I don’t know if you’ve heard, but there’s a big election coming up. Now, my father always told me that you don’t discuss politics, religion or money in polite company. Certainly, it’s debatable how polite the blogosphere is, but I certainly strive not to alienate any of my clients or readers, so I’m going to stay away from discussions of religion and politics. As a Realtor, though,it’s always been tough to avoid talking about money, specifically money that my clients are using to buy and sell homes.
One of the big “real estate” issues at hand is the possible reduction of the “mortgage interest deduction” or MID. It’s a contentious issue, one that politicians from both sides of the aisle have used to promote their own agendasand economic policies. They’ve used it to bash each other over the head and play a nasty game of “he said/she said.” Both sides of the aisle have said they’re in favor of modifying the MID and both have claimed they’ll preserve it. Regardless of where you stand politically,it’s important to know the facts about this proposal, so you can make informed home buying decisions.
The current proposal concerning the MID is not an individual bill in Congress, but part of the current administration’s 2013 budget proposal to Congress. However, this does not mean that MID modifications will disappear if the current administration loses their election bid in November. Both candidates have said that tax reform is needed and experts from both major parties believe that the MID will play a part in said reform.
Not every homeowner in America is currently eligible for the MID. Unless you itemize your taxes, you would not be affected by any proposed changes. About 1/3 of you would continue to receive the standard deduction of $5,950 for single filers and $11,950 for joint filers. The remaining 2/3 of homeowners might be affected if you earn more than $250,000, live in that 35% tax bracket and itemize your tax deductions.
Homeowners that fall in this highest tax bracket would not lose their entire MID, but the current rate would be decreased from 35% to 28%. To illustrate this in real dollars, this means if you currently have $20,000 of mortgage interest, you're allowed write off would drop from $7,000 to $5,600.
Obviously, the debate over these proposals has been fierce. Many professionals in the real estate industry have significant concerns about decreasing the MID and the effect this change will have on current and potential home ownership. Some say that buyers factor in potential deductions when they purchase their home and spend more when they know they’ll receive a greater tax deduction. Others believe the decrease in deductions will have a short-term negative effect, but little lasting impact.
It’s imperative that home buyers educate themselves and plan accordingly for possible changes. Know your tax bracket and the amount of deduction you stand to lose if you fall in that 35% bracket. Consider your plans for future home ownership and how these changes might make it harder or easier for you to realize those dreams. Make informed decisions and develop informed opinions and then contact your congressional representatives and let them know where you stand.