Time to reform the mortgage interest deduction, TheHill, mortgage tax deduction.#Mortgage #tax #deduction


TheHill

Time to reform the mortgage interest deduction

Mortgage tax deduction

By Diane Yentel and Mark Calabria, Opinion Contributors 348 Tweet Share More

As the Senate considers the nomination of Steven Mnuchin for the role of Treasury secretary, members of Congress should just as seriously vet new opportunities for comprehensive tax reform. Indeed, Congress has a clear opportunity to enact tax reform that addresses the growing affordable rental housing crisis facing millions of low-income people in every state and community.

That starts with reforming the mortgage interest deduction. No longer a political “third rail,” experts from across the ideological spectrum are increasingly calling it what it really is: a wasteful use of federal resources that encourages households to take on higher levels of debt, disrupts the housing market by increasing costs for everyone, and mostly benefits those who do not need federal assistance to live in a stable home.

It should be no surprise then that this issue brings together unexpected allies like ourselves. One of us is the director of financial regulation studies at one of the largest think tanks dedicated to the principles of individual liberty, limited government, and free markets. The other is CEO of a national advocacy organization focused on ensuring that people with the lowest incomes have a decent, affordable place to call home.

While we may disagree on some details, we recognize that scarce federal resources should be targeted to those who need them the most.

The National Low Income Housing Coalition’s United for Homes campaign calls for reducing the amount of a mortgage eligible for a tax break from $1 million to $500,000—impacting fewer than 6 percent of mortgage holders nationally—and converting the deduction into a credit, allowing an additional 15 million low and moderate income homeowners to get a much-needed tax break.

The result would be $241 billion in savings over 10 years. The savings could be reinvested into critical rental housing solutions—like the national Housing Trust Fund and rental assistance—for those families with the most acute needs: those who are homeless or who are one crisis away from being homeless.

As Cato Institute’s Director of Financial Regulation Studies, one of us has called for eliminating the mortgage interest deduction altogether and using the savings to reduce tax rates. This would promote work by reducing taxes on labor income, encourage investment to flow away from housing and toward productive capital, and improve the financial stability of families and the economy. Over-leveraged homeowners who took on more debt than they could afford directly contributed to the recent financial crisis. Eliminating the mortgage interest deduction would help end this harmful incentive.

A combination of these two positions should draw support from Republicans and Democrats alike.

Conservatives who want to see a simpler tax code should support reforms that do just that, as these reforms would put more money back in the hands of their red-state constituents. About half of all spending through the mortgage interest deduction benefits a small number of high-income households in blue states.

Progressives who are committed to addressing growing income inequality and racial inequities should support reforms that make the mortgage interest deduction fairer for more families. As it currently stands, the mortgage interest deduction is highly regressive.

Fully 75 percent of federal dollars–including tax expenditures–used to subsidize housing goes to high-income households through the mortgage interest deduction and other homeownership tax benefits. Seven million households with incomes of $200,000 or more receive a larger share of these resources than the 55 million households with incomes of $50,000 or less, even though lower-income families are far more likely to struggle to afford housing. Half of all homeowners receive no tax benefit from the mortgage interest deduction, and almost all of the tax break goes to households with incomes above $100,000. At the same time, only one in four of the poorest households that are eligible for housing assistance get the help they need because of chronic underfunding.

Now is the time to reform the mortgage interest deduction. It is unlikely that Congress will have another opportunity in the near term for comprehensive tax reform. With historically low interest rates, reforming the mortgage interest deduction now would cause the least amount of harm to existing homeowners. And, because economists have repeatedly found that the mortgage interest deduction does very little, if anything, to increase homeownership, reform would not negatively impact those who hope to become homeowners in the future. In fact, reform could make it easier for families to buy a home in high-cost cities where the mortgage interest deduction artificially inflates home prices.

Reforming the mortgage interest deduction would help address growing income inequality and racial inequity, improve the stability of families and the financial market, and generate significant savings. These savings, in turn, could provide some combination of tax cuts, deficit reduction, and reinvestment in critical affordable rental housing programs that serve people with the greatest needs. Benefits like these explain why such a reform should be at the top of the list as Congress moves to consider tax reform.

Diane Yentel is the President and CEO of the National Low Income Housing Coalition. Mark Calabria is the director of financial regulation studies at the Cato Institute.

The views expressed by this author are their own and are not the views of The Hill.


Mortgage-Interest Deduction – Eliminate It and Progressive, High-Tax States Will Suffer, National Review, mortgage tax


National Review

Mortgage tax deduction

I f you have spent much time in the more rarefied corners of California, one thing will be obvious: The lifestyle associated with urban progressivism can be very comfortable — if you can afford it. If you can’t — well, the view from Santa Monica is very different from the view from Friant , just as the view from Tribeca is very different from the view from Elmira in upstate New York. Progressivism in the United States used to be a school of political action, but today it is mainly a highly refined lifestyle — one that Republicans may be on the verge of making a little more expensive.

It’s time for a blue-state tax hike.

