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Whither Your Mortgage Interest Deduction?

Original post made by Chris Zaharias, Crescent Park, on Nov 27, 2012

Is 2012 the last year of mortgage interest reduction up to $1M in loan value? I think so. I hear most homes in PA are bought all-cash these days, but for those who own in PA via mortgages, it'll be interesting to see how this affects their home ownership decisions.

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Comments (13)

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Posted by Ducatigirl
a resident of Old Palo Alto
on Nov 27, 2012 at 9:49 am

This has come up many, many times in the last forty years, but has always been shot down because most members of Congress hold large mortgages. Public outrage has also kept the mortgage deduction from being eliminated.

In countries that do not have this deduction, home ownership is higher, because not having this deduction shoots down the cost of housing, making it more accessible to more people. In otherwards, the mortgage deduction may help keep housing prices artificially high.

So this is good news for first time buyers, bad news for established owners. Suddenly, we homeowners would have greatly diminished paychecks, and our property values would drop. But, if first time buyers can find affordable housing, there will be growth in the housing industry. Then again, will current owners find themselves under water again, unable to sell, causing a shortage of homes for sale? However, new home builders may start building tracts again, with demand for starter homes increasing.

This is a real quandary, and this may be the year we lose the mortgage interest deduction.

Then again, since most members of Congress are Caucasian and not techies, they did not pay cash for their homes and thus hold large mortgages, so history may repeat itself.

I think we will all be holding our breath on this one!

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Posted by PA but not rich
a resident of Adobe-Meadow
on Nov 27, 2012 at 10:27 am

If they do that our family is in trouble. We cannot afford our home loan without the tax break.

How about they first remove the deduction for second homes? And for people making above, say, $500,000 a year?

We live in Palo Alto and are lucky to be able to afford it as is, but we are not affluent and would be really hurt by this.

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Posted by Adam Trask
a resident of Green Acres
on Nov 27, 2012 at 10:44 am

The deduction ain't going anywhere.

As far as "hearing" all PA deals are all cash, you're wrong. If you disagree, prove it with links.

Jan 1, the rates on any income past 250k go up. Carried interest deduction should be eliminated. Tier the caps gain rates back up.

Clinton balanced a couple budgets - either ask him or just remove ALL the Bush tax cuts and spending (Medicare part D and the doubled defense spending in the last decade) and we're fine.

Getting unemployment down to 5% automatically takes care of 40% of the deficit.

Figure something out for Medicare.

Remove the earnings cap tax on Social Security and it's fixed.

Anything else?

Oh, yeah, there's this: why do so called "fiscal conservatives" only worry about debt when they are out of power?

Funny that.

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Posted by Chris Zaharias
a resident of Crescent Park
on Nov 28, 2012 at 9:50 am

Hey Adam, calm down, no one's trying to start an idealogical brawl here, the election's over.

I don't claim any knowledge of whether the deduction will or won't be reduced or eliminated. That said, given that 'reducing tax loopholes' is the language Dems & Repubs seem to agree on as a way to effectively raise taxes while appearing not to, I do think this deduction is 100% on the table right now.

Perhaps you're right, and lots of PA homeowners have mortgages. In that case, I can only imagine how disproportionally hard the effect of this possible change would be on those homeowners, given that PA mortgages are probably getting $30-40K/year in effective tax relief.

Assuming this change does happen (go with me on this for now), who here has thoughts as to how PA's real estate market would be affected? That's what I want to know, and I imagine others want to know too.

Apolitically yours,

Chris Zaharias

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Posted by Willy
a resident of The Greenhouse
on Nov 28, 2012 at 10:37 am

I disagree with "given that 'reducing tax loopholes' is the language Dems & Repubs seem to agree on as a way to effectively raise taxes while appearing not to..."

Seems the Dems, particularly the President, ran on and was elected with the mandate of returning the highest brackets to the Clinton rates, raising something like a trillion over the next decade. Any income over $250,000 gets taxed at the Clinton rate. Everyone keeps the tax cuts on their first $250,000. Democrats are not talking about the home mortgage discussion, other than in response to republican talking points (ie.. the Romney deduction 'plan' floated late in the election.)

