Homeowners all across the nation are able to claim the mortgage deduction, where they deduct mortgage interest from their annual taxes. However, few actually claim it, though no one may be able to as the deduction might face the chopping block.
Mortgage deduction could face chopping block
Congress and the White House are hard at work engaging in partisan bickering, as is the norm of the past few years, over the best manner in which to cut spending and increase revenue and ward off the “fiscal cliff.” The White House thinks simply taxing rich people is going to work and the Republican-controlled House of Representatives wants much more broad cuts to spending and, read their lips, no new taxes.
One thing which might face the chopping block, according to the Washington Post, is the mortgage deduction, or more accurately, the mortgage interest deduction, which allows homeowners to deduct interest paid on their mortgages on their annual income tax filings, so long as the mortgage principle is less than $1 million per year. Second homes and home equity loans of up to $100,000 are also eligible.
The program currently costs the government about $100 billion per year.
Hardly anyone takes it
Surprisingly enough, according to USA Today, not many people actually claim the mortgage deduction. Somewhere around 50 million households are paying a mortgage, but the Internal Revenue Service found that only around 25 percent of taxpayers are actually claiming the mortgage interest deduction.
The share of the population that claims the deduction varies by state; 37 percent of homeowners in Maryland were claiming the credit, whereas 15 percent of West Virginians and North Dakotans claim the credit. The credit is more advantageous in states such as California, Washington state, Hawaii, Virginia and Maryland, where the credit can exceed the standard deduction.
California in particular is known for ridiculously high costs of housing, though only 25 percent of Californians.
However, one of the other interesting things about the credit is that it’s claimed by those in middle to upper middle class households; nearly half the deductions were claimed by households with a total income of $100,000 per year. About 8 percent of deductions were claimed by households with $50,000 or less in combined total income.
Number of proposals
USA Today also cites that real estate organizations maintain the mortgage deduction is a major influence on the decision to purchase a house, though hardly anyone claims it. It could be that some don’t claim it as it won’t provide enough benefit over claiming the standard deduction, which could apply in some cases.
The credit, according to the Washington Post, has existed in various forms since 1913, but both sides of the aisle are looking to clip it. The president, according to the Wall Street Journal, has suggested limiting the amount that can be claimed in the credit by people in the top tax brackets. Other suggestions have included limited or doing away with deductions on second homes or lowering the overall limit for the deduction. Mitt Romney suggested cutting the amount that can be deducted at all.