Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

34 responses to “Poll: Should the mortgage interest deduction be eliminated?”

  1. Scotsman

    How about adding one more- renter open to buying? That would be the group most affected by any change, at least as regards future sales activity.

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  2. Gunnar

    RE: Scotsman @ 2
    I agree. We are renters, but hope to buy a house in the future. I voted yes even if eliminating the mortgage interest deduction might be against our future best interest. Government subsidies for housing must stop, except perhaps for low income families.

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  3. David Losh

    Nine, Nine, Nine, das is verboten! or whatever.

    You should be talking about a complete change to the tax code. The mortgage deduction for my home is coupled with the use of my residence for my office. There again there are thousands of deductions that we are allowed that we don’t take once we hit 0 tax.

    In my opinion you are catering to working people who take the standard deduction on a 1040EZ. In my opinion you are trying to make a case for one deduction that many people are aware of and don’t really have access to unless they have sever mortgages.

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  4. Scotsman

    RE: Gunnar @ 3

    Agreed- I voted renter/yes because getting government out of the “loop-hole” business is more important. But I can see how it might make a difference for some, at least until prices adjust to compensate.

    And Tim- EVERYBODY reads Seattle Bubble, at least once. But not all of them stick around.

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  5. Feedback

    No, it should not. Eliminating the Mortgage Interest Deduction (or M.I.D.) will simply cause house prices to fall even further than they already have. Those who are currently in the housing market will hesitate to buy if they even think that the M.I.D. is on the way out. Let’s nip this in the bud right here and now, Tim. The M.I.D. must not go away for the housing market to remain a market.

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  6. Blurtman

    How about an equivalent rent payment deduction? It seems that a lot of renters have a sour grapes view of the mortgage interest deduction. Why endorse ending yet another tax break for avergae folks when corporations can deduct just about anything and pay nothing in taxes?

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  7. Scotsman

    RE: Feedback @ 7 -

    Lennox- thanks for stopping by. Don’t be a stranger- there’s lots to learn here. Character, however, you’ll have to develop on your own. ;-)

    http://t.co/C1WH8Igk

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  8. robotslave

    There is a meaningful distinction between housing and property ownership.

    I have some sympathy for getting government out of subsidizing property ownership, but none at all for the idea that government shouldn’t be subsidizing housing.

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  9. One Eyed Man

    I believe that there’s an aspect to the mortgage deduction issue that isn’t dealt with here. It’s my recollection that the mortgage interest deduction is only relevant to residential properties that aren’t used as rentals. Landlords deduct mortgage interest as a business or investment expense without regard to whether or not there’s a specific mortgage interest deduction provided for properties that aren’t used in business or investment. If my recollection is wrong (my wife claims it has happened before) someone please don’t hesitate to correct me.

    Assuming that landlords would retain the interest deduction as a business or investment expense if the mortgage interest deduction is repealed, should the tax code be amended to specifically provide that landlords also lose the ability to deduct mortgage interest? This should result in increased rental rates to compensate for the loss of the deduction. Eliminating the mortgage interest deduction while preserving the ability of landlords to deduct mortgage interest as a business or investment expense would arguably be a social engineering loop hole economically favoring renting over owning. And if you kept the rental expense loop hole, you might need a related party disqualification to prevent rich people from effectively passing the deduction thru to themslves by setting up a rental property LLC owned by one spouse that owns the house and leases it to the other spouse.

    Caveat: I currently have no skin in the game as I don’t have a mortgage and my wife doesn’t make me pay rent as long as I behave myself.

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  10. Ira Sacharoff

    I’m a homeowner who owns outright and voted not to eliminate the deduction. God knows it needs to be changed. The government could pay for a lot of worthwhile things instead of subsidizing people who bought very expensive homes. So I think it should be capped.
    Right now if you’re in the 35% tax bracket, and owe on a very expensive house on Mercer Island, you can deduct all that interest, and in essence you’re getting 35% of that back. But a poor schmuck in Kent who’s in the 10% bracket and bought a 200,000 dollar house might not even have enough of his income going towards interest to be able to itemize at all, and if he does, in essence he’s just getting back 10%. I’d like to see it capped at 10 or 15%, and not to exceed a much smaller dollar amount than currently exists. But I can’t see completely eliminating it. And not because I think it’ll lead to lower home prices. Home prices are still too high. They should be lower.

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  11. David Losh

    RE: Ira Sacharoff @ 12RE: One Eyed Man @ 11

    The tax code is for the wealthy. As weird as it sounds my accountant told me last year that if we made more we could pay less in taxes. That’s how it works.

