Tuesday, December 18, 2012

At Least Three-Fourths of Homes Impacted by End of Mortgage Interest Deduction in Blue States

Beautiful Inglewood CA track home 4/3. Zillow 12/2012 $637k
Are the Republicans targeting the mortgage interest deduction as a source of tax revenue (estimated at $100 b per year), because the "rich" who would be impacted are mostly Democrats?  You see, only homes with mortgages over $400,000 are significantly impacted.  Where are the vast majority of homes with those valuations.  New York and California.  Add in Chicago, Boston, and Washington DC, and you have covered all but the mansion class in the rest of the country.  And what do NY, CA, MA, IL, and DC have in common.  They are all solid blue.  

For the hapless remaining Republicans that haven't left California for Texas, they may feel stung by Boehner's and Romney's version of class warfare.  But the Democratic Senators and Congressfolks from those districts are unlikely to fight against changes in the mortgage interest deduction that impact the rich, even if it is their own constituency. 

By the way, if you are a Californian who needs a mortgage, be sure to give us a call at 310-295-6213 and ask for Bill.

Monday, December 17, 2012

Revealed - How Will Change in Mortgage Interest Deduction Effect You

End to Mortgage Interest Deduction Might Not Effect You at All

Here is the clearest analysis I have found, yet.  HT to The San Francisco Chronicle. You can easily check out whether various changes being proposed to the mortgage interest tax deduction will effect your taxes or not.  There are almost as many proposals floating around as there are elected representatives in Congress, but some of the most likely include complete elimination of the interest tax deduction, lowering the maximum cap from $1,000,000 to $500,000, or providing a 15% tax credit on the first $500,000. 

The real estate and mortgage industries are fighting hard to preserve these breaks.  However, the public seems strangely silent.  There appears to be a general failure to understand that A.  Some major change might actually happen;  B.  The effect on annual taxes is substantial for many; and C.  The estimated 15% drop in home values will impact taxpayers who own homes in the $400,000 - $1.4 million range with a one time loss in wealth between $60,000 and $200,000.

Does this effect you?  Do you feel helpless to do anything about it?  Do you feel that it is a noble sacrifice of your assets and earnings?  I'd love to hear from you.

Saturday, December 8, 2012

A Major Injustice and Massive Reverberation Effect: The Number One Reason Homeowners' Interest Deduction Should NOT be Ended

While I have written extensively at http://blog.mortgagehelplosangeles.com on both sides of the question of ending the mortgage interest deduction over the past few weeks, and can see major arguments on both sides, there is one huge, overriding issue that must be addressed if this century-old-benefit is to be done away with.

We are a nation that was founded on the principle of justice.  We are a nation of laws, and we can rightly expect the government to protect our investments, and not do things to destroy them.  The elimination of the home interest deduction would effect homes valued at $500,000 to $1,500,000 as the interest deduction is capped for interest on loan amounts under $1,000,000, and homes of less value are not generally going to take schedule A.

If those homes drop 15% as suggested, a huge number of middle class home owners could see a $75,000 to $200,000 loss of value. That is significant, and would be a gross injustice.  How can we as a people justify such a huge "taking" of property from so many middle class among us.  Is this fair?  Fair is hard to define.  But ask yourself if it is just.

By the way, this change in tax law could be compared to the change in depreciation rules that hit apartment and commercial property owners in the late 80's with a similar massive loss in valuations. Those lost valuations "TOOK" massive amounts of assets from those owners without compensation, destroyed the savings and loan industry, and cost the government and the economy untold billions in unintended consequential losses.

A 15% reduction in the values of homes with values between $500,000 and $1.500,000 would likely also have a huge reverberation effect throughout the economy and further undermine Fannie, Freddie, FHA, and all mortgage lending institutions by putting a another huge swath of homeowners into negative net worth territory.

As usual, most who write on this subject and seemingly our politicians, too, have a hard time seeing the downstream consequences of their actions.  This decision is likely to cost the government more in the short term than it gains through taxation.