduction being part of that cash flow.

    • Mike says:

      I agree with you. If the deduction goes away, why would I buy a house? Why not rent. I doubt that any of us are banking on equity in the house today. Why would we take the risk? This would kill the real estate market. If the government would take all that bailout money and just pay off everyones mortgage the economy would grow.

      • Scott Schang says:

        Mike, yeah there are definitely some unnatural forces at work in the housing market right now. Between the feds spending billions on bonds and the big bank bail outs, it seems that government intervention has proven to be ineffective at the very least and plain old destructive at worst.

        I haven’t heard any more about eliminating the interest credit. I don’t really see that happening.