[IHB] No mortgage interest deduction equals lower prices?

[irvinehomeowner]

Today's IHB post talks about how taking away the mortgage interest deduction will lower prices in cities that use it most like Irvine:
http://www.irvinehousingblog.com/bl...est-deduction-may-be-curtailed-or-eliminated/

Just like I don't believe high interest rates will proportionately lower prices, I don't think the removal of the MID will necessarily drop prices by whatever the average tax savings is. Seller psychology just does not work like that.

"Oh... you won't be able to deduct your mortgage interest? Okay... let me knock $150k off the price of the house."

 

[usctrojancpa]

Today's IHB post talks about how taking away the mortgage interest deduction will lower prices in cities that use it most like Irvine:
http://www.irvinehousingblog.com/bl...est-deduction-may-be-curtailed-or-eliminated/

Just like I don't believe high interest rates will proportionately lower prices, I don't think the removal of the MID will necessarily drop prices by whatever the average tax savings is. Seller psychology just does not work like that.

"Oh... you won't be able to deduct your mortgage interest? Okay... let me knock $150k off the price of the house."

I highly doubt they'll get rid of the mortgage interest deduction entirely.  They may very well reduce it down to a mortgage balance of $500k or even $417k and/or create some kind of income phase outs for it.

 

[The Motor Court Company]

it will not go away. My prediction is that MID will be restricted to primary residence only, for mortgages under  X amount (lower from 1 million) and does not apply to households with very high income (although AMT kind of does it now).

 

[IndieDev]

If they got rid of it entirely right now, 40% - 50% of homeowners would immediately have trouble keeping their homes.

 

[Nous]

If they got rid of it entirely right now, 40% - 50% of homeowners would immediately have trouble keeping their homes.

Yeah this, they get rid of it and there will be a massive issue with delinquency again.  Which would drive home prices down...

 

[IndieDev]

If they got rid of it entirely right now, 40% - 50% of homeowners would immediately have trouble keeping their homes.

Yeah this, they get rid of it and there will be a massive issue with delinquency again.  Which would drive home prices down...

"You could get a 4 bedroom house in Quail Hill for $150,000."

 

[irvinehomeowner]

"You could get a 4 bedroom house in Quail Hill for $150,000."

There you go teasing me again.

If this happens... then that means we've been hit by a zombie-pocalypse. And while homes everywhere will be worthless... Quail Hill will still hold some value... hehe.

 

[IndieDev]

But seriously, the affodability issues would wreck the housing industry. The NAR would spend every cent they have to prevent this.

 

[irvinehomeowner]

And as the comments on IHB says... it's not something someone who wants to stay in office or get into office is going to back.

If it truly benefits the rich, they'll pay to get it to stay... and the uninformed (or 3 out of 4 that they say don't use it) will still want it "just in case". I do think that some of the things being said are misleading because high income earners do get hit with AMT so you're really looking at middle income which is what it was geared for. I do agree that maybe changing it so that lower income buyers can benefit from it without having to itemize but that may be just as hard to push through.

 

[davenlei]

If they got rid of it entirely right now, 40% - 50% of homeowners would immediately have trouble keeping their homes.

You got that right.  You would have a lot of people strategically selling their house before the wave of people walk out of their homes which I guess would be considered the second wave if this happens.

If MID disappears or is severely limited, I would consider strategically selling and waiting for the carnage to end before picking up another home for less.

 

[akim997]

Good points...    many people think the mortgage deduction has NOTHING to do with the AMT....  directly it doesn't, but indirectly it does. 

Why does the mortgage deduction have anything to do with AMT?  You get mortgage interest when calculating AMTI.  Most people say property and state taxes have a larger role since they are AMT exclusions (line 3, 6251).    Realistically, what also affects most people (around these parts) is the fact that the AMT exlcusion starts hitting (joint) taxpayers at just over $150K of AMTI at a rate of 25 cents on the dollar. 

In that case, lack of mortgage interest can affect the calculation.    Why is this important?  Because AMTI includes your mortgage interest deduction.  6251 starts by pulling (2010 form) from line 41 which is AGI minus itemized.  Thus, if you don't have a mortgage interest deduction, you could pop your AMTI by a decent chunk.  People in the band of income where you are having your AMT exemption phased out should monitor their situation so that you can plan appropriately.  You can do this by looking where you TMT is in comparison to your regular tax liability on a year over year basis. 

 

[davenlei]

Good points...    many people think the mortgage deduction has NOTHING to do with the AMT....  directly it doesn't, but indirectly it does. 

Why does the mortgage deduction have anything to do with AMT?  You get mortgage interest when calculating AMTI.  Most people say property and state taxes have a larger role since they are AMT exclusions (line 3, 6251).    Realistically, what also affects most people (around these parts) is the fact that the AMT exlcusion starts hitting (joint) taxpayers at just over $150K of AMTI at a rate of 25 cents on the dollar. 

In that case, lack of mortgage interest can affect the calculation.    Why is this important?  Because AMTI includes your mortgage interest deduction.  6251 starts by pulling (2010 form) from line 41 which is AGI minus itemized.  Thus, if you don't have a mortgage interest deduction, you could pop your AMTI by a decent chunk.  People in the band of income where you are having your AMT exemption phased out should monitor their situation so that you can plan appropriately.  You can do this by looking where you TMT is in comparison to your regular tax liability on a year over year basis. 

I hope TurboTax handles this.  eeek.  I get hit by AMT every year.

 

[rkp]

another problem with the MID is that people incorrectly calculate the real savings.  your interest amount goes down and sure, first 10 years, its pretty high but it quickly starts going down after that.  i think a lot of people assume the deduction of the first year through out the life of the loan.