Filed under: Mortgages, Taxes, U.S. Government, Home Loans, Tax Laws
U.S. Rep. Keith Ellison has a game-changing tax fix that he think most Americans would happily get behind.
Ellison, the Democrat who represents Minnesota’s 5th Congressional District, just proposed a bill that would revise the federal tax code, radically changing the way America’s mortgage-interest deduction works.
Where you fall on the income scale will likely determine how you feel about Ellison’s idea as proposed in The Common Sense Housing Investment Act.
Mortgage Interest Deduction Math
Right now, anyone with a home mortgage can write off the interest they pay on their federal income taxes. The calculation is simple: The amount you paid in interest for that year is subtracted from your income.
This is a big deal for many taxpayers. One estimate from The Wall Street Journal puts total federal tax savings at $100 billion a year. It’s also a big deal to real estate agents and banks, as the tax write-off can be a major selling point for homes and home loans.
But to utilize the mortgage-interest deduction, you have to itemize your taxes, which not everyone can do. Enter Rep. Ellison and his Common Sense Housing Investment Act. His bill would open the mortgage-interest deduction to more taxpayers by changing how they claim it. Rather than taking whatever they paid in interest off their income, now homeowners would claim a standard 15 percent tax credit.
Under the Common Sense Housing Investment Act, the number of Americans able to claim the mortgage-interest deduction would jump from the current 43 million to 60 million.
Everyone Wins! Well, Almost Everyone
Perhaps the most interesting trick here is that the bill would allow more homeowners to claim a mortgage-interest deduction on their federal income taxes, but also allow more total tax revenue to be raised.
Ellison’s plan would deny people whose homes cost more than $500,000 the ability to deduct any mortgage interest whatsoever. According to Ellison, however, only 4 percent of homes nationwide sell for more than half a million dollars. So in the end, far more middle-class homeowners would be able to write off their mortgage interest, while the well-to-do would lose the tax break.
According to Ellison’s calculations, his plan would generate an additional $196 billion in revenue over 10 years — money he would earmark toward addressing what he calls a “national rental shortage” — which mainly affects minorities, the elderly, and the poor — by expanding the Low Income Housing Tax Credit and Section 8 rental assistance.
A Tempting Tax Target
The mortgage-interest deduction comes under attack every once in a while for different reasons.
In the wake of the financial crash, it was called out as a contributing factor in that it helped feed the general mentality that everyone should own …read more
Source: FULL ARTICLE at DailyFinance