Is Your Mortgage Deduction Under Fire?
Do you hear the rumble of heavy weaponry? It's not the military's latest training exercise over Washington, but the big housing-industry lobbyists fixing for war. They say nothing less is at stake than the mortgage interest deduction. Next to fall will be motherhood and apple pie.
Here's what sent them to the battlements: The Obama administration's budget proposal would limit the ability of upper-income folks to deduct home mortgage interest from taxable income. For couples earning more than $250,000, or $200,000 for singles, the budget would reinstate the limitation on claiming itemized deductions, including the one for mortgage interest. Note the word reinstate. This limit is not a new thing; upper-income folks have seen part of their itemized deductions wiped away for years. So what's really going on here?
I asked Mark Luscombe, principal tax analyst for CCH, whether this would be a new hit on homeowners -- or just a return to old tax policy. His company publishes tax guides that line the shelves of accountants across the country.
It's a return to old policy, he said. Higher-income taxpayers have had to give up a portion of their itemized deductions for years. But a 2001 law called for getting rid of the limit on itemized deductions over the course of several years, starting in 2006. For the 2008 and 2009 tax years, the reduction is only one-third as severe as it once was -- but it's still there. The new budget would simply put the limitation back at full force, which means high-income taxpayers would be able to claim only part of their itemized deductions, including mortgage-interest.
Let the debate begin: Do you think the new proposal is fair? Or would it be an unnecessary burden on a struggling housing market? And should there even be a tax deduction for mortgage interest in the first place?
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