Will tax deduction on mortgage interest face chopping block?

(CBS News) CHICAGO - Of all the federal income tax deductions, one has been considered untouchable: the deduction for interest on mortgages. About 40 million Americans take advantage of it and they save an average of $600 a year. Now Washington is looking at it to help heal the budget.

Chicago-area realtor Debbie Scully shudders at the idea that the tax deduction on mortgage interest may be on the congressional carving table.

"Well, it certainly wouldn't be good," she said about what the elimination would do to her business. "Now there's sort of a glimmer of hope that looks like things are stabilizing. Why would they do anything that could hurt that? "

Scully helped Stacy Litow sell her home. "I've always thought that that's one of the incentives to buying," said Litow.

Builders love the tax break, too, because it helps support the market for big homes. The larger the mortgage, the greater the deduction. But it will cost the Treasury nearly $100 billion next year

So now the talk in Washington is about lowering the cap for maximum mortgage you can claim interest from interest down from $1 million.

"If you keep the deduction for the bulk of Americans," said economist Diane Swonk, "but just eliminate it for the over-sized homes, you still get the American Dream."

Affluent owners in expensive areas, especially on the coasts, would see the biggest change.

"If you have the money and you want to spend it, feel free to do that," said Swonk. "But you know I'd much rather see lower tax rates or deductibility for investment in our future, which creates productivity, which creates a higher potential for the future of the economy rather than just big homes."

Now economists who favor lowering the cap on mortgage debt eligible for a deduction from $1 million to $500,000 say it could help reduce the deficit and keep interest rates low. That could help the housing market all by itself.

[JFK_123]

The books on consulting called mortgage interest write off the best way to keep more of your money, "but" its mostly the first five years of a mortgage when you are pre-paying interest. The reality, smartest thing you could ever do is pay off your home. I did two payments a month, saved 80,000 in interest, and seven (7) years on a 30 year mortgage. Housing market was stable since World War 2 ended in 1945, thanks to you criminals blurring the line between business and organized crime, you all ended that for the entire United States, congratulations.

[zarnon61]

Heloooo! There already is a mortgage cap. They're talking about lowering it from 1 million to 500,000. That's the value of the home not the amount you're deducting.

[jmac19971]

helooo! ...typical home prices in some states exceed $500K on average!!

[tomanyt]

"Will tax deduction on mortgage interest face chopping block?" Certainly hope so. There is absolutely no reason the government should pay for the interest on your home loan. The government shouldn't pay you for the crap you drop off at the Salvation Army either. Get rid of all those tax breaks and entitlements. Raise some revenue and get this country moving forward.

[logicaldogs]

What is wrong with you, mad cause you don't have a house? Of course mortgage interest should be deductible, it is the backbone of this society and the real estate industry and the American family. There is plenty out there to take from corporations who screw America everyday without sticking it to the middle class.

[bigmanfrommaine]

I just bought a house 6 months ago. Great. I thought we were trying to help the housing market, not kill it.

[howbizarre]

Is the amount of your mortgage OVER $500,000? If so, why did you buy such a large house or is the housing market in Maine really that expensive? Or have you moved to NYC?

[phwtb100]

Most Americans would say for only a savings of $600 a year, who cares if we can't deduct it anymore? BUT, the average person doesn't stop to consider the overall consequences of the changes to the tax code AND the situations that built those deduction to begin with. Nor do they take into account most Americans live paycheck to paycheck.

The TRUTH is, it isn't just about the mortgage interest deduction. If they take away the mortgage interest deduction they will also take away several more that are all linked to it by default.

Then they come along and say, ok let's take away medical deductions. Most people don't qualify for it anyway and if they do it only saves them, on the average, about $500. So they take that without taking into consideration someone had to pay out over (TWENTY) 20% of their total income to doctors, hospitals and labs to GET a $500 dollar medical deduction.

Then they come along and drop the Child Care Credit from $1000 to $500. Then they take away the day care deduction, the adoption credits, the health insurance credits, then they take ... on and on and on.

Before you know it those $500, $100, $200 deductions are all gone and YOU are now paying more than double, maybe even triple or quadruple- depending on your income amount- more in taxes.

Consequence: you can't afford to pay a babysitter anymore because you were USING that $6000 tax increase to pay her instead of the IRS. So- she heads for the unemployment office and your job goes down the tube because you can't leave the kids on their own.

Next to go would be your medical insurance.
Now you are being forced to pay your share AND the insurance companies share at a rate of more than DOUBLE the amount of insured patients for the same identical medical services. If the greed of the medical profession isn't bad enough, don't forget you are also going to be penalized up to $2500.00 on your tax return for not being able to pay for medical insurance anymore.

Unfortunately, as the bills come in and the pay doesn't, you end up getting sued for non-payment by some company (if not all of them) so you forced to file bankruptcy as a matter of personal protection.

Now that means you have to pay for an attorney. One to help you hang on to the house you worked your butt off to pay for, which now, because your paying for an over priced shark to help you KEEP it, you can't afford to pay for it anyway.

So now, you get to use what little you do have left in the bank to make a PAYMENT PLAN with the IRS because, now that you have lost everything you had including your home you have to pay even MORE to the IRS than you owed them because as of 2011 debt forgiveness now equals TAXABLE INCOME to the IRS.

The result being that you now have no job, no income, no credit, no savings, no home and therefore no equity to fall back on, while you now owe double the taxes on what You DID have, a penalty for losing your medical insurance AND you have to pay taxes on $200,000 of bankruptcy forgiveness as "taxable income" you will NEVER receive.

How many of you honestly can afford to hand over ANOTHER 15-25% of your paycheck to the IRS and what do you think your consequences are going to be when you do?

Consequences and the snow ball effect.
Just something to think about.

[howbizarre]

It's been what, 22 years or more, since credit card interest hasn't been allowed to be deducted. I don't think by removing mortgage interest on mortgages OVER $500,000 means everything else is going away next year. How many mortgages are for over $500,000 anyway?

[iCi2i_befree]

I certainly hope this is on the chopping block for all homes worth more than $500k. For values more than this, there should be income criteria on a sliding scale. I'd also cut entitlements but only for for high income people. How can we justify that the wealthy are getting Medicare or even Social Security? The all white brotherhood GOP want to cut the entitlements so why don't we give them exactly what they demand?

[phwtb100]

How can we justify that the wealthy are getting Medicare or even Social Security?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
How about the simple, single fact THEY PAID FOR IT JUST LIKE WE DID?

[Smilestoo]

In areas that have a high cost of living, a $500k house is not expensive. Some people bought a house and over the years it appreciates to $500K or more, and some people buy a run down house that no one else wants at a low price, fix it up, and it is worth much more than they paid for it.

Anyone who pays for Medicare and Social Security, or any other service should entitled to receive it. In fact, if they pay more, they should receive more.

[howbizarre]

Smilestoo - if a house appreciates to over $500,000, it doesn't mean the person has to take out a new mortgage. Ditto the person who buys at a low price and fixes up their home. If their MORTGAGE is still under $500,000 a change would NOT affect them. If you bought a house for $600,000 with 20% down, you have a mortgage of $480,000. IF mortgage interest is no longer deductible for mortgages over $500,000 - it doesn't change anything for you. If the same house goes up in value to one million dollars - the tax law change would not affect you - your mortgage is still under $500,000.

[Martha12345]

Wow !! That will certainly jump start the housing market and new construction.

[omnibus66]

Romney gets a $72,000 tax deduction for his show horses. Now that would be a good place to start cutting.

[askagain]

Why not just take all of Romney's money? After that, we will go after ay money you might have. As if Romney's $72,000 business deduction for show horses will make a big difference. Certainly there are many more people in your tax bracket than there are in Romney's tax bracket.

[phwtb100]

So? Your boss gets a deduction for your wages. Why don't we start there?

[tomanyt]

@phwtb100...No.

[askagain]

Ending the mortgage interest deduction is a great start. All homeowners, wealthy and otherwise, will share in the misery of paying down the deficit. If people didn't mind the trillions in new debt created over the last four years, they shouldn't mind paying for it by losing their mortgage interest deduction. Besides, it won't be considered a new tax or an increase in taxes.

[jtdev1]

sure and while they are at it why not lift the cap on the SS tax?? Wealthy should also pay the 6.5% on all their income just like I do.

Oh yeah, while your on the tax issue, why not include all income in the tax equation like Capital Gains, Dividends, etc... Shouldn't it all be taxed as income?


and FYI - it wasn't just the past 4 years that got us into this mess. How about remembering 2 UNFUNDED WARS and tax cuts to boot.

you need to get your selective memory fixed.

[phwtb100]

Sorry, I have to disagree with your statement "If people didn't mind the trillions in new debt created over the last four years, they shouldn't mind paying for it by losing their mortgage interest deduction."

99.9% of home owners don't vote Democrat. If you want the responsible parties to pay you have to take away EIC and student loan deductions.

[CJoseph1999]

Those evil homeowners! Working for a living and paying their bills, those jerks. Why don't they understand that the new American way is waiting in line for the next handout from that retard in the White House?

[tomanyt]

@phwtb100...LOL. How about those $4B tax breaks the gas/oil industry enjoys?

[Smilestoo]

A lot of those that have mortgages will no longer be able to afford them. The wealthy will buy them at cheap prices as investment property, and rent them out at high rental rates, so the homeless population will increase. The only ones able to survive will be the wealthy and the poor. The wealthy will be able to continue paying for their homes, and the government will find tax money to pay for homes for the poor. The wealthy ad the poor will continue to avoid paying taxes, the middle-class will be the sacrificial lambs.

[howbizarre]

99.9% of homeowners don't vote Democrat? Please, phwtbt100, share your source on that astounding fact.

[robbyr1955]

Of course, this means billions directly out of the pockets of homeowners who are underwater because of the CEOs proposing this, like Goldman Sachs.

[mtracy99]

Another corporate pundit buying
into right-wing think tank arguments
for screwing the middle-class -- anything
to avoid raising taxes on the rich.

[tmittelstaed]

If you own a home worth a half million dollars your not middle class - unless you live on Long Island, perhaps.

[phwtb100]

THINK before you speak. Mortgage interest deduction loss IS an assault ON THE MIDDLE CLASS. It effects ALL OF US.

Geeezzz...

[Smilestoo]

Maybe all middle-class people should go out on disability retirements. That way they won't have to pay taxes anymore, like the rich and poor.