According to the Congressional Research Service, the current mortgage interest deduction will cost about $100 billion in the 2014 tax year, making this a very lucrative expenditure for the federal government to cut in order to help get America’s financial house in order. The problem is that this cherished deduction promotes middle-class homeownership and tampering with it could derail the housing market recovery, which is already on fragile ground.
How Does the Mortgage Interest Deduction Work?
At the end of each calendar year, your mortgage company is required to send you a statement of mortgage interest called a Form 1098. This form will clearly state how much interest and principle was paid on your mortgage over the course of the year. By itemizing your taxes, you can reduce your taxable income by the amount you paid in interest throughout the year.
The home mortgage tax deduction can be added to the rest of your itemized deductions, which can be claimed in place of the standard deduction if they amount to more than the standard deduction amount. This credit is available for up to two homes, your primary and a secondary residence.
Why Keep the Mortgage Interest Deduction
Americans strongly support homeownership and many families work hard and sacrifice much to achieve the dream of owning a home. Homeownership also contributes significantly to the nations economy, generating millions of jobs for working class families so those in favor of ending the tax deduction are in for a bitter and long fought battle.
Proponents for the tax credit say that changing the mortgage interest deduction could have an adverse affect on home values, dampen the housing recovery, and in markets where housing prices are disproportionally high, the tax credit can offset the cost of owning to make it more affordable. A lot of people choose to buy rather than rent just because the mortgage interest deduction makes it more affordable.
The deduction has been around since the federal government began collecting income tax in 1916 though at the time all consumer interest was deductible. Since then, Congress has pared back deductions, and in 1986 in a tax code overhaul, eliminated the ability to deduct auto loan and credit card interest. The deduction for home interest was left in tact. Then-President Ronald Reagan said he wanted to keep it because it symbolized the American dream.
If you are interested in finding out more about obtaining a mortgage so you too can take advantage of the mortgage interest deduction, simply fill out our Fast Response form or give us a call at 888-644-1999. Our experienced mortgage professionals would love to discuss your needs. We can’t wait to hear from you!
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