    This fixation on the mortgage interest deduction is nothing in the scheme of things. It is a poor man’s deduction. It’s a working person’s deduction.

    I had an absolutely mind bending discussion with a Real Estate agent on Friday where he was telling me about the cheap mortgage money this, and the price of Real Estate has stabalized, and that million dollar homes are usually financed. It was like taking a step back in time.

    He’s the kind of person who would talk about how the mortgage interest deduction would save you 35% of your payment. He’s a working man’s kind of agent.

    Now you guys want to pull the plug on working people every where who are the very people who are paying the kinds of tax dollars that keep everything afloat. Those middle income, want to bes, or some day will be, are taking that deduction while paying real dollars on the rest of the income.

    Remember the golden rule of a mortgage as only 30% of your income, and the deduction is 35% of that in the best case scenario. What if the mortgage is only 25%?

    The tax code needs to be fixed to make it fair for every one. The wealthy don’t care about the mortgage deduction. It’s just one of those other things.

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  12. Azucar

    It definitely needs to change. Right now it rewards debt, not home ownership. And it benefits the more wealthy (those who have a mortgage that over the threshold where itemizing becomes a better idea than taking the standard deduction) less than those who can only afford smaller mortgages (where the deduction is less than, or not much over, the standard deduction) or renting.

    I don’t think that was the original intent of the mortgage deduction, but due to inertia I think the government will have a tough time fixing it so it does what was intended.

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  13. Kary L. Krismer

    By One Eyed Man @ 11:

    I believe that there’s an aspect to the mortgage deduction issue that isn’t dealt with here. It’s my recollection that the mortgage interest deduction is only relevant to residential properties that aren’t used as rentals. Landlords deduct mortgage interest as a business or investment expense without regard to whether or not there’s a specific mortgage interest deduction provided for properties that aren’t used in business or investment. If my recollection is wrong (my wife claims it has happened before) someone please don’t hesitate to correct me.

    Assuming that landlords would retain the interest deduction as a business or investment expense if the mortgage interest deduction is repealed, should the tax code be amended to specifically provide that landlords also lose the ability to deduct mortgage interest? This should result in increased rental rates to compensate for the loss of the deduction.

    The interest deduction on rentals isn’t some sort of a special deduction. Almost all business expenses are deductible, and as far as I know, all business interest is deductible. It would be a significant change in the tax code to start taxing based on something other than net income.

    Also, to be clear, rents wouldn’t increase directly because of the loss of the deduction. They would increase because landlords would get out of the market entirely, selling off their units. That would be relatively quick for SFR units, but even apartments could be converted to condos (and even in this market).

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  14. Kary L. Krismer

    By The Tim @ 1:

    Similar to the poll at the end of February, but with a more specific question and more specific answers.

    I was reading the answers before the questions and wondered why this was coming up again.

    Ahhh. I don’t usually vote in these polls, and apparently for good reason. I checked the wrong box!

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  15. doug

    I voted Yes, and I just bought a home. I’m pretty much in favor of any progressive tax increase.

    That said, this might not be a very good time for that. And I know I’ve said this before, but it won’t happen. No progressive tax hike is going to pass in the near future. MAYBE the Bush tax rates will expire, since that doesn’t take a positive vote. But I’m not holding my breath.

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  16. softwarengineer

    If the Mortgage Interest Rate Tax Deduction Created Jobs

    I might agree with it, it basically does not…..so I’m against it.

    Even subsidizing government jobs with stimulus makes more sense than giving large bracket creep upper incomes bail outs.

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  17. Kary L. Krismer

    By softwarengineer @ 18:

    If the Mortgage Interest Rate Tax Deduction Created Jobs

    I might agree with it, it basically does not…..so I’m against it.

    People buying houses creates a lot of jobs–at Home Depot and Lowes. ;-)

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  18. Grant

    Shocker that 80% of renters think it should be eliminated…….. :)

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  19. Kary L. Krismer

    RE: Grant @ 20 – I wonder if they realize that would probably also mean a significant reduction in the standard deduction? Without something to justify the standard being so high, I would think it would go down.

    BTW, the updated poll is still not specific enough. There are homeowners who do not own free and clear, but who do not owe enough money to itemize.

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  20. John Bailo

    60 percent of the benefits of the mortgage deduction go to high value properties in New York and San Francisco.

    Almost everyone would benefit from removing the distortion.

