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Author: JEDIKNIGHT Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127801  
Subject: Mortgage Interest Deduction going away? Date: 7/22/2010 12:25 AM
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Not trying to argue for or against ending the mortgage interest deduction.

I'm working with someone on budgetary and housing issues hence my question here.

I realize nobody has a crystal ball so I'm just asking for opinions.

Bottom line: Some tax goodies are going away, or are going to be curtailed and there is renewed talk about the popular mortgage deduction.

Let's say they curtailed, or even ended the deduction altogether.

Do you think that would apply to FUTURE home purchases only, OR current home owners also.

I ask because the people i'm working with might be figuring the deduction into their budget and savings forecast.

Anyway, I can't see the gov't applying this to existing mortgages because wouldn't they be really throwing alot of people's household budgets out of whack, where in some cases people have to leave the house?

Jedi
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118018 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 12:46 AM
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Do you think that would apply to FUTURE home purchases only, OR current home owners also.

I think it probably would have more to do with the particular loan, rather than the home. For instance, interest for principal balances above $x (right now, it's $1 million for a first mortgage and $100k for an equity loan) is no longer deductible. And I think that it's likely to apply to all loans.

I ask because the people i'm working with might be figuring the deduction into their budget and savings forecast.

If they have to have the deduction in order to afford the house, they are buying too much house. If they are just trying to figure how much additional they will be able to save/invest due to the additional deductions, then they're probably okay, and the only thing that non-deductibility will affect is their ability to put a some extra money into saving/investing each year.

Anyway, I can't see the gov't applying this to existing mortgages because wouldn't they be really throwing alot of people's household budgets out of whack, where in some cases people have to leave the house?

My guess is that it would be a gradual step down, say to $900k one year, $800k the next, etc. until they got to the desired number, not an "all at once" step down, right to the desired number. And people who have had an amortizing mortgage for a few years are already experiencing a similar step down, as their payments go more to principal and less to interest each year.

AJ

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Author: mmrmnhrm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118019 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 2:10 AM
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aj's probably closer to what'll happen, but remember that what Congress gives, Congress can take away.

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118020 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 7:22 AM
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I must admit I had the same thought as AJ - if they are doing this to enable them to rationalize a stretch loan, then they shouldn't be buying the house - period. If they NEED that deduction to swing it financially, then they shouldn't buy. That's a dangerous place to be in. Me, I always assume

But if it's just a question of overall budgeting, then I (like AJ) would assume the same things - cap may step down, but it would not go away completely. However trying to look into a crystal ball and figure out what overall taxes may be is too complex and a tricky game. If mortgage deduction stays the same (and it may, third rail and all that), but a VAT is implemented the net effect could be the same. Or, say...if there is no federal change to taxes but state/local taxes (or property taxes) go up a lot - again same budget effect. It's a puzzle with many moving parts.

I budget for cash flow assuming I pay 100% of my mortgage with no deduction, and then (based on income level, state taxes, self-employment situation and many other factors on a macro level) set aside X% from each paycheck for assumed taxes. These are two entirely different calcs for me.

To me the question seems like a parlor exercise. In order to afford a house I would assume you need to be able to pay full mortgage - period.

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118021 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 7:24 AM
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blecchhh...no coffee yet. That cut-off seentence should have been, "me, I always assume it's 0% for effective purposes."

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Author: JEDIKNIGHT Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118022 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 8:55 AM
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Thanks for the responses so far.

Indeed, the deduction would not be used towards paying the bills.

However the deduction would be used towards building up a savings account.

Barring a double-dip and mass layoffs, two things are going to happen to them over the next few years:

1.)Student Loan will be paid off, hence one big expense gone.

2.)Very, very, very good reason to believe that one of them will realize more income than they have today...realistically 20% more.

Conversely, we'd like to try to get them into a decent home, good schools for the kid, and something they can "grow" into just in case interest rates are too high 5 years from now.

So for the 1st 2 years, the deduction wouldn't pay their bills, but would be a good chunk of their savings.

Jedi

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118024 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 10:56 AM
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My guess is that it would be a gradual step down, say to $900k one year, $800k the next, etc. until they got to the desired number, not an "all at once" step down, right to the desired number.

If we're going to do some guessing, another possibility is to phase out the deduction, maybe just leaving the existing $1 million cap in place. So perhaps you'd get to deduct 80% of your mortgage interest the first year of phase out, 60% the second year, and so on. They could go all the way to zero, or they could stop at some arbitrary** number like 50% or 25% of your mortgage interest.

Congress has taken this approach before when implementing significant changes to deductions.

--Peter

** It probably wouldn't be arbitrary, but designed to raise a specific amount of revenue for the Treasury. So if only allowing 35% of mortgage interest as a deduction would get to their revenue goal, that's where they'd set the number.

Likewise, in your scenario, the cap would probably be selected the same way.

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Author: xtn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118027 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 1:44 PM
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Congress can bite my butt. I'm planning my escape to Aruba.

There is going to be a large increase in the unemployment rate around here when I let go the lawn-mowing kid.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118028 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 2:15 PM
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...Congress can bite my butt...

Be careful what you ask for.


GReg

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Author: nickelsworth Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118029 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/22/2010 2:45 PM
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Congress can bite my butt.

They're usually too busy trying to stick things up it without you noticing to take a bite.

nw

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Author: JEDIKNIGHT Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118031 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/23/2010 11:21 AM
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This was not meant to be a sexual or romantic thread.

It was my 1st thread on this board and now I might be known as the Larry Flynt of the board.

I won't protest the honor.

Jedi

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118032 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/23/2010 12:58 PM
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I think congress better be careful what they do with this one and not get rid of it all at once. Otherwise, this is likely to further depress home prices as fewer people will be able to afford homes without the deduction.

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Author: JEDIKNIGHT Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 118033 of 127801
Subject: Re: Mortgage Interest Deduction going away? Date: 7/23/2010 2:55 PM
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I agree.

But, I feel it's inevitable that a relevant, notable change or curtailment is coming to this deduction.

My biggest concern is that it be for FUTURE mortgages, not for mortgates already underway.

Right or wrong, some people depend on that deduction and made their home purchase and budgets based on it. This potential change would throw them out of orbit

Jedi

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