John Wyckoff
Professional Real Estate Services
Phone: (602) 370-4126    Fax: (602) 955-2286
Market Watch


A Discussion on Mortgage Interest Deductibility
Coldwell Banker Residential Brokerage
January, 2013 – There has been a lot of discussion in Washington about eliminating the tax deduction for mortgage interest as a way of increasing revenues. The Office of Management and Budget estimates that it would increase revenues by 609 billion over the next 5 years. Because of the discussion, a little perspective might be in order.
The first federal income tax was levied in 1894. It was quickly struck down by the Supreme Court which then led to the passing
of the 16th Amendment (1913) allowing Congress to collect taxes on income. As a way to offset for taxes, all interest paid for any reason was deductible. The tax rate at the time was 1% and rose to 7% for those making over $500,000 a year. Over the years, tax rates have risen and interest deductions have declined as government spending continues to rise. While interest
deductions were not originally specific to homeowners, it has always been considered a favorable way to encourage home ownership, especially in high cost areas.
Big problems require big solutions, which is why mortgage interest deductions (MID) are being considered.  It is considered the 2nd largest untapped source of additional revenue behind not
taxing employer-paid medical insurance premiums as income (which would raise revenue by $1.07 trillion over 5 years). Many have suggested that eliminating the mortgage interest deduction would be very damaging to an already fragile real estate industry and the economy.
The US is currently borrowing about $6 billion a day. So eliminating the MID would pay for about 20 days.  Eliminating
the deductions for both MID and employer-paid insurance premiums would pay for 56 days.  Anticipated increased taxes on the wealthy are expected to pay for another 8 days. So even if all the additional revenue measures noted here were enacted, we’re still 82% short of the revenues we need to sustain our current level of spending. Our current level of spending does not appear
to be sustainable.
Another area of concern is the consequences caused by pulling so much revenue out of the economy. It is estimated that eliminating MID would increase the average homeowner’s taxes by $2,700/yr. with high cost areas and second home markets hit the hardest. In California, for example, the increase would average $4,000/yr. and second home markets like Arizona would be impacted disproportionately. Elimination of MID will increase revenue, but may cause more problems than it solves.
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Coldwell Banker Residential Brokerage
3113 E. Lincoln Dr. • Phoenix, AZ 85016
Phone: (602) 370-4126 • Fax: (602) 955-2286