Over the past 5 years or so I have written a few articles on the topic of the mortgage interest deduction (MID) and how, in spite of what many others in the industry say, I didn’t think it was that critical to the housing industry. All the while, the National Association of REALTORS (NAR) (of which I’m proud to be a member, just happen to disagree on this topic) has staunchly supported the MID and warned that if the deduction went away the housing market and home buyers would suffer. NAR published a fact sheet on the topic stating:
- Repealing the Mortgage Interest Deduction (MID) is a form of tax increase. Families with children would bear more than half of the total increase.
- IRS data show that taxpayers in the 35-45 age group take the largest MID on average compared to any other age group of taxpayers.
- First time home buyers would be hurt the most if the MID is curtailed.
- Current data from the IRS show that 65% of the taxpayers who have claimed the MID made less than $100,000.
- The housing market has not emerged from the crisis that began in 2007.
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In previous articles I have written on the topic I have pointed out things such as:
- The MID primarily benefits higher income individuals and, in fact, at that time, statistics revealed that less than 9.8% of tax payers earning under $50,000 claim the MID.
- Median home price in St Louis – about $190,000
- Approximate household income needed for a typical borrower to qualify for a loan to buy the typical St Louis home – about $50,000
- Median household income for St Louis – about $55,000
- Approximate amount of property taxes on a median priced home in St Louis$2,700.
- Approximate amount of mortgage interest paid in first year (when the largest amount of interest is paid) on a loan for a median priced St Louis home – $8,460
- Standard deduction allowed by IRS in 2015 for a married couple – $12,600
Today, the National Mortgage News published an article titled “Why Cutting The Mortgage Interest Deduction Is No Longer a Third Rail” in which they appear to, in large part, agree with my take on the MID. Points made in their article include:
- Few lower-income borrowers itemize deductions on their tax return, a requirement to receive the benefit. And for those that do, “the benefits they get financially clearly are less than folks that are in the upper end of the income bracket.
- Of those that claimed the deduction, 14.3 million returns were from taxpayers with household incomes between $100,000 and $200,000
- An even bigger financial benefit went to taxpayers whose household income was over $200,000. That group represents 17% of returns claiming the benefit, but 42% of the total dollar amount deducted, or more than $30 billion.
- Meanwhile, only 2.9 million returns had household incomes of $50,000 or less. The total deduction claimed was $1.6 billion or just 2% of the dollar amount.
Don’t get me wrong, I am not saying there is not benefit to the MID, there is a huge benefit, in fact it is probably one of, if not the, largest tax deduction taken by individuals, mainly higher income ones though. I also have no problem with high income individuals taking tax deductions they are entitled to. My issue is when NAR and others lobby to retain the MID they typically only talk about how changing MID will affect lower income and middle class home buyers and that it will be have a major negative effect on their ability to be home owners and I simply don’t think the facts support that.