Commentary: Mortgage Interest and Real Estate Tax Deduction Facts

In recent weeks, many proposals, suggesting a variety of changes to the tax system, have been discussed. The estimates below are for the complete elimination of these two tax benefits at current marginal tax rates, one of the most extreme possible changes.


Mortgage Interest Deduction Facts:

• 51 million—or 68 percent—of the approximately 75 million owner-occupied houses in the United States in 2009 had a mortgage.

• 38.5 million taxpayers claimed a deduction for mortgage interest, deducting a total of $470 billion, in 2008.

• The average taxpayer claiming the MID deducted $12,200 from taxable income in 2008.

• Therefore, the average taxpayer saved $3,050 in taxes by claiming the mortgage interest deduction1 .

• The total tax savings from the MID in the United States in 2008 was $117 billion.

Real Estate Tax Deductions Facts:

• 42 million taxpayers in the United States claimed a deduction for real estate taxes in 2008, deducting a total of $172 billion.

• The average taxpayer claiming the real estate tax deduction subtracted $4,090 from taxable income in 2008.

• Therefore the average taxpayer saved $1,020 in taxes as a result of the real estate tax deduction2 .

• The total savings from the real estate tax deduction in the United States in 2008 was $43 billion.

Eliminating Deductions: Losses for Home Owners and the Nation

If the mortgage interest and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value3 of these lost savings could total $3.2 trillion. The value of all owner-occupied real estate in the United States in 2009 was $19.3 trillion4 . If the lost tax savings are fully capitalized into the price of houses, the average decline in value in the United States would be 17 percent. From the individual perspective, the median priced home in the United States in the third quarter 2010 was $177,800. A decline in value of 17 percent, as projected, would mean a loss in home value of $29,500 for the typical home owner.

These estimates, because they are based on a complete elimination of these deductions, can be viewed as a high-end estimate. Other changes will result in smaller losses to home owners. Additionally, national results are computed by looking at national averages. A very different picture can result when looking at the state level depending on the characteristics of the housing market, tax payers, and homeowners.
 
Originally Posted At: Realtor.org
 
Ken Keegan Real Estate Broker
(910) 523-0903 mobile
Email Me
http://www.kenkeegan.com/
Click here for more information on Brunswick, County Real Estate