There are other loopholes that should be addressed; carried interest was mentioned above, billions in subsidies for Big Oil, the most profitable industry in the history of mankind also come to mind,

I agree with Adam in that the deduction for mortgage interest will not be affected with the Dems in charge.

For Mr. Zaharias to first claim it won't affect Palo Altans because "I hear most homes in PA are bought all-cash these days" and then seek an apolitical discussion on the hypothetical political decision is puzzling.

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Posted by Chris Zaharias
a resident of Crescent Park
on Nov 28, 2012 at 11:12 am

Dang, everyone seems to have an ax to grind...

Seriously, does no one have an opinion on how this might affect the PA real estate market? I imagine there are at least a few local real estate agents who might be willing to anonymously tell the truth?

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Posted by Monica C
a resident of another community
on Nov 28, 2012 at 12:17 pm

Snore. Trolling about an issue that is non-existent. Romney's the only one who talked about changing deductions significantly, mostly to benefit himself and his kids, like Meg wanting to be governor just to eliminate capital gains taxes on her fortune. Last I looked, Romney lost in Palo Alto, too. Doubt he even made it to 47 percent.

Want an opinion? The deduction is solid. Is not going anywhere, even on second homes. With that fact, the question is, what axe is the poster looking to grind?

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Posted by Chris Zaharias
a resident of Crescent Park
on Nov 28, 2012 at 2:37 pm

Wow, tough, bitter crowd. Given the subject, I guess I can take that to mean that the majority of Palo Altans assume the M.I.D. will forever be sacrosanct, which in turn suggests the housing market has not yet begun to reflect the possibility.

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Posted by Monica C
a resident of another community
on Nov 28, 2012 at 2:53 pm

Chris: now, now, temper, temper...

A couple comments on a blog suddenly become "majority of Palo Altans" assuming something?

It's math. The deduction stays because of political support. A fifth of congress comes from CA, NY and Mass, very high priced real estate states. That immediately makes it impossible to take away the deduction once you add in the other districts that have above average real estate prices.

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Posted by neighbor
a resident of Another Palo Alto neighborhood
on Nov 28, 2012 at 4:42 pm

The idea of reducing/getting rid of the mortgage interest deduction seems to be getting floated- along with any other possible way to increase our taxes and grow government. I have already emailed a bunch of government officials to express my view that it should be retained and that there are other actual tax "loopholes" out there and that this item is NOT a loophole but beneficial in a multitude of ways.

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Posted by Chris Zaharias
a resident of Crescent Park
on Dec 16, 2012 at 9:06 am

Article on the topic from today's SF Chronicle:

Web Link

To read this article, it's gone from 'never in a million years' to 'probably gonna happen'. Funny that the regions that raised the most money for Obama's re-election are the regions that Dems & Repubs alike might force this particularly onerous pound of flesh from.

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Posted by John
a resident of Midtown
on Dec 16, 2012 at 10:37 am

I just checked out our house on Zillow ($1.2 M). Our combined income is $115 K. Our current mortgage is $600 K plus $ 115 K in a home equity loan (used to pay for our two kids in college).

If the mortgage interest deduction is limited to $500 K cap of existing mortgage, and the home equity exemption is removed, we are heavily impacted, at at least two levels: 1. A lower market value for our home, should we decide to sell, 2. Higher direct taxes paid.

On the other side of the ledger, I suppose we can argue with the county tax assessor that our home is now worth less, thus our home should be assessed at a lower value...something that would help us, but hurt the local schools.

Bottom line: There would be many ripple effects.

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Posted by Jod
a resident of Los Altos
on Dec 16, 2012 at 11:09 am

Not happening. The Chron lists a bunch of "consultants" and real estate flacks for quotes.

Name a republican who has publicly come out and specifically identified the mortgage deduction as a target.

re: the regions President Obama raised money.... are the same regions Romney/Ryan raised money. Or don't you remember all their visits?

Sorry, but further commenting on this topic has been closed.

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