Your favorite mortgage deduction could get cut
The mortgage interest tax deduction that everyone loves WAS untouchable — until now. This taxpayer favorite is back on the operating negotiating table as tax reform talks get going (There’s not a lot of time left).
We’re not saying that mortgage interest tax deduction will die absolutely, but it could definitely get screwed up in a bad way. There are whispers about reducing the maximum of the mortgage interest deduction to around $600,000. The mortgage interest deduction is currently capped at loans up to $1 million (almost double of what it could fall to) for married couples who file jointly and at $500,000 for individual filers. The median value of a U.S. home just crossed the $200,000 market, so not a lot of people make it to that cap. More than half of those who benefit from the deduction have incomes above $100,000, and they get 81 percent of the benefit.
Capping this popular deduction at loans no higher than $600,000 would actually affect only about 4 percent of borrowers but 15 percent of the dollar volume, because the deduction is skewed toward higher income families.
Altering the standard deduction so fewer people will want to take it is really a way to water down the mortgage interest deduction. If you’re a taxpayer, your taxes could go down, however, by not taking the deduction at all.
On the table as well is scrapping people’s ability to deduct state and local taxes; and eliminating businesses’ ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.
The pressure is truly on the White House to deliver a big legislative win, with taxes as a big target. Tax overhaul is a major test for Cohn and Mnuchin to prove themselves, since neither has experience in tax policy or any ties to conservatives on the Hill. If they fail again, we could see Trump and friend’s approval rating fall even lower (as if that’s possible).