Summary: Interest is an inevitable part of a mortgage, but there may be a way to keep more money in your pocket through a mortgage interest tax deduction. This article will explain more.
If there was a way to get a little bit of money back from your mortgage interest, would you look into it? Luckily, you may be able to take advantage of such a scenario with mortgage interest tax deductions.
Mortgage Interest Tax Deduction
A super-committee- tasked with identifying areas in Federal spending that could be trimmed or cut completely for greater savings in our Nation’s future- was created in the wake of the U.S. Congress’ inability to come to an agreement on budget spending for weeks on end in the month of September.
In November 2011, the super-committee identified the tax deduction for personal home mortgage interest as a major issue and a way to increase tax revenue.
The mortgage interest deduction has been a favorite of the middle class and homeowners because it represents one of the largest itemized deductions available on the IRS Form 1040 and 1040A. Not only does it represent a large reduction in taxes owed annually for eligible tax filers, but it adds to personal discretionary income that would otherwise be spent solely on loan interest paid to the bank lender.
The mortgage interest deduction is a tax deduction that for mortgage interest paid on the first $1 million of mortgage debt. Homeowners who purchased a home after December 15, 2017, may deduct interest on the first $750,000 of their home loan. In order to take advantage of this, you will have to itemize your tax return.
For instance, if you took out a $900,000 mortgage to buy a home in 2017, and you paid $30,000 in interest on that mortgage in 2018, you could probably deduct that entire amount of that mortgage interest on your tax return. But if you took out a $900,000 mortgage in 2019, the deduction would likely be smaller because of the 2017 Tax Cuts and Jobs Act that placed a cap on the deduction to mortgage interest on the first $750,000 of a home loan.
Current beneficiaries include those filers who itemize their taxes. On the other hand, if a filer takes the standard deduction, the benefit is not allowed. If eligible, the tax deduction reduces earned income dollars reported. This in turn reduces taxes owed for the year since the adjusted gross income decreases before taxes are applied. All homeowners with outstanding mortgages benefit.
Opponents argue that wiping out the mortgage interest deduction would represent a significant tax revenue increase for the federal government. Approximately $131 billion in taxes are missed annually due to the existing deduction allowance.
As a result, the mortgage interest deduction represents a windfall for the tax filer that he doesn’t absolutely rely on. Proponents of the elimination do not see any improvement in house sales as a result of the deduction. Instead, they believe the tax code should expunge the subsidization of house buying.
The elimination of the deduction is highly opposed by anti-tax groups, the real estate industry and consumer proponents. Although the proposal would not create a new tax per se, it would effectively raise taxes owed to the IRS annually by thousands of dollars per family.
For many homeowners the interest deduction is one of the main benefits of homeownership. With the current state of the housing industry, any change to the mortgage interest deduction could have severe consequences. It would decrease the affordability of homes among new home buyers and increase the financial strain on many existing homeowner’s already facing falling values and economic hardship in this tough economy.
Tax revenues may also be hit as every home sold creates huge tax revenue for both local and federal governments. When a home is sold you have tax income being created for the real estate agents, mortgage professionals, appraisers, home inspectors, insurance agents, title companies, and escrow companies etc. all of whom pay taxes.
Not to mention the tax on capital gains. As the housing market struggles to find its footing, it would be a shame if the rug is pulled out from under it.
Ready to Apply For a Mortgage?
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest, and have been doing so since 1992. Contact us today with any questions you have about mortgages.