From the latimes.com:
According to new estimates compiled by the nonpartisan Joint Committee on Taxation — Congress’ top technical resource on all tax law matters — the mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated.
In fact, it’s significantly lower — $88 billion less in revenue losses are now projected over the next three fiscal years — than the committee estimated early in 2010. That’s big money, even in an era of trillion-dollar deficits. Why the sudden reappraisal of the revenue losses caused by millions of homeowners writing off their mortgage interest?
For starters, there’s less mortgage interest being written off than earlier statistical models had anticipated. Home values are down in many parts of the country, and lower purchase prices and far stricter underwriting mean smaller mortgage amounts. Interest rates have hit half-century record lows, and have remained at or near those floors for much longer than anyone had estimated.
Thirty-year mortgages at 4.5% obviously require much less in monthly interest payments than do similar loans at 5.5% and 6%. Millions of homeowners who had been paying even higher rates than that have refinanced in the last year — the combined effect of which has been to reduce the estimated amounts of interest being written off now and for the next couple of years at least.
For example, the tax committee last January predicted that mortgage interest deduction losses to tax revenues for fiscal 2011 would total close to $120 billion. Now the estimate is $93.8 billion.
These are brain-bending big numbers, but the fact is this: It appears that the revenue-loss costs of this jumbo-sized tax benefit for homeowners will be less than anyone expected. In the politically sensitive world of federal budget deficit reform, every lower loss is a better loss — and one that presumably needs less reform.
The committee’s new projections have also turned up some other intriguing and previously unreported facts about key tax benefits for buyers and owners. For example, although the popular first-time home buyer tax credit programs of 2008 and 2009 that stimulated millions of purchases were net revenue drains for the government during fiscal 2010, they are morphing into revenue-raisers — to the tune of $6.5 billion from 2011 through 2013.
There are two factors at work: The first credit, enacted as part of the 2008 emergency economic stimulus legislation, was for a maximum $7,500 or 10% of the house price. But it was more of an interest-free loan than a typical credit. Under the terms of the program, buyers are required to make annual repayment installments of 62/3% of the credit they claimed over the next 15 years — and they’re beginning to do so.
But it’s not just those 2008 buyers who will be paying higher taxes. The two subsequent home buyer credit programs enacted by Congress — $8,000 for first-time purchasers and $6,500 for repeat buyers — did not require repayments. But both programs came with strict rules that experts believe will add to revenue collected by the Internal Revenue Service during the years 2011 through 2013.
For instance, Congress required that credits claimed under the $8,000 and $6,500 legislation be repaid if the owners do not continually use their house as a principal residence for 36 months after the purchase. Say you took the $8,000 credit on your 2009 federal tax filing, but then decided to sell the house or turn it into a rental investment in 2011. You owe the government $8,000 the day you make that move — and the IRS says it has increasingly sophisticated audit programs to detect such transactions and to sniff out frauds and other rule violations requiring paybacks and even penalties.
Bottom line, by the committee’s estimates: Homeowner tax benefits will still represent large contributors to the federal deficit. But for a variety of reasons, those costs should be smaller — and, in theory, slightly less vulnerable to attack — for the years immediately ahead.
Yeah, and we know how brilliant these people are at estimating future revenues and expenses.
Actually lets look at the midwest. Average house price in Indianapolis and Des Moines is about 140k, so that should with 20% down imply a mortgage of around 115k. That says interest of about 5.7k a year. Now while total itemized deductions may slightly exceed 11k which is the standard deduction for married of 11.4k, there will not be a lot of margin there so the deduction does not help in the midwest much. Clearly in expensive places Ca and the East Coast it does but here we might see a coast versus interior battle again, with the interior folks not caring much.
Lyle, I don’t care much either, my mortgage in CA is not a whole lot higher than that. Frankly, I’m underwhelmed at the prospect of the taxpayer subsidizing mortgages for the wealthy. And I’m sorry, but if you’re sitting on a $500k note you are wealthy whether you think so or not. The MID subsidizes higher end homes on the taxpayer dime.