For our readers outside the USA, mortgage interest is deductible as an expense from our income taxes, on a maximum of $1,000,000 in mortgage debt.
One set of schemes to solve the government’s massive budget deficits involves raising revenue without raising tax rates; eliminating the Mortgage Interest Deduction (MID) for home owners may add as much as US $100,000,000,000 to the coffers. If the estimates that 45,000,000 taxpayers currently take the deduction are correct, they would face an average tax raise of $2,222 per year.
The other 95,000,000 taxpayers would not be affected because they do not “itemize” their deductions and instead take the “standard deduction,” which is $11,900 for a married couple.
The National Association of Realtors® supports extending the MID, estimating that eliminating it would cause a 15% devaluation in home values.
The National Low Income Housing Coalition proposes halving the size of a mortgage eligible for a tax break to $500,000, and to convert the deduction to a non-refundable tax credit, making this tax benefit more available to the middle and lower income families who need it.
In the weeks before the national election, the candidates have taken different positions on this issue.
President Obama’s position is, “I refuse to ask middle class families to give up their deductions for owning a home or raising their kids just to pay for another millionaire’s tax cut;” Governor Romney has said, “As an option you could say everybody’s going to get up to a $17,000 deduction. And you could use your charitable deduction, your home mortgage deduction, or others — your health care deduction, and you can fill that bucket, if you will, that $17,000 bucket that way.”
There is no proposal to change MID for owners of rental property would not be affected; mortgage interest is and would be treated as an ordinary expense without limit.