There is still much negotiating to do before there's any kind of deal on the fiscal cliff. But by most accounts virtually everything is on the table, including the mortgage interest tax deduction. The much loved and very expensive to the federal Treasury mortgage interest tax deduction.
Dan Schneider teaches third grade in the suburbs of Cleveland. He, his wife and two kids live in a small, 1940s bungalow. He loves the house. And his mortgage interest deduction.
He says, “It’s important because it’s one of the only deductions that I get."
He’s not alone. The deduction saves middle class homeowners $1,200-$2,600 a year on their taxes. That’s according to the Wharton business school. Schneider usually gets a refund of a couple thousand dollars. So I don’t expect him to be too happy when I tell him there’s talk of changing, or even eliminating, the deduction. But Schneider surprises me.
“If someone came along and said look the country is in trouble," he says. "We need to get rid of this deduction so we can balance the books, and made it fair for everybody I would be on board.”
But how do you make it fair? Depends who you ask.
Anthony Sanders teaches real estate finance at George Mason University. He says you should cap the deduction at $500,000. One of the recommendation of the Simpson-Bowles deficit reduction commission. Right now, rich people and movie stars get up to a million dollars in mortgage deductions.
“Brad Pitt should not be getting a mortgage interest deduction,” Sanders says.
Sanders says mortgage deductions for the middle class shouldn’t be touched. But Charles Campbell doesn’t think it’s enough to just target the rich. He’s a financial adviser, now with Eagle Financial Publications. He says the bulk of mortgage interest deductions go to the middle class, and deductions should be capped for everyone. Campbell says that might undercut the American Dream of owning a home.
“That’s what we were all told growing up -- hey, 2.1 kids and a white picket fence," he says. "Well, your white picket fence might just be an apartment building instead.”
And if you could afford to buy a home, it would be a bungalow -- not a McMansion.