Is mortgage interest tax break getting axed?

REThink Real Estate

Q: I recently purchased my first property. My concern is: Will the home mortgage interest deduction (MID) still be available for use? –Roberto

A: As you know, homeowners are currently able to deduct the interest they pay on their mortgages, by and large — the tax code also authorizes homeowners to deduct their property taxes.

To take the deduction, you have to itemize your tax return, and it turns out that for some homeowners, the standard deduction is actually larger than what they pay in property taxes and mortgage interest, so those homeowners take the standard deduction. Additional restrictions on the deduction as it currently stands include that:

• It applies only to the first $1 million of mortgage debt used to buy or fix up a home;
• It applies only to mortgage debt on a primary or second home; and
• It applies only to the first $100,000 in home equity debt — no matter what the debt was used for.

Since 1913, when the tax code began authorizing a mortgage interest deduction, the deduction has been two things. First, it has been a primary motivator and rationale for people to buy homes in the first place — the deduction essentially reduces the owner’s net costs of housing, making her home more affordable than if she were renting a place at the same monthly payment.

Second, it has been untouchable, politically speaking, because homeowners, homebuyers, home sellers, homebuilders, mortgage banks and the entire real estate industry, to name a few massive constituent groups, are so clearly in favor of the deduction that it has been considered career suicide for decades for any politico to even suggest that the deduction be reduced or eliminated — until this recession.

Last fall, the bipartisan National Commission on Fiscal Responsibility and Reform was tasked by the Obama administration with finding big budget cuts that could bring the federal budget into the black, which is no small feat. And the two chairs of this commission, former Republican Sen.

Alan Simpson and former chief of staff for President Clinton, Erskine Bowles, were equal to the challenge: They issued a sweeping plan to cut the overall tax rate, but also to eliminate or reform hundreds of tax exemptions, in a plan that would actually increase tax revenue by $80 billion annually, and bring the deficit down by $4 trillion by 2020.

Notably, the co-chairs’ proposal suggested the elimination or reform of many of what the Los Angeles Times called “pet projects” of politicians, like earmarks and other longtime sacred cows including the one you write to ask about: the mortgage interest deduction.

For this reason, many legislators were stunned that Simpson and Bowles even “went there,” so to speak; some applauded their boldness, while others just wrote the plan off as dead on arrival, labeling it a “nonstarter.”

Simpson himself even pointed out that no stone was left unturned, no tax exemption or budget cut considered too precious: “This is not the usual stuff. It’s all out there. We have harpooned every whale in the ocean.”

Ultimately, the proposal was not adopted, but what its authors said then about that has since been proven true, which is that the debt drama is not going anywhere. At some point, we’re going to have to deal with it, and when Congress decides it’s ready to get serious about tackling the deficit, its members will, of course, circle back and reconsider the cuts proposed in this report.

And that’s exactly what happened in the debt-ceiling debate — the mortgage interest deduction issue was put back on the table, although again was left untouched. And I imagine this is the cause for your concern. But I don’t believe you need to be concerned that the MID is going away anytime soon.

To understand why, let’s take a deeper look at what exactly has been proposed. No one has seriously proposed that the deduction be eliminated entirely; rather, it was suggested that it be reformed.

One reform suggested in the co-chairs’ report was that the deduction should simply offer a blanket 12 percent, nonrefundable tax credit for every homeowner, not just for those who itemize. (Currently, the deduction is refundable; homeowners who end up with a net negative tax liability because of their MID are issued a refund check.)

An alternative proposal was that the deduction should simply be limited to the first $500,000 of mortgage debt rather than the first $1 million.

Even though most homeowners in America would still benefit from the MID under these proposals, they are still much tougher than anything that is likely to actually become law in the next decade, while the housing market is still in recovery mode.

What is more likely to become law are the very minimal tweaks to the MID of the vein the president included in his latest budget proposal, which will affect very few Americans: Single taxpayers earning more than $200,000 and married taxpayers with incomes of more than $250,000 would have a 28 percent cap on their mortgage interest deduction, under the most recent proposal for this coming fiscal year.

It’s also likely that the MID could be eliminated on second homes and home equity lines of credit. The long and the short is that no one in Congress wants to be seen as endangering the housing market’s recovery, even if they disagree in principle that homeownership should be federally subsidized via the MID.

So, if I were a first-time homeowner of a moderately priced home, like you, I would not be worried. I am a homeowner and am not worried about the MID disappearing anytime soon.

Barney Frank, D-Mass., ranking member of the House Finance Committee, perhaps best articulated the prevailing sentiment on the Hill, even among those who, like himself, disagree with the deduction in principle: “The mortgage interest deduction is going nowhere. The sun will go away before it does.

“Given the extent to which people’s legitimate, vested interest include that, trying to abolish it now, even if we were in a wonderful economy, would be unfair. You cannot do it without being disruptive to people. Houses are still a large part of the wealth for many people. I think it’s important for people to know that that’s staying around and we can build on that,” Frank said.

