We're Messing Up the Mortgage Interest Deduction
Everybody's confused about how to claim the proper tax deduction for mortgage interest, according to a new report to Congress from the U.S. Government Accountability Office. The fog enshrouds taxpayers, the IRS, paid preparers and the authors of tax-return software writers alike.
Basically, the law states that taxpayers can deduct mortgage interest paid on up to $1 million of debt used to buy, build or substantially rehabilitate their primary residence and one vacation home. They also can deduct up to $100,000 of home equity debt used for any purpose. There are further limits on those deductions related to your income, particularly if you're subject to the dread Alternative Minimum Tax. But those $1 million/$100,000 limits are not spelled out in the tax forms, GAO says. And the IRS doesn't have enough information about taxpayers now to ferret out which taxpayers are claiming too much.
GAO also found that paid tax preparers missed the limitations about deducting mortgage interest, and sometimes failed to comply with the AMT rules.
The GAO says between 12 percent and 14 percent of taxpayers who claimed a home mortgage interest deduction misreported the amount, with about equal shares reporting too much or too little.
Don't be surprised if Congress requires that borrowers and lenders supply more information to the IRS. There's a lot of money at stake whenever lawmakers tinker with the mortgage interest deduction. The government gives up about $80 billion of tax money that it would collect if not for that deduction.
Do you think that $80 billion is a ripe target for raising more revenue? Do you think it should be tapped?
September 1, 2009; 9:00 AM ET
Categories: Buying , Mortgages , Taxes
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Posted by: kingstowne_renter | September 1, 2009 11:58 AM | Report abuse
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