Re-posted for 2018

I was very happy when I bought my first home. I was even happier when I did my taxes, the following April.

Suddenly, I qualified for a huge deduction on my taxes, and, a couple weeks after I filed my 1040, I got a nice fat check in the mail fromt the US Government.

Yeah, it was my money, and I was due it, legally.

In fact, I considered it my patriotic duty to take the deduction. I assumed the government must have put the deduction in there for some damn good reason.

So did this author:

… Some fellow in the Treasury Department had long ago decided it would be a good thing for families like ours not to suffer through our lives as tenants. In fact, he (whoever he was) decided it would be good for our neighbors and for society in general if we could be owners and not just dwellers.

In early America, only those who owned property were eligible to vote, and the notion that tenants were only provisional citizens, or at least had a lesser stake in things, has somehow endured.

According to studies, people who own their homes take better care of them; they fix the roof more often and plant more lilacs. They join more clubs and community groups; they vote more often; they move around less often; and their kids do better in school. The government is subsidizing my house so I will do more gardening. Or something like that …

But, that’s not exactly how it came to be.

This author goes on to explain the origin of the mortgage loan interest deduction (in the original tax code, all interest paid was deductible), and how it’s currently used more by the rich (to stay rich) than by Mr. and Mrs. homeowner. His conclusion: reducing or eliminating the tax deduction won’t have much of an effect on home prices – except at the high end.

Economists don’t agree on much, but they do agree on this: the interest deduction doesn’t do a thing for homeownership rates. If you eliminated the deduction tomorrow, America would have the same number of homeowners, the same social networks, the same number of gardens.

The deduction might help some people (like me) to purchase bigger homes than they otherwise would. And it certainly helps people who are selling mansions to get a higher price. But it is hardly the democratic subsidy people think. In fact, it’s patently regressive.

More than 70 percent of tax filers don’t get any benefit from the deduction at all. O.K., many of them are renters. But even among homeowners, only about half claim the deduction. And for the 37 million individuals and couples who do, the rewards, at least on average, are surprisingly modest — just under $2,000 per return.

(Well, that’s not accurate for those of us living in high-cost Boston. With a typical home costing $500,000 or so, and a mortgage for 80% of that, you’d probably pay at least $15,000 in interest during year 2 of your loan, meaning your taxes would decrease by $3,750 or more.)

It’s estimated that the tax deduction will cost the Treasury $76 billion this year.

There’s very little chance the tax code will ever be changed to reduce and / or eliminate the deduction, so don’t bother thinking about it, whether you’re for it or against it.

Complete article: Who Needs The Mortgage-Interest Deduction? – By Roger Lowenstein.

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Updated: January 2018

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