You may have heard by now that the Mortgage Interest Deduction (aka “The MID”) is going through the wringer. Some changes to this tax deduction have been proposed by the Obama Administration, and it could effect many homeowners across the country. We’d like to describe what this deduction is and how it works, and the current issues at hand.
What Is The Mortgage Interest Deduction?
First, we’ll need to explain what mortgage interest is. “Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan” (source: IRS).
Now, the mortgage interest deduction is just that — a tax deduction on your mortgage interest. In most cases, mortgage interest is fully deductible, as long as you meet certain criteria. For example, grandfathered mortgage debt is deductible. To see if you qualify, click here.
What Is The Current Issue With The Mortgage Interest Deduction?
Homeowners are allowed to deduct mortgage interest paid on mortgage debt of $1 million or less (for a principal residence and one additional residence). Mortgage interest on up to $100k of debt on home equity loans or lines of credit also qualifies for the deduction.
For the 2011 budget, the Administration has proposed a change — to limit the value of this deduction for upper income taxpayers (those in the 33% or 35% tax brackets) in order to raise a bunch of money (estimated $318 billion over the next 10 years). They are proposing that these folks deduct only 28 cents on the dollar, as opposed to the previous 33 cents or 35 cents, depending on their tax bracket. (Source: NAR)
As an aside, taxpayers who make less than $250k per year would generally not be affected by this proposal… at least not directly.
What Is Going To Happen Now?
Congressman Gary Miller, a Republican from California, and a group of bipartisan cosponsors, has introduced a resolution (HRes 25) that opposes the change described above. He has sent a letter to all of the House members in order to gain more cosponsors and support in this resolution.
Only time will tell what is going to happen with the Mortgage Interest Deduction. We’ll keep you posted here on Harrisonblog, so stay tuned!