This deduction will change in the future. The federal government needs money.
A look at proposals to limit the mortgage interest deduction
By Kenneth R. Harney October 28, 2012WASHINGTON — Limiting the homeowner mortgage interest deduction came up in two of the presidential debates, but specifics about who would be affected and how much they might lose in tax benefits were minimal. To put some rough numbers on the issue, here’s a quick primer on the mortgage interest deduction and related housing write-offs.
How big are they? Very big — which is why they have become such a tempting revenue-raising target for candidates seeking to reduce the massive federal deficit. The mortgage interest deduction alone will cost the federal government $484.1 billion from fiscal 2010 to 2014 — $98.5 billion in 2013 and $106.8 billion in 2014, according to estimates from the congressional Joint Committee on Taxation. Write-offs by homeowners of local and state property taxes account for an additional $120.9 billion during the same four-year period.
Keep in mind that what costs the federal government also represents significant tax savings for the people who take the deductions, in this case the millions of homeowners who save thousands of dollars a year that they are not paying to the Internal Revenue Service. According to a new analysis by Jed Kolko, chief economist for the real estate information site Trulia.com, among those taxpayers who itemize on their federal returns, 49% of total write-offs are housing-related — primarily mortgage interest and local property taxes. For homeowners as a group, this is a big deal.
But since only about one-third of taxpayers itemize on their returns — the rest opt for the standard deductions — who’s really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that only 15% of households with incomes below $50,000 took itemized deductions, while 65% of those with incomes between $50,000 and $200,000 did. Just about everybody with incomes above $200,000 — 96% — itemized on their returns.
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Proprietary OC Housing News home purchase analysis
3319 WYOMING Cir Costa Mesa, CA 92626
$639,900 …….. Asking Price
$680,000 ………. Purchase Price
4/21/2005 ………. Purchase Date
($40,100) ………. Gross Gain (Loss)
($54,400) ………… Commissions and Costs at 8%
============================================
($94,500) ………. Net Gain (Loss)
============================================
-5.9% ………. Gross Percent Change
-13.9% ………. Net Percent Change
-0.8% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$639,900 …….. Asking Price
$127,980 ………… 20% Down Conventional
3.50% …………. Mortgage Interest Rate
30 ……………… Number of Years
$511,920 …….. Mortgage
$116,644 ………. Income Requirement
$2,299 ………… Monthly Mortgage Payment
$555 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$160 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,013 ………. Monthly Cash Outlays
($358) ………. Tax Savings
($806) ………. Equity Hidden in Payment
$142 ………….. Lost Income to Down Payment
$180 ………….. Maintenance and Replacement Reserves
============================================
$2,171 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,899 ………… Furnishing and Move In at 1% + $1,500
$7,899 ………… Closing Costs at 1% + $1,500
$5,119 ………… Interest Points
$127,980 ………… Down Payment
============================================
$148,897 ………. Total Cash Costs
$33,200 ………. Emergency Cash Reserves
============================================
$182,097 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Cost of Ownership Analysis
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