Congressional Republicans and the Trump administration will disagree about many things, but it is rare to find a Republican of almost any description who will turn his nose up at a tax cut of almost any description. As Robert Novak put it: “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.” And tax cuts are coming. But there are two proposals in circulation that would constitute significant tax increases — tax increases that would fall most heavily on upper-income Americans in high-tax progressive states such as California and New York. The first is a proposal to reduce or eliminate the mortgage-interest deduction, a tax subsidy that makes having a big mortgage on an expensive house relatively attractive to affluent households; the second is to reduce or eliminate the deduction for state income taxes, a provision that takes some of the sting out of living in a high-tax jurisdiction such as New York City (which has both state and local income taxes) or California, home to the nation’s highest state-tax burden.

Do not hold your breath waiting for the inequality warriors to congratulate Republicans for proposing these significant tax increases on the rich. Expect lamentations and the rending of garments, instead.

Slate economics editor Jordan Weissmann, who is not exactly Grover Norquist on the question of taxes, describes the mortgage-interest deduction as “an objectively horrible piece of public policy that should be reformed,” and it is difficult to disagree with him. It distorts the housing market in favor of higher prices, which is great if you are old and rich and own a house or three like Bernie Sanders but stinks if you are young and strapped and looking to buy a house. It encourages buyers to take on more debt at higher interest rates than they probably would without the deduction, and almost all of the benefits go to well-off households in the top income quintile. It is the classic example of upper-class welfare. And it has a nasty side, too: Those sky-high housing prices in California’s most desirable communities serve roughly the same function as the walls of a gated community or the tuition at Choate: keeping the riff-raff out. Pacific Heights is famous for its diversity: They have all kinds of multimillionaires there.

Geographically, those mortgage subsidies are not randomly distributed. The mortgage-interest deduction is much more important to rich people in San Francisco, where the median home price exceeds $1 million, than it is to middle-class people in Tulsa, where the median home price is about $110,000. In San Francisco, the median home costs 10.2 times the median household income; in Houston, the median home costs 4.3 times the median household income, a fact that probably will be of some interest if the deduction is eliminated and housing prices readjust.

The mortgage-interest deduction is a lot more important to Nancy Pelosi’s constituents than to Mac Thornberry’s.

The current arrangement means, among other things, that taxpayers outside the expensive, Democratic-leaning coastal metros are much more likely to simply take the standard deduction than to itemize their taxes. Put another way, the mortgage-interest deduction is a lot more important to Nancy Pelosi’s constituents than to Mac Thornberry’s. Both Trump’s campaign tax plan and reforms under discussion in the House call for raising the standard deduction, which would make the mortgage-interest giveaway irrelevant to an even larger majority of taxpayers. Trump’s plan also calls for putting a cap on deductions — not just for mortgage interest but for all itemized deductions — at $100,000. (The mortgage-interest deduction already is capped at a very generous level, applying to interest on loans up to $1 million.) Eliminating or reducing deductions is intended both to simplify the tax code and to offset some of the revenue losses associated with other tax-reform ideas under discussion, especially reducing the number of brackets and lowering the rates in those brackets.

The best course of action would be to eliminate the mortgage-interest deduction entirely over a relatively short period of time, say five years. The National Association of Realtors (a.k.a. The Committee to Re-Inflate the Bubble), the members of which make their livings on sales commissions and which therefore favors higher housing prices at all times, will howl. But it is difficult to make a compelling case that subsidizing Lena Dunham’s mortgage on her $5 million Brooklyn apartment (or helping out whoever took that $4.2 million Trump apartment off Keith Olbermann’s hands) needs to be a top national policy priority.

The state-tax deduction is a slightly stranger beast.

In principle, there is something in state taxes that federalism-minded conservatives should like: Most of us would prefer if the main tax collectors in Americans’ lives were located in Austin or Tallahassee — or even Sacramento — rather than in Washington. Fifty states with 50 different tax regimes and 50 different ways of spending the money provide Americans with lots of choices, lots of interstate competition, and 50 laboratories of democracy in which to test different approaches to social problems. The question of the California model vs. the Texas model need not ultimately be an issue of right and wrong but simply one of different preferences: There are Oakland people and there are Odessa people, and there is no reason to think that they should have to live in the same way or that they should want to.

The problem is that allowing for the deduction of state taxes against federal tax liabilities creates a subsidy and an incentive for higher state taxes. California in essence is able to capture money that would be federal revenue and use it for its own ends, an option that is not practically available to low-tax (and no-income-tax) states such as Nevada and Florida. It makes sense to allow the states to compete on taxes and services, but the federal tax code biases that competition in favor of high-tax jurisdictions. There is a certain kind of partisan Democrat who likes to sneer that the rich blue states subsidize the poor red ones (which isn’t exactly true; there’s a reason that there isn’t a big, expensive Air Force base in Manhattan), but there is a great deal of cross-subsidy, too. Tax handouts such as the state-tax deduction and the mortgage-interest deduction interact in complex ways with state and local policies (the nice liberals in San Francisco practice utterly ruthless economic segregation) to partly shift the burdens of the progressive model away from the residents of our progressive metros.

The more you look at it, the more the parts of the Republican tax mantra not having to do with rates per se — simpler, fairer, flatter — appear to be wise. Of course, it would be wiser still to cut federal spending down to the level of federal revenue (my first choice) or to raise taxes enough to cover spending (second choice), but nobody is going to talk seriously about that until there isn’t another option.

For the moment, though, Republicans give every indication that they are loading up a big tax hike on the rich — one that the Democrats will not enjoy very much at all. As someone once said, “Elections have consequences.”

— Kevin D. Williamson is the roving correspondent for National Review .


