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Mortgage Deduction Changes In the New Tax Cut and Jobs Act



We’re suckers for that classic fantasy of the American dream. White picket fence, an immaculate lawn that resembles the outfield at Fenway Park…and most of all, a house to call your own. 

But the GOP’s tax plan tosses that dream a curveball by decreasing the amount by which you can take the mortgage interest deduction.

“That means nothing to me”—you

Not yet, it doesn’t. But hear us out. 

For over a century, the U.S. allowed its citizens to write-off the interest you pay on a mortgage from your taxable income. Let’s take a closer look at how this works (warning—some math lies ahead):

After a down payment, you took out a loan on a stunning 3 BR in Iowa City for $400,000 at a 5% interest rate. So, you’ll be paying *crunches numbers in head* $20,000 a year in interest. Pretty steep, but the neighborhood does have a jivamukti yoga studio. 

You’ve also got a solid job writing emails for about $70,000 a year. What this tax break allows you to do is subtract the $20k in interest from that income.

When all is said and done, you save $5,000 a year in taxes just for owning a home.

Enough math for one morning, back to the tax bill

The existing U.S. laws permit you to deduct interest from the first $1 million of your mortgage. Now, that’ll be lowered to $750,000. And since the new bill doubles the standard deduction (a lump sum), you might choose to go that route instead of itemizing each deduction individually (the only way you can take the mortgage interest deduction). 

It’s enough of a change that Zillow estimates the deduction makes sense for only 14.4% of U.S. homes, a steep drop from 44% currently. 

Which is pretty upsetting to the real estate community. The National Association of Realtors warns that house prices will sag under slack demand for expensive houses, and a study backs them up: under the new policy, home prices will decrease 4% by mid-2019...and up to 10% in the most expensive markets.

After all, convincing someone to buy a house (a big one, in this case) is a lot easier if you can put more cash back into her pocket.



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1. State and local subsidies to corporations: An excellent New York Times study by Louise Story calculated that state and local government provide at least $80 billion in subsidies to corporations. Over 48 big corporations received over $100 million each. GM was the biggest, at a total of $1.7 billion extracted from 16 different states, but Shell, Ford and Chrysler all received over $1 billion each. Amazon, Microsoft, Prudential, Boeing and casino companies in Colorado and New Jersey received well over $200 million each.

2. Direct federal subsidies to corporations: The Cato Institute estimates that federal subsidies to corporations cost taxpayers almost $100 billion every year.

3. Federal tax breaks for corporations: The tax code gives corporations special tax breaks that have reduced what is supposed to be a 35-percent tax rate to an actual tax rate of 13 percent, saving these corporations an additional $