Administration weighs slashing mortgage deduction

Get rid of the mortgage interest tax deduction. While they are at it, get rid of all deductions, lower the rates, and stop playing games with the tax code to influence behavior.

Politically, this will likely die on the vine as there is currently no stomach for major tax reform in this Congress. But yes, it would crash the market as our bubble is pretty big. Truthfully, a crash could come for any one of a number of reasons. But in the end, probably just due a lack of confidence in the market. The point at which the market changes from being undervalued to being overvalued - is impossible to predict until it happens.

Such a tax change would crush middle class/upper middle class/partially-rich as they are the ones leveraged the greatest amount. One wonders if commercial borrowing is also targeted.

eriegel, agree completely with your analysis. As for commercial real estate, their lobby is strong and remember that all real estate expenses including financing costs are expensed for tax purposes. Don't see ho this would change. Congress - and Trump of course - would like nothing better than to give retain and increase tax breaks to commercial real estate investors to the detriment of individual investors. Let's hope that does not happen.

There are not a lot of "middle class" homeowners who would be affected by a reduction of the mortgage cap deduction from $1 million to, say, $750K or $600K. But that also would generate negligible revenues. At some point, people need to lose the mindset that every form of taxation should be progressive. And, with interest rates where they are, reducing or cutting this deduction generates insufficient revenue to be worth the headache it would cause politicos. At today's rates, the annual interest on a $1MM mortgage is under $40K. Even at the highest federal rate and the full $1MM mortgage, eliminating the deduction is $16K in potential additional revenues. For someone with a $500k mortgage and earning $200K/yr, it equates to a tax savings of about $5,500. I am all for eliminating all deductions. It will never happen. It is a core mechanism by which politicos hand out graft to their constituents.

This will never happen. One of the most entrenched special interests there is.

Though for New Yorkers we should be worried about the elimination of the state and local tax deduction. What are your thoughts around that?

The only way any of this is palatable for New Yorkers is if they also lower indiv / small biz taxes alltogether to 15% or so, then maybe...

I dont see how you could pass something like this without grandfathering existing mortgages.
A lot of people live their mortgaging lives on the financial mason dixon line.

It will be impactful but if you are already making your full mortgage payments every month, that wouldn't change. You just will receive a lower tax return (for most people if it even matters). It's not like people use their tax returns to pay their mortgages. It would reduce other forms of spending. This is still DOA in Congress.

People adjust their withholdings based on deductions.

The tax deduction is factored in the home price, driving up the cost. This makes it more difficult for first-time home buyers to enter the market, because they must save up a larger down payment.

The deduction also reduces government revenues, which must be made up elsewhere. So other people who do not benefit from the deduction are indirectly penalized.

It also does not increase the level of home ownership. Countries that do not have a mortgage interest deduction have similar levels of home ownership.

I suppose one can argue that eliminating tax breaks for home ownership will make housing costs more affordable in the long term. Same with tax abatements for condos which never made sense to me.

You can't take away tax deductibility of interest for individuals and leave deductibility for corporate income statements - that's unfair.