The viability of the mortgage interest deduction has become a hot topic once again as Gary Cohn said his piece on the matter. The mortgage-specific deduction or MID has been hailed as a primary factor in driving home buying and homeownership in the U.S. but the top economic advisor to the President believes otherwise.
“People don’t buy homes because of the mortgage deduction,” Mr. Cohn said in a press briefing at the White House on the tax overhaul that includes keeping the MID. His remarks seemed to sit well with Quicken Loans’ founder and CEO Dan Gilbert who raised housing issues outside the mortgage interest deduction.
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Mortgage Interest Deduction and Today’s Housing Issues
Homeownership rate stood at 63.7% in the second quarter of 2017, at more or less the same pace as in the first quarter of the year, but higher than from a year ago.
In an interview with CNBC’s Squawk Box, Mr. Gilbert was quoted as saying, “…We’ve got big supply issues right now. The reason housing purchases are down is because supply is down.”
He emphasized in the interview that as long as mortgage rates remain at a reasonable level, the mortgage interest deduction going away or not doesn’t matter.
Back when the MID was rumored to be in Pres. Trump’s chopping block, some mortgage stakeholders warned that eliminating it could deter potential homebuyers from owning a home because of high costs.
The mortgage deduction historically serves to lower homeownership expense by deducting interest paid on a mortgage securing the primary residence or the second home, to some extent.
But in order to take advantage of this deduction, the taxpayer has to itemize his/her deductions when filing federal income tax returns.
Only 25% of American Families Itemize
In his latest press briefing, Mr. Cohn maintained the current administration’s position to keep the mortgage interest deduction as unveiled in a tax reform plan last May.
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Mr. Cohn did point out that only 25% of American households itemize their deductions. With the government promising heftier tax cuts for consumers doing standard tax deductions, he was asked about its effect of possibly suppressing the real estate market — people not interested in buying homes as much – as there’s no need to itemize deductions.
Here’s his answer:
“The number-one reason why people buy homes is they’re excited and optimistic about the economy. They have a job today. They feel confident they’re going to have a job tomorrow, and their kids are going to get a job, and their spouse has a job. They feel like there is upward wage pressure. They feel like there’s mobility in their job. And they feel good about the economy. That’s when people go out and buy homes.
We’ve not been in that situation in America for the last decade. We have to get America back to a place where people feel excited and exuberant about the economy. When they do that, they’ll go out and spend money; they’ll buy homes. People don’t buy homes because of the mortgage deduction. Again, 75 percent of families don’t use itemized deductions.”
What’s your take on the issue? Do you intend to use the mortgage interest deduction when you buy your home?