This morning the National Mortgage News published an article titled “Lenders Fear Congress May Neuter Mortgage Interest Deduction” in which they caution the mortgage interest deduction (MID), referred to as “a pillar of U.S. housing policy” in the article, may be effectively rendered pointless if Congress makes the significant changes to it that they appear ready to consider. The article blames the House Republican Blueprint (announced on June 24, 2016) which “calls for doubling the standard deduction that tax payers receive, which would mean that most people would have no need to take the mortgage interest deduction.”
First, for clarification, lets clarify what the blueprint says. If you turn to page 19 of it (see below) you will see it states “The Tax Reform Blueprint will consolidate the basic standard deduction, the additional standard deduction, and the personal exemptions for families and individuals. The new larger standard deduction will be $24,000 for married individuals filing jointly, $18,000 for single individuals with a child in the household, and $12,000 for other individuals. These amounts will be adjusted annually for inflation.” So, what is proposed is taking the current standard deduction of $12,600 for a married couple and the personal exemptions ($4,000 per person in 2015) and rolling those two things into one standard deduction of $24,000 for a married couple. So, for people without kids, or perhaps only one, they will come out ahead, for people with several kids they will be losing some of their current deduction. For sake of this article, lets look at a family of four. Currently, that family would have a standard deduction of $12,600 plus $4,000 personal exemption for each of the 4 in the family, $16,000, so their total deduction between the two would be $26,600. Under the new blueprint, they would get a flat $24,000 deduction. In addition, the tax rates would be reduced.
House Republican Blueprint, nor even elimination of the Mortgage Interest Deduction, will hurt the St Louis Housing Market..
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As you can see from my quick analysis above, for the average person, the change in standard deduction, along with reduced tax rates, will actually help them. So what if the MID goes away or they can’t take it? As I have shown in prior articles on the topic, the majority of people buying median priced homes in St Louis can’t take the mortgage interest deduction presently anyway as they take the standard deduction so if it goes away it won’t hurt the bulk of the market.
Who took the Mortgage Interest Deduction (MID) in 2015?
As I often say, I’m an “Acts 17:11” guy…go to the source to find the truth. Therefore, I went to the Estimates of Tax Expenditures Report from the Joint Committee on Taxation (you too can read it, it’s below) and found the following facts for 2015:
- For people making $75,000 or less per year (so they can easily afford a median priced home in St Louis):
- There were a total of 119,572,000 tax returns filed by people in this income range.
- Of those, only 7,870,000 took a mortgage interest deduction so just 6.6% of the people in this income range took the mortgage interest deduction and then may have only been able to take a small amount of their total interest paid since they can only deduct that which exceeds the standard deduction. If we look at people with an income of $50,000 or less, there were 94,677,000 tax returns filed and only 2,852,000, or 3%, took a mortgage interest deduction.
- For the 7,870,000 that took a mortgage interest deduction, the total interest deducted was 6,217,000,000 or just $790 per person. For people earning $50,000 or less per year, the total mortgage interest deducted worked out to just $557 per person. In either case, pretty small potatoes and nothing that will impact the real estate market here if it goes away.
- There were a total of 119,572,000 tax returns filed by people in this income range.
While I’m at it I want to share the new Postcard Tax Return form that is part of the blueprint…only 14 lines – pretty easy, huh? You can take the savings from paying someone to fill out your tax returns to cover your small MID loss.
Simple, Fair “POSTCARD” Tax Filing
