Greg Cowart on Zillow
Greg Cowart - Mortgage Broker or Lender at The Securus Group
Greg Cowart - Roseville Loan Guy

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What does the debt ceiling have to do with your mortgage interest tax deduction?

While the Congress tries to find a solution to the debt ceiling mess, even though it has nothing to do with the debt ceiling what-so-ever, higher ups in Washington are trying to bring the mortgage interest deduction into the conversation. Opinions differ from those that want to get rid of it entirely, to those that want to make adjustments, and those that simply say leave it alone.

As of today any homeowner is able to deduct the amount of interest they pay on their mortgages from their taxable income. The deduction is very valuable for many, and can even bring down your income tax bracket, significantly lowering the amount of tax you owe.  This deduction is limited to the first $1,000,000 on the home. Home equity line of credit (HELOC) interest also qualifies, but the deduction for those are limited to $100,000 over the first mortgage’s deduction (and the two combined are still limited to the first $1million of the home’s debt).

Proposals include cutting the cap in half, to $500,000 of mortgage debt, for primary residences and possibly eliminating the deduction for second homes. On the other side of the coin are those who believe that the credits should favor investors, rather than primary residents, as that would create more financial incentive for real estate investment.

I think we’ll probably see something more like capping the maximum deduction to interest on the first $500,000 of mortgage debt, as this is the most fair way to the vast majority of Americans to alter the tax credit, as it will not affect them at all. This is most likely and seeing the credit disappear completely is almost guaranteed not to happen.

Either way it seems that some sort of change is coming. The good news is it appears that the credit will still be here for the vast
majority of us. And for those of us with mortgages over $500,000, you’ll still have your credit, only the benefit will probably be cut off on the interest on the first half million of your mortgage debt.

~Greg

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