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Let me start by saying that I can not give tax advice of any kind. What I am writing here are my own opinions. As a member of the National Association of Realtors (NAR) I am contributing money to lobbyists who are fighting to protect the mortgage interest tax deduction.
If the mortgage interest tax deductions gets eliminated or reduced I think people will still buy houses. Keep in mind that the tax deduction is for tax payers who can itemize and use schedule A. For a married couple that means they needed to have more than 11,600 in deductions and the deduction is not a dollar for dollar deduction in that if you pay 8K in interest it will reduce your tax burden by 8K.
The deduction is for the interest portion of the mortgage only and lowers taxable income which results in lower taxes. Think of it as spending money to save money . . kind of. about 54% of home owners benefit from the tax credit.
The more money a home buyer borrows and the higher the interest rate the more they benefit. When we pay mortgage interest we pay the most at the beginning of the loan and each year we pay less interest and more principal.
Is the mortgage interest tax deduction enough of a reason to buy a home? Some experts have predicted that home prices would go down a little without the tax deduction just like they went up in price by about $8,000 the year a tax incentive of the same amount was offered to home buyers.
Home ownership is a long term thing for some of us. Interest rates are still at historic lows. Today’s home buyers are getting rates that are less than 4% which means they will have less of a tax deduction if they can itemize. If I were to use the same logic that I have heard from some then I would advocate a raising interest rates so that persons who borrow money to buy a home will get bigger tax deductions.
Before you get all excited about buying a home because of a tax deduction do some figuring or consult a tax professional and when looking at homes don’t forget about the property taxes.
From what I understand eliminating the deduction isn’t really going to solve our national money problems either and it by eliminating it people might have an incentive to pay off their mortgages which could completely change our society, economy and probably even threaten our way of life.
The national budget is complicated and there are no simple issues when it comes to spending or taxation. There are special interest groups out there which is why we have the mortgage interest tax deduction and why we lead the world in health insurance costs but not in health outcomes.
Would you buy a home if there wasn’t a mortgage interest tax deduction? If the tax deduction is critical to home ownership how come people who do not get mortgage interest tax deductions continue to buy and to own homes? I can think of many benefits of owning a home.