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Enlarge Image

County Assessor Larry Stone is optimistic — but with caution — about Silicon Valley’s real estate market.

Related News

• Calpine gets financing for $373M San Jose upgrade
• Menlo Park officials to hear Facebook status update
• Jay Paul expands Moffett Towers plans
• Yahoo nears OK for Sunnyvale campus expansion
• Jay Paul seeks Google expansion in Sunnyvale

Silicon Valley’s real estate market may have finally hit bottom, according to a report from County Assessor Larry Stone.

In total, the net assessed value of all real and business property increased slightly from $296 billion to $299 billion, a 0.88 percent increase.

“Compared to the last three years, this very small increase in property assessments provides encouraging news, and hopefully signifies the beginning of a positive trend out of the depths of the Great Recession,” Stone said. “However, when considered in the context of recent history, it is the third-worst assessment roll growth on record during my 16-year tenure as County Assessor.”

Growth resulting from new construction also recorded a small improvement over historic lows in 2010, the report shows. While the number of newly constructed properties declined 14 percent, the assessed value per building permit soared 50 percent, suggesting renewed confidence in Silicon Valley’s economic future.

While the county assessment roll increased, there were major geographic differences. Cities including Los Altos Hills and Los Altos experienced solid growth at 3.81 percent and 3.59 percent, while Milpitas was negative at -3.48 percent.

In the county’s 13 high school and unified school districts, six posted assessment roll growth slightly less than the County’s 0.88 percent. Ten districts were between -0.74 and 1.65 percent. Only Milpitas was significantly lower at -3.48 percent while Mountain View-Los Altos School District posted strong roll growth at 3.29 percent. With a -0.7 percent decline in growth, East Side Union High School District, with one-third of all residential parcels, accounted for 48 percent of all home foreclosures.

Click here to read the full report by clicking on “annual report.”

Aug 10 2011

Tweet

Share

Up-to-Date Google Algorithm Change History Released

One of the best ways to gain insights into Google’s priorities is to look at its history. The major changes over the last decade show us what Google’s aiming at and what we should expect in the future. However, it’s been hard to find a good list of major algorithm changes – until now.

The SEOMoz List

SEOMoz has released a fully up-to-date version of their algorithm change compilation. This isn’t a list of all updates, of course. As their introduction to the list specifies, “Google changes its search algorithm 500 – 600 times” each year, and Googler Matt Cutts has given us the figure of “more than once per day” on average. But the major changes to the way search works have all been organized in an easy to scan way.

The list includes everything from Google Panda to social signals to Caffeine to Instant and beyond. The list takes us all the way back to 2000 (when Google Toolbar was released). Each item also includes links discussing what the changes entailed.

Insights from the Change History

There are a few broad insights that the study provides at a glance. For one, the algorithm changes are becoming more and more frequent. 2000 saw only one update, many of the years between 2001 and 2007 had just two, but we’ve since scaled up to six in 2010 and nine so far this year. Clearly, Google is more willing to make major changes than before. Additionally, their recent focus has been on search item quality, while most of the previous items were more oriented to UI changes that improved user experience from the Google front end.

One of the most useful ways to use the list is to compare your site’s traffic with the specific dates outlined for major algorithm updates. If you notice a drop, it’s wise to dig into the algorithm change and see what you can do to see why, specifically, your site suffered.

[Sources include: SEOMoz]

Written By:

Rob D Young | @RobDYoungWrites

Rob has been insatiably obsessed with Google, search engine technology, and the trends of the web-based world since he began life as a webmaster in 2002. His move into SEO work in 2006, and subsequently to writing for technology and internet-focused publications, has done nothing but fuel this passion.

More Posts By Rob Young

blog comments powered by Disqus

Election season is well underway and local candidates are gearing up for upcoming primary elections.

Bedford’s Peter Michaelis, who has received the endoresments of Westchester’s Republican and Conservative parties, is facing off against North Salem’s Lisa Douglas, who is running in the Sept. 13 GOP primary.

Both criticize the fiscal policies of incumbent Peter Harckham (D-Katonah), however, they are out convincing voters who is a better fit to oppose him.

Michaelis has stated his support for the economic policies of Republican County Executive Rob Astorino, and has called for lower county taxes. Douglas, meanwhile, has argued that Michaelis is not conservative enough, and wants to provide a contested primary. Michaelis has been endorsed by local Republican committees in Mount Kisco, Bedford, Lewisboro and Pound Ridge, while Douglas has backing from GOP officials in North Salem and Somers.

Do you have questions for your candidates? Ask them in the comments below, or email them to Lisa Buchman, Bedford Katonah Patch editor, or Tom Auchterlonie, Chappaqua-Mt. Kisco editor. We’ll include them in the questions we ask the candidates to answer in advance of the primary election.