While the second presidential debate did not touch specifically on housing, former Massachusetts Governor Mitt Romney did mention capping itemized tax deductions — of which the mortgage deduction is one of the most significant — at $25,000 per household, in his outline of his tax policy. But Jed Kolko, Trulia’s chief economist, writes, in a recent column for Forbes, that this policy would disproportionately hurt the middle class.
The home mortgage interest deduction is, by far, the largest deduction for middle- and lower-income taxpayers who itemize their deductions, Kolko wrote. And, “together, the mortgage interest deduction, real estate taxes and other small housing-related deductions account for the majority of deductions for filers under $200,000,” in annual gross income, Kolko points out.
Not to speak of the fact that eliminating the mortgage interest deduction, which allows taxpayers a deduction for interest paid toward the first $1 million of a first mortgage, would also likely lower housing prices, the column notes.
The bottom line? “Many middle-income filers itemize and deduct more than $25,000, so a cap at that level would snag many in the middle-class. But he noted that “even without the tax deduction, low mortgage rates and years of post-bubble price declines have made buying much cheaper than renting.” [Forbes] – Guelda Voien