Scrap the mortgage interest deduction – Chicago Tribune, mortgage tax deduction.#Mortgage #tax #deduction


Scrap the mortgage interest deduction

Congress should do taxpayers a favor and eliminate the income tax deduction for mortgage interest. It’s popular but distorts the housing market.

Congress should do taxpayers a favor and eliminate the income tax deduction for mortgage interest. It’s popular but distorts the housing market.

(Elise Amendola / AP)

Home ownership is commonly regarded as a big part of the American Dream. But most adults know that pursuing some dreams can be too expensive to justify. The mortgage interest deduction, a subsidy to homebuying, is one of those. Curtailing or abolishing it should be a big part of any serious tax reform.

The real American dream is more about the broad prosperity and ample opportunity that derive from strong economic growth than it is about purchasing a house. Many Americans rent their dwellings, and the housing crash that helped cause the Great Recession made them glad they did. Some homeowners ended up in foreclosure. Many others found themselves trapped in homes that were worth less than they owed.

The deduction encourages home ownership by letting buyers deduct the interest they pay each year on their mortgages. But at this point, economists believe, it doesn’t have much net effect. That’s because the tax break has inflated home prices, largely if not entirely offsetting the benefit.

Economists generally oppose the deduction, because it gives Americans an incentive to put their money into houses rather than other investments that would yield higher returns. It encourages people to buy more expensive homes and to take on more debt than they otherwise would. It drains money from other sectors of the economy and maximizes the impact of housing downturns. Again, the crash of 2008 was an awful lesson.

The deduction also robs the Treasury of tax revenue — a gaudy $70 billion a year. This is money that could be used to finance a simpler, more efficient tax code with lower rates. If the deduction remains intact, any attempt at reform will be limited in scope and value.

Middle-class homeowners may bridle at the idea of losing their biggest tax break. But most Americans get little or no benefit from the mortgage interest deduction. About 70 percent of filers can’t make use of it, because they don’t itemize their deductions.

Among those who do, the rich gain far more than the average person. “For households making above $200,000 a year, the average benefit is $1,784 a year in tax savings,” wrote Bruce Katz of the Brookings Institution in The Wall Street Journal. “For households earning $65,000 a year, the deduction generally yields less than $200 a year in tax savings.”

The most reasonable argument against scrapping it is that the change would probably cause a one-time decline in home values. For Americans currently priced out of the market, any reduction counts as a virtue, not a vice, because it would make housing more affordable. But Anthony Randazzo, director of economic research for the Reason Foundation, calculates that “the direct influence on pricing of homes should be minimal.”

What would existing homeowners gain? They could expect to get lower rates, as well as a simpler tax code. They would probably also get a higher standard deduction, which would make it profitable for many to dispense with the headache of itemizing. President Donald Trump’s tax framework, which leaves the mortgage interest deduction alone, would double the standard deduction. But many members of Congress understand that lower tax rates would help Americans more than this deduction does.

They would reap the biggest potential payoff from a simpler, better tax code that pays the government’s bills: a healthier economy that boosts capital investment and creates more and better-paying jobs. If Congress and the president can agree on a plan that will do all that, the mortgage deduction won’t be missed.


The Tax Deduction for Mortgage Insurance Premiums, mortgage tax deduction.#Mortgage #tax #deduction


The Mortgage Insurance Premium Tax Deduction

Mortgage tax deduction

Mortgage insurance premiums can increase your monthly budget significantly. They averaged between $100 and $200 a month as of the end of 2016. But sometimes they re tax deductible—at least through the end of that tax year.

The Protecting Americans from Tax Hikes Act

The Tax Relief and Health Care Act first introduced the mortgage insurance deduction in 2006. Congress extended it in 2015 when it passed the Protecting Americans from Tax Hikes (PATH) Act.

But under the terms of the PATH Act, the deduction expired on December 31, 2016. The extension was only good for one year.

The deduction may not be gone for all time because Congress can renew it. This is one of those deductions that the government reviews annually, and it may be addressed under President Trump s tax reform bill, which he has said is aimed at helping middle-income families. Taxpayers who can claim this deduction are middle-income families because it phases out and becomes unavailable at higher income levels.

Deductions for mortgage interest and real estate taxes remain safe in 2017. Only the mortgage insurance deduction is in limbo.

What Is Mortgage Insurance?

Lenders typically require private mortgage insurance to secure the debts in the event of default. It s charged to buyers are unable to make down payments of at least 20 percent. The insurance policy can be issued by a private insurance company or by the Federal Housing Administration, the Department of Agriculture’s Rural Housing Service or the Department of Veterans Affairs.

Loans That Qualify

The mortgage insurance premium deduction applies only to loans taken out on or after January 1, 2007. The insurance policy must be for home acquisition debt on a first or second home. A home acquisition debt is one whose proceeds are used to buy, build or substantially improve a residence.

You typically can t rent the second home out – you must use it personally, such as a vacation home. You might still qualify a deduction, however, if you treat the second home as an income-producing business asset.

Home equity loans don t qualify for the deduction, nor do cash-out refinances. However, refinance loans up to the amount of the original mortgage are covered.

Income Limitations

You re not eligible to claim this deduction if your adjusted gross income exceeds $109,000, or $54,500 if you’re married and filing a separate tax return. The deduction begins “phasing out” at lower income limits: $100,000 for single, head of household and married filing jointly taxpayers, and $50,000 for married taxpayers who file separate returns. This phase-out requires that you must subtract 10 percent from the amount of the premiums you paid for each $1,000 that your income exceeds $100,000 or $50,000, whichever number is applicable.

You can find your AGI on line 37 of your Form 1040 tax return.

Claiming the Deduction

Mortgage insurance premiums paid during the year are reported on Form 1098. You should receive this form from your lender after the close of the tax year. You can find the amount you paid in premiums in box 4.

There’s currently no limit on the amount of the deduction you can claim if you and your loan qualify. You can deduct this entire amount.

Prepaid insurance premiums can be allocated over the term of the loan or 84 months, whichever period is shorter, under a ruling from the IRS announced in Notice 2008-15.

Mortgage insurance premiums are an itemized tax deduction. They re reported on line 13 of Schedule A, Interest You Paid. You can’t claim the mortgage insurance premiums deduction if you claim the standard deduction – you must itemize using Schedule A.

Can You Cancel Your Insurance?

Because there s no telling when or if Congress will breathe additional life into this deduction, it can pay to check your current mortgage balance against your home s fair market value. You no longer have to pay private mortgage insurance when your equity in the property exceeds 20 percent, but it s unlikely that either your lender or the insurer will point this out to you.

Ready to start building wealth? Sign up today to learn how to save for an early retirement, tackle your debt, and grow your net worth.

No one is going to voluntarily cancel your policy for you when you hit this magic number – but you can. Be prepared to have your home appraised or a value otherwise assigned by a professional so you can prove the insurance is no longer required. Even if it turns out that Congress does not renew the credit, you may be able to save some money regardless by taking steps to cancel your policy.

NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.


Calculating The Mortgage Tax Break – Mortgage Interest Deduction Calulation For Itemized Tax Returns, mortgage


Calculating The Mortgage Tax Break

Copyright 2009 by Morris Rosenthal – – contact info

Copyright 2009 by Morris Rosenthal

All Rights Reserved

Mortgage Interest Deduction Calculation For Itemized Tax Returns

The newest tax break is a $8,000 credit for first time home buyers, passed in 2009, to replace the $7,500 credit from 2008. The credit in 2008 was in the form of a no interest loan that was paid back by the taxpayer on their tax filing at $500 a year for the next 15 years. According to what I’ve read in the paper new $8,000 credit (originally a $15,000 tax credit was proposed) is literally a gift, does not have to be paid back, and anybody can get it. The only limitations seem to be that it has to be for your primary residence, and the tax credit may be limited to 10% of the purchase price, so that you can’t buy a $20,000 house in a depressed area and get a $8,000 credit, but it remain fuzzy. I think they have proposed a pahse out with income, started around $80,000, but wasn’t set in stone. Also, starting in 2011, taxpayers who currently pay at the 33% or 35% rate will now have the value of their mortgage deduction capped at 28%, but all of this is pending the passing of the 2009 budget just released by President Obama. See also my new article about determining how much house you can afford.

One of the most abused arguments in discussions over whether to rent or buy a home is the mortgage tax break. Realtors like throwing it out there like an assumed, parents tell their children that it made the country great, but there are a number of catches. As with all tax deductions, as opposed to credits, the “savings” are a percentage of money you are spending. No spending, no savings. In the case of the tax break for home buyers, the deduction amount is equal to the interest you are paying on your mortgage, up to a certain amount. Since most of us don’t have the cash to buy a house outright and will end up with a mortgage, being able to deduct the interest sounds almost like free money. But there are two very big reasons it’s not as simple as it sounds. The first is that you’re forced to itemize rather than taking the standard deduction, and the second is that ultimate savings are dependent on your tax bracket, so if you aren’t earning a lot of money, you can’t save a lot of money. The IRS does allow a special mortgage interest deduction for a home office, and that deduction is worth much more since it comes off your Schedule C gross business income.

The standard deduction in 2007 is $5,350 for single filers, $7,850 for head of household, and $10,700 for married filers. The standard deduction is the “freebie” that all taxpayers can take without itemizing deductions. If you choose to itemize, as you must if you want to get the mortgage interest deduction, you can’t take the standard deduction. Itemized deductions, including mortgage interest, are taken on Schedule A. The total amount of deductions allowed can be limited by your income if you earned more than $150,500, or $75,250 (if married and filing separately). The details are all explained in IRS Publication 936, but the catch is a simple one. If your mortgage interest deduction and all your other Schedule A deductions (primarily state income tax, local taxes, auto excise tax and charity for most filers) is less than your standard deduction, you’d lose money if you itemized. Medical and dental expenses can’t be taken unless they exceed 7.5% of your AGI (Adjusted Gross Income). The mortgage interest and any fees you can deduct (such as closing points) should be sent to you by the lender on a Form 1098 every year.

In most cases, at least during the early years of your mortgage when most of your payment is being applied to the interest, it probably will pay to itemize. But the question we’re trying to determine here is how the mortgage tax break changes your cost of ownership. I went over how to calculate mortgage payments and interest already, so lets pull some arbitrary numbers out of the hat (and make sure you see the lower example for a 4% mortgage). Let’s say you’re in the early years of paying down a $150,000 mortgage, 30 year term, 6.5% interest. The monthly payment is $948.10, so in the first few years of the mortgage, you’re paying about $10,000 a year in interest. Lets also say your property tax is $2,000 a year, you gave $1000 to charity and paid another $2000 in other deductible taxes. How much have you increased your tax deduction by buying a house rather than renting? Well, there’s the $10,000 in interest, plus the $1000 you gave to charity and the $2000 you spent on excise tax, state tax, whatever tax. I’m also giving you credit for the $2,000 you’re paying in property tax, but keep in mind that if you were renting, you wouldn’t be paying property tax. That’s a unique privilege of ownership. So you have $15,000 in Schedule A deductions, versus the $5,350 you could have taken as the standard deduction for a single filer or the $10,7000 if filing as a married couple. In the single case, itemizing and taking the mortgage interest deduction has allowed you to reduce your taxable income by about $10,000, in the married case, you’ve been able to reduce your taxable income by about $5,000. In any case, you need to calculate how much mortgage interest you’re paying each year or create an amortization table.

Now for the bad news. You haven’t saved $5,000 or $10,000, you’ve only reduced your taxable income by that amount. This is where I mentioned you have to be paying a lot of taxes already in order to save a lot of money. It’s the same issue that comes up with buying tax free municipal bonds. If you are earning less than $30,650 as a single filer after deductions or less than $61,300 as a married couple after deductions, the most those deductions are saving you on your taxes is 15%. Our single filer who grosses up to around $40,000 a year and took out a $150,000 mortgage is seeing a tax benefit of about $1,500/year, and our married couple who grosses up to about $70,000/year with the deductions above is saving just $750/year on taxes – 15% of the $5000 of additional deduction. In both cases, the $2000 of property tax more than cancels out the “savings.” All things being equal, it would be cheaper AND more tax efficient to rent the same house for around $1,000 a month.

Note, if the government succeeds in pushing mortgage interest rates down to 4%, that greatly reduces the amount of interest you pay and means the mortgage tax deduction will only come into play for the most expensive houses purchased by high earners. For the $150,000 mortgage example above, if the mortgage rate was 4%, the monthly payment would be $716.12, and the interest portion in the early years would be around $6,000. A married couple would be better off taking the standard deduction unless they could find around another $5,000 in Schedule A deduction, a combination of state and local taxes and charity.For tithers (people paying a 10% tithe to their religious institutions) you might get there, or people in high property tax states like New Hampshire, but I’m guessing the majority of married folks with a mortgage on the median home value in the US will be better off taking the standard deduction. A single person would probably itemize for the first few years of home ownership and save a couple hundred dollars.

So who are the big winners in the mortgage deduction game, other than the realtors who talk buyers off the fence by painting a glowing picture of tax savings? High income individuals who give a lot of money to charity or pay a lot of local taxes are the main beneficiaries, especially if they have large mortgages on expensive properties. There are limits, but in the end, about half of home owning Americans don’t itemize and take the mortgage deduction, either because they are in the later years of their mortgage where the interest portion is much smaller, or because the standard deduction proves to be larger than their itemized deductions. For most of those who do, the “savings” are relatively small. I wouldn’t be a bit surprised if the average savings is less than the average property tax bill, which means no savings at all.

The government is now talking about a new sort of standard deduction for mortgage holders who don’t itemize. The number I saw was $500. Talk about a way to lose a little tax revenue without actually helping anybody, it’s the stupidest idea I’ve heard yet. What the government might do that would be useful and not hurt anybody is change penalty free IRA deduction for first time home buyers from $10,000, where it’s languished forever, to $25,000. But the government isn’t really interested in helping savers.


Under Trump tax plan, would you still deduct mortgage interest, mortgage tax deduction.#Mortgage #tax #deduction


Under Trump tax plan, would you still deduct mortgage interest?

Mortgage tax deduction

The mortgage interest deduction would survive under President Donald Trump’s tax reform plan. But fewer homeowners would use it.

The reason is that the standard deduction would be almost doubled, leaving the mortgage interest deduction only for homeowners who pay the most interest. Those are the people with the biggest home loans.

What you can do

Tax reform will take a long, convoluted path through Congress. Any bill that is signed into law will differ from what was proposed originally. If the expanded standard deduction makes it through, you’ll probably pay less taxes overall, but without using the mortgage interest deduction. Steps to take:

  • If you plan to buy your first home within a few years, consider saving up for a bigger down payment. If you’re not going to deduct your mortgage interest, you will benefit from having a smaller mortgage and thus paying less interest.
  • If you own a home, consider getting a home equity line of credit before tax reform passes. Your home’s value could fall in the future, reducing the equity to borrow from. So you might be able to get a bigger credit line now than you will after tax reform is passed.
  • If you file jointly and deduct more than $24,000 a year, cheer up — you might get to keep deducting mortgage interest, depending on the details of the tax reform that’s eventually passed. Shop for a jumbo mortgage if you’re a big earner.

A simpler tax code?

The fate of the mortgage interest deduction will be debated this spring and summer as Congress and the president wrestle with tax reform.

Treasury Secretary Steve Mnuchin presented the outline — “a broad-brush view,” he said — of a tax plan that would retain the mortgage interest deduction, but decrease the number of homeowners who would take it. Most homeowners would see a reduction in their tax bill, even without deducting mortgage interest, handing them more money to put into savings.

All about the deductions

For middle-class homeowners, the main points of the Trump administration’s proposal are:

  • A reduction in the number of tax brackets, from seven to three.
  • Tax brackets of 10 percent, 25 percent and 35 percent.
  • Elimination of the deduction for state and local income taxes.
  • A big increase in the standard deduction, to $24,000 for joint filers from the current $12,600. Single filers would have a $12,000 standard deduction, up from $6,300.

That last item, the bigger standard deduction, would mean that millions of homeowners would stop using the mortgage interest deduction. In return, they would end up in lower tax brackets, resulting in savings.

Fewer would itemize

Fewer people would use the mortgage interest deduction because of the way itemization works. You file Schedule A when total itemized deductions exceed the standard deduction. For example, if a single taxpayer’s mortgage interest and charitable contributions totaled $10,000 in 2016, he or she itemized — because those costs exceeded the $6,300 standard deduction. Bring on Schedule A!

But if the standard deduction were raised to $12,000 for the same taxpayer, he or she would claim the standard deduction because that’s more than the $10,000 in mortgage interest and charitable contributions.

Trump campaigned on a plan to increase the standard deduction even more — to $30,000 for joint filers and $15,000 for singles. The nonpartisan Urban-Brookings Tax Policy Center estimated that that plan would have reduced itemizers by 60 percent, from 45 million to 18 million. “Even under current law, about three-quarters of tax filers take the standard deduction and would be exempt from a cap on itemized deductions,” writes the center’s Howard Gleckman.

Lower home values

Home values could fall in response to a lessening of the value of the mortgage interest deduction. In a paper published last year, Federal Reserve economist David E. Rappoport calculated that house prices would fall an average of 6.9 percent if the mortgage interest deduction were eliminated.

Rappoport didn’t estimate the effect on home values if the mortgage interest deduction were to remain, but useful to fewer people. He did point out that a drop in house prices would allow first-time homebuyers to pay less for their homes. That could mean more people could afford to buy homes and get mortgages.


Under Trump tax plan, would you still deduct mortgage interest, mortgage tax deduction.#Mortgage #tax #deduction


Under Trump tax plan, would you still deduct mortgage interest?

Mortgage tax deduction

The mortgage interest deduction would survive under President Donald Trump’s tax reform plan. But fewer homeowners would use it.

The reason is that the standard deduction would be almost doubled, leaving the mortgage interest deduction only for homeowners who pay the most interest. Those are the people with the biggest home loans.

What you can do

Tax reform will take a long, convoluted path through Congress. Any bill that is signed into law will differ from what was proposed originally. If the expanded standard deduction makes it through, you’ll probably pay less taxes overall, but without using the mortgage interest deduction. Steps to take:

  • If you plan to buy your first home within a few years, consider saving up for a bigger down payment. If you’re not going to deduct your mortgage interest, you will benefit from having a smaller mortgage and thus paying less interest.
  • If you own a home, consider getting a home equity line of credit before tax reform passes. Your home’s value could fall in the future, reducing the equity to borrow from. So you might be able to get a bigger credit line now than you will after tax reform is passed.
  • If you file jointly and deduct more than $24,000 a year, cheer up — you might get to keep deducting mortgage interest, depending on the details of the tax reform that’s eventually passed. Shop for a jumbo mortgage if you’re a big earner.

A simpler tax code?

The fate of the mortgage interest deduction will be debated this spring and summer as Congress and the president wrestle with tax reform.

Treasury Secretary Steve Mnuchin presented the outline — “a broad-brush view,” he said — of a tax plan that would retain the mortgage interest deduction, but decrease the number of homeowners who would take it. Most homeowners would see a reduction in their tax bill, even without deducting mortgage interest, handing them more money to put into savings.

All about the deductions

For middle-class homeowners, the main points of the Trump administration’s proposal are:

  • A reduction in the number of tax brackets, from seven to three.
  • Tax brackets of 10 percent, 25 percent and 35 percent.
  • Elimination of the deduction for state and local income taxes.
  • A big increase in the standard deduction, to $24,000 for joint filers from the current $12,600. Single filers would have a $12,000 standard deduction, up from $6,300.

That last item, the bigger standard deduction, would mean that millions of homeowners would stop using the mortgage interest deduction. In return, they would end up in lower tax brackets, resulting in savings.

Fewer would itemize

Fewer people would use the mortgage interest deduction because of the way itemization works. You file Schedule A when total itemized deductions exceed the standard deduction. For example, if a single taxpayer’s mortgage interest and charitable contributions totaled $10,000 in 2016, he or she itemized — because those costs exceeded the $6,300 standard deduction. Bring on Schedule A!

But if the standard deduction were raised to $12,000 for the same taxpayer, he or she would claim the standard deduction because that’s more than the $10,000 in mortgage interest and charitable contributions.

Trump campaigned on a plan to increase the standard deduction even more — to $30,000 for joint filers and $15,000 for singles. The nonpartisan Urban-Brookings Tax Policy Center estimated that that plan would have reduced itemizers by 60 percent, from 45 million to 18 million. “Even under current law, about three-quarters of tax filers take the standard deduction and would be exempt from a cap on itemized deductions,” writes the center’s Howard Gleckman.

Lower home values

Home values could fall in response to a lessening of the value of the mortgage interest deduction. In a paper published last year, Federal Reserve economist David E. Rappoport calculated that house prices would fall an average of 6.9 percent if the mortgage interest deduction were eliminated.

Rappoport didn’t estimate the effect on home values if the mortgage interest deduction were to remain, but useful to fewer people. He did point out that a drop in house prices would allow first-time homebuyers to pay less for their homes. That could mean more people could afford to buy homes and get mortgages.


Tax Deductiable Home Expenses, Mortgage Interest, Insurance #mortgage #estimator


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How to Claim, Report Tax Deductible Home Expenses

What Are Home Tax Expenses or Home Ownership Tax Deductions?

There are many different home-related expenses which you can deduct on your tax return to reduce your taxable income. During your online tax preparation on efile.com. you will be prompted to enter the information necessary to claim these home tax deductions.

If you need more information on deducting home expenses, read on or see IRS Publication 530-Tax Information for Homeowners .

What Tax Deductions Can I Claim Related to the Common Costs of Purchasing a Home?

You may claim the following expenses on your tax return if you itemize:

  • Home Mortgage Interest payments
  • Real estate taxes
  • Mortgage points (each point is equal to one percentage of the loan amount)
  • Mortgage Insurance Premium payments

What Are Home-Related Expenses That Cannot Be Deducted?

The following expenses cannot be claimed as tax deductions:

  • Fire, flood, or homeowner insurance payments
  • Amounts paid to reduce your mortgage principal
  • General home improvement and maintenance expenses

What Types of Home Improvements Can Be Claimed as Tax Deductions?

Some types of home improvements can potentially lower your tax obligation when you sell your home. Such expenses may include replacing a roof or adding an extension, which increases the usefulness and value of your home. These types of expenses/deductions cannot be used until you sell your home. However, all records should be kept for future use, since any home improvement costs can add up over the years. Be mindful that any normal repair or maintenance on your home is not tax deductible.

What Are Additional Deductible Home Expenses and House Tax Deductions?

You may also claim tax deductions for the following expenses:

  • Refinancing a House. Numerous homeowners build substantial equity from their home and use it to take out home equity loans. This is also called a second mortgage because the loan sits right behind the first mortgage (original mortgage for your home). Homeowners can either take the cash in a lump sum or get a home equity line of credit, which is similar to having a low-rate credit card with the added benefit of being tax-deductible. Of particular interest, if all or some of the new home equity loan is used for home improvements, then all or some portion of the points can be deducted in the current tax year.
  • Accidental Loss. Uninsured losses from fires, floods, earthquakes, storm damage, and theft are current expense deductions. Any accidental, or casualty, losses must be sudden, unexpected and unusual . Losses not considered accidental include losses as a result of termite damage and pipe corrosion. Any accidental losses must exceed 10% of your adjusted gross income to be considered a tax deductible expense.
  • Home Offices : Homeowners can deduct a portion of their utilities, home insurance, property taxes, mortgage interest, and home repairs as business expenses. Homeowners who work at home can even claim a tax break for depreciation on the business portion of their home. The business portion of the home must be used regularly and exclusively for business, and must be either a principal place of business; a place where the homeowner meets patients, clients or customers; or a separate unattached structure. The homeowner can even be an employee and qualify for the tax breaks.
  • Ongoing Tax Breaks: The annual mortgage interest you pay on your home mortgage loan is the most significant deduction available for homeowners and saves homeowners tens of billions of dollars every year. Homeowners can also deduct their annual property taxes expense and some types of annual assessments levied by local districts.
  • Second Home/Vacation Home: Homeowners can deduct mortgage interest and property taxes from second homes and vacation homes as long as the properties are rented for 14 days or less per year. If any rental exceeds the 14-day limit per year, the IRS considers this as an income property. When such income property is sold, the seller will either have to pay the capital gains tax or conduct a tax-deferred exchange for other income-producing real estate of equal or greater value. For income property, mortgage interest, property taxes, and other expenses must be deducted against any income produced by the property. Vacation and second homes include condominiums, houses, apartments, mobile homes, boats, and similar property.
  • Moving Costs : Homeowners who move to a new job location that is 50 miles or more from their previous living situation, may qualify for a residential moving cost deduction. This rule applies to the self-employed as well as to regular company employees. It also applies to those employees who work from home at least 75 percent (39 weeks) of the next year at or near the new job site. A self-employed worker must work at least 75 percent (78 weeks) of the next two years at or near the new job site.
  • Home Energy Savings : If you spend money to make energy efficient improvements to your home, or to install renewable energy sources, you may be able to deduct a portion of your expenses.

Where Can I Find More Information on Tax Deductible Home Expenses?

Additional information about home related tax deductions may be found in IRS Publication 530-Tax Information for Homeowners .

What Other Tax Breaks Can I Claim on My Tax Return?

See what other tax deductions and tax credits you may qualify to claim on your tax return.


How to Avoid Taxes on Canceled Mortgage Debt – TurboTax Tax Tips & Videos #liberty


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How to Avoid Taxes on Canceled Mortgage Debt

The Internal Revenue Service considers most cancelled debts as income for the recipient. The amount of a loan or mortgage forgiven by a lender is taxed as though the borrower earned that amount as income, says Cappy Pearson, tax preparation specialist. However, the Mortgage Debt Relief Act does allow an exemption for certain mortgage or foreclosure situations.

Adding forgiven debts to income

If your forgiven debt is subject to taxation, you will usually receive a form 1099-C, Cancellation of Debt, from the lender, showing the amount of canceled debt. You ll file the 1099-C with your federal tax return, and the amount of canceled debt is added to your gross income.

There are, however, exceptions and exclusions that may save you from the requirement to report canceled debt as part of your income.

Exceptions and exclusions

Not all canceled debt is subject to income tax. The IRS recognizes both exceptions to canceled debt rules as well as amounts that are excluded from gross income due to their origin.
Exceptions include:

  • Gifts, bequests or inheritances
  • Some qualified student loans
  • Any debt that, had it been paid, would have been a deductible item for the borrower
  • A qualified reduction in price offered by a seller
  • Certain payments on the balance of a mortgage under the Home Affordable Modification Program

When a loan is secured by property, such as a mortgage where the home and land stand as collateral, and the lender takes the property as full or partial settlement of the debt, it is considered a sale for tax purposes, not a forgiven debt. In that case, you may need to report capital gains or losses on the sale of the property, but you will not need to add forgiven debt to your income.
Exclusions include:

  • Debt canceled in a Title 11 bankruptcy or during insolvency
  • Canceled qualified farm debt
  • Canceled qualified real property business debt
  • Principal residence indebtedness under terms of the Mortgage Debt Relief Act (2007 through 2016). This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

If you claim an exclusion, you can t claim tax credits or capital losses or otherwise improve your tax situation using the excluded property.

The Mortgage Debt Relief Act of 2007

Applying only to your principal residence, the Mortgage Debt Relief Act excluded as income any debt discharge up to $2 million. Provisions of the Act applied to most homeowners, and it included partial debt relief gained through mortgage restructuring as well as full foreclosure. Refinancing was also allowed, but only up to the amount of principal balance of the original mortgage.

The Act also covered loans and subsequent debt forgiveness for amounts borrowed to substantially improve a principal residence. You cannot use provisions of the Act for other canceled debts, and the relieved debt must be secured by the principal residence property. The Act covered debt forgiven within the calendar years of 2007 to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

Extension of the Mortgage Debt Relief Act

The Act initially covered a three-year period between 2007 and 2010, but was extended four times, to 2012, 2013, 2014 and then to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

Another way around the tax bite

If you re not covered by the special tax break for principal residences described above, there are two very important exceptions to the cancelled debt = taxable income rule.

The cancelled debt is not income, even if you receive a Form 1099-C, if

  1. You received the cancelled debt due to bankruptcy filing, or
  2. To the extent you are insolvent immediately before the cancellation of the debt.

Insolvency means your debts exceed the value of all your assets. You can exclude cancelled debt from income up to the amount that you are insolvent. For example, if you had assets of $80,000 and debt of $100,000, you are considered to insolvent by $20,000. If you had $30,000 in debt cancelled at this time of insolvency, you would have to include only $10,000 ($30,000 minus $20,000) in your income.

Cancelled debt can be a challenging tax situation especially during hard financial times. TurboTax will guide you through the cancelled debt maze, including the new legislation, and help minimize the pain from in these tough situations.

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Why Your Mortgage Interest Tax Deduction Doesn t Really Help Much – The Motley Fool


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Why Your Mortgage Interest Tax Deduction Doesn t Really Help Much

Jan 11, 2015 at 9:33AM

No tax deduction is more misunderstood than the mortgage interest tax deduction. By law, taxpayers can deduct interest paid on their mortgage, but most middle-class taxpayers save little or nothing at all from the mortgage interest tax deduction.

In fact, the mortgage interest tax deduction is more for the benefit of millionaires than it is the average American.

How the mortgage interest deduction works
You can deduct all of your mortgage interest on up to $1 million in principal on the home in which you live. Thus, if you pay interest on a $100,000 mortgage, all of it is deductible. If you pay interest on a $1.5 million mortgage, only the interest on the first $1 million of principal is tax deductible.

But there are limitations. To qualify for the mortgage interest tax deduction, you have to itemize when you file your taxes. By itemizing, you forgo the standard deduction, which starts at $6,200 for singles and $12,400 for couples.

The standard deduction is a baseline. You can opt for the standard deduction, and not itemize, at your discretion. Thus, whether or not the mortgage interest deduction helps your financial being rests on whether or not it pushes you over the standard deduction.

Consider this scenario
You and your spouse paid $10,000 of mortgage interest on your $200,000 home this year. You also had $3,000 in other tax deductions.

When you itemize, you’ll be able to claim $13,000 in tax deductions. If instead you choose not to itemize, you’ll get $12,400 just by virtue of being a married taxpayer.

Thus, the net effect is that only $600 of your mortgage interest is tax deductible, because your deductions exceed the standard deduction for your situation by only $600. If you end up in a marginal tax bracket of 25%, you’ll save about $150 in taxes for paying $10,000 in mortgage interest — not much more than a rounding error.

Tax savings for high earners
All in all, the mortgage tax deduction is a (small-f) fool’s game for middle-class earners in low-cost areas, and a boon for high-income earners in high-cost areas.

Someone who owns a million-dollar home and who pays interest on a $1 million mortgage will inevitably be able to deduct more of their mortgage interest than someone who pays interest on a $100,000 mortgage.

So, while the mortgage interest tax deduction is touted as one of the best reasons to buy a home, it often provides little help to people who don’t live in a modern day McMansion. Buyer beware.

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