Mortgage Tax Deductions Set To Change?
Could mortgage tax deductions be limited if Mitt Romney were to win the presidential election? That was a question that was being asked this week after the Republican candidate was overheard telling supporters that he might seek to limit property deductions if he were to reach the White House.
Keep reading to learn more about mortgage tax deductions and how any changes might affect you.
Mortgage tax deductions explained
If you have a mortgage on your home, the loan is probably ‘fully amortized.’ This means that part of your monthly payment goes towards repaying the debt and the remainder pays the interest. Your mortgage will be repaid at the end of the term.
If you itemize deductions using a Schedule A, the interest portion of your mortgage payment is usually tax deductible. Your primary residence or a second home must be collateral for the loan, and a ‘home’ can include a co-op, trailer, mobile home, house or condo.
Even a rental can be considered a second home, provided you live in it for either fourteen days a year or at least ten per cent of the number of days you rent it for, whichever is greater.
At the end of each year, your lender should send you a form 1098. This form tells you how much you paid in interest during the year. Providing you meet certain conditions, this is the interest you can deduct.
Any first or second mortgage used to buy, build, or improve your home is considered to be ‘home acquisition debt.’ If you get a second mortgage and use it all for home improvement, that is also considered ‘acquisition debt’ and it is interest on this type of borrowing that can be deducted.
Mitt Romney set to change the rules on property tax deductions?
At a recent private fundraiser in Florida, Romney was overheard by NBC News and the Wall Street Journal telling supporters that he might seek to limit tax deductions for mortgages.
The Wall Street Journal reported that Romney told donors he would eliminate or limit the mortgage-interest tax deduction for second homes for those with high incomes, and probably would do the same for the state income-tax and state property-tax deductions now taken by millions of Americans.
Lawrence Yun, chief economist with the National Association of Realtors, said limiting the second home mortgage deduction was a ‘terrible idea’.
Yun, whose group opposes any change in home mortgage interest deductions, said that while the proposals might raise up to $5 billion in additional revenue it was likely to damage house sales. He added that it ‘would be a terrible signal to send out there’ just as a housing market recovery looks set to begin.
U.S. congressman Sander Levin said that a proposal “to eliminate the deductibility of property taxes is particularly reckless as we emerge from a housing-led recession. Eliminating the deduction risks a widespread drop in housing prices, further damaging fragile markets.”
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