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  21. softwarengineer

    RE: Kary L. Krismer @ 19

    You Have a Point There Kary

    My point was direct stimulus to keep existing government jobs from terminating is FAR better than $100/mo or so going into home improvement over the life of the house….if the top 10% of household incomes took there mortgage interest tax deduction and spent it on stuff, that might help….trouble is, consumer spending is down 35% from 2008′s levels, these same upper class homeowners receiving tax deductions fear job security and aren’t going out to spend it.

    Where’s the beef [jobs]?

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  22. FenceSitter

    RE: Grant @ 20

    Just because we are currently renters does not mean that we are not planning on buying; my husband and I have been looking for the last two years, having made an offer on one house so far. I concur with with Gunnar’s and Scotsman’s posts (3 & 6).

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  23. wreckingbull

    It needs to go. As a home debtor with a reasonably-sized mortgage, it does not even benefit me. Almost a wash, so I take the standard deduction.

    Why have tax policy that encourages people to spend more on shelter (and less on more important things such as education and retirement)? I think the Baby Boomers have gotten the memo, that home ownership != retirement fund, so I think we are ready to 86 it.

    This is why the REIC gets scared and testy when they hear talk of this. Smaller mortgages = lower prices = reduced commission.

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  24. Grant

    RE: FenceSitter @ 24

    If people are against “subsidies” via the tax code, why stop at the mortgage deduction? How about charitable deductions? If you aren’t fans of a flat tax (and reducing tax rates as part of that), how do you decide with deductions should be eliminated?

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  25. wreckingbull

    RE: Grant @ 26 – With your brain. I think most of us are smart enough to differentiate the beneficiaries of the interest deduction from those of charitable deductions. All or nothing thinking is a big reason we are gridlocked today.

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  26. FenceSitter

    RE: Grant @ 26

    I just don’t think any tax credit that encourages taking on debt is a good thing, particularly one that probably inflates the cost of homes all that much more.

    I am not sure one can compare the charitable deductions to the mortgage deductions, but sometimes I feel we should scrap the system we have and start over. I do know that is not practical, I am just a little frustrated with the mess we have gotten ourselves into :)

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  27. Grant

    RE: FenceSitter @ 28

    Does it really encourage taking on debt, though? Sure, it minimizes the cost, but I’d much rather not make an interest payment than make an interest payment with a 25% tax benefit.

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  28. Grant

    RE: wreckingbull @ 27

    The benefits or the beneficiaries? Some people here are concerned that the tax benefit is skewed towards the wealthy, but the charitible donation deduction is also skewed towards the wealthy–is it fair the less wealthy are being “punished” for not making as much charitable donations?

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  29. Grant

    RE: wreckingbull @ 27

    The benefits or the beneficiaries? Some people here are concerned that the tax benefit is skewed towards the wealthy, but the charitible donation deduction is also skewed towards the wealthy–is it fair the less wealthy are being “punished” for not making as much charitable donations?

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  30. FenceSitter

    RE: Grant @ 29

    I think it does. I think that people will use that to justify taking on a little bit more debt. I think that that in turn increases the cost of housing and down payments. I don’t think everyone analyzes the numbers like you and I do. Are there some? Absolutely. I have friends who would rather pay off their loans in 5-15 years (and have done so) than pay interest on a loan. But I just don’t think that is the norm.

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  31. Azucar

    By Grant @ 29:

    RE: FenceSitter @ 28

    Does it really encourage taking on debt, though? Sure, it minimizes the cost, but I’d much rather not make an interest payment than make an interest payment with a 25% tax benefit.

    That’s a bit disingenuous. Those aren’t the two options. The two options are making an interest payment with no tax benefit and making an interest payment with a 25% tax benefit. Your assumption that people could buy the home with cash (and not make any interest payments) but instead take a big mortgage just to get the tax benefit isn’t based on reality.

    Having the mortgage deduction be based on the amount of money someone borrows encourages (rewards) borrowing more money. People borrowing too much money is what got us into this mess. If the government wants to encourage people to own homes (reward them for owning homes), then the deduction… or tax credit if that is how they want to do it… should be for home OWNERSHIP, not for the amount of debt that is taken on.

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  32. WatchHom

    I’m a renter but looking to buy a house soon. The mortgage interest deduction is one of the most inefficient and unfair tax rule. 46% of the annual $100+ billion mortgage tax credit go to household with annual income of $100k+ and it encourages greedy people to over-borrow at the cost of all other tax payers. I wholly support to replace mortgage interest deduction with flat home ownership credit on one owner occupied home regardless of the home value. Flat credit will be fair for all homeowners and boost home ownership far more effective.

    White house currently hosts a website where people can submit petition and gather support. Why don’t we submit a petition there? https://wwws.whitehouse.gov/petitions#!/petitions

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