Mortgage interest tax deduction changes ‘on the table’

mortgage-tax-deductionsMany people believe the mortgage interest tax deduction is a huge reason why homeownership is so financially beneficial. However, only homeowners who pay mortgage interest on their primary home and itemize deductions on their tax returns get this particular tax break. That leaves a number of low-income homeowners completely missing out. Currently, 77% of households that use the deduction have incomes in excess of $100,000 per year.

The concept of a home buyer tax credit vs. a home owner tax deduction would create more demand for homeownership and be applicable to every single home buyer.

Dave Camp, the House Ways and Means Committee Chairman has the goal to create a total tax reform package by year’s end. A one-time home buyer tax credit upon the purchase of a primary home or secondary residence is the most-liked idea right now. It would promote homeownership far more than the current interest deduction method, which is only used by about 30% of eligible homeowners. The Federal tax credit for first-time homebuyers from 2008-2010 created an unbelievable demand for real estate. The market was ON-FIRE and that was only for first-timers! If there was a blanket home buyer tax credit for people to buy a home, demand would sky-rocket, along with property values. It would create an incredible amount of wealth in a short period of time. Read the full article from CNBC here.

Would people buy homes for the wrong reasons? Probably. But that happens all the time anyway. There will always be people who buy a home for traditional reasons. Those folks will be there whether a tax credit exists or not. If the goal with the mortgage interest deduction is to promote homeownership, then nothing would do a better job than a one-time home buyer tax credit. 

I just hope the big real estate lobby sees this and gets it right. Eliminating the tax deduction would cause problems, but morphing it into a home buyer tax credit would be pure brilliance.  Let’s face it, we are an instant-gratification society. This would provide instant-gratification to every single home buyer. If they use a % of the purchase price to determine the amount of the deduction, it would be even better for all the Home Buyers in San Diego 🙂

Today’s Mr. Credit Radio podcast: Mr Credit 7-10-13 Full Show

On-Air Guest: Billy Colestock, San Diego Real Estate Expert with Keller Williams in Mission Valley



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2 replies

  1. So does that mean that those of us 30 percent get screwed? That could affect and hurt a lot of people!

  2. It’s unclear how they will deal with past home purchases. I would hope this would be the rule moving forward and anyone who owns a home would be grandfathered in to the old law, but that’s just my guess.