Are You Benefitting from the Mortgage Interest Deduction?

The mortgage interest deduction has been on tax forms for many years. Would it affect you at all if that deduction was no longer available?

There has been a lot said during the presidential campaign in recent months about taxes, mortgages, and deductions. One of the most hotly debated topics on the campaign trail is the mortgage interest deductions that you can claim on your taxes. While some politicians and lawmakers want to do away with this deduction, there are others who say we should keep it. A recent article in the New York Times questioned whether it is actually an effective deduction that benefits the majority of homeowners and society at large.

According to Joseph Rosenberg with the Urban-Brookings Tax Policy Center, most homeowners chose to not claim the mortgage interest deduction when filling out their taxes. The reason for this is because most of them do not itemize their deductions. In fact, according to Rosenberg, only about 30 percent of homeowners claim this tax deduction each year instead of taking the standard deduction.

Another finding by this policy center is that most of the taxpayers who itemized deductions on their tax forms were typically upper-middle class families and upper-class families. In those two categories, the households that earn between $100,000 and $500,000 benefit the most from the mortgage interest deduction.

So why are households with a higher income taking advantage of the mortgage interest deduction more often than the households with a lower income? The answer is simple – those are the households that stand to benefit the most from the deduction. According to the policy center’s calculations, this deduction for the households with the higher incomes can account for as much as 1.5 percent of their after-tax income. Compare that to the 0.3 percent and the 0.7 percent for households making $40,000 to $50,000 and $50,000 to $75,000 respectively, and you can see why the upper income brackets would itemize their deductions to take advantage of it. In addition to that, many of the people making between $100,000 and $500,000 have a vacation home. Under the current mortgage guidelines, they can deduct the mortgage interest on both of those homes, as long as it does not exceed more than $1 million all together. Some opponents of the deduction say we should do away with it since it is only benefitting the upper class households without offering much help to the lower income earners.

Proponents of the deduction have a different viewpoint. People like Robert Dietz, who is with the National Association of Home Builders, says that some households could be considered middle class even if they are earning $200,000 a year. In some of the metropolitan parts of the country, a $200,000 annual income could be considered average when compared to the surrounding households. The $200,000 income might sound high, but households that make this much are generally living in areas where the cost of living is much higher. Dietz also says that the highest rate of mortgage interest deductions where taken by homeowners between the ages of 35 and 45 – a time when they are buying their first home.

Where do you stand on the mortgage interest deduction? Are you for keeping it the way it is or doing away with it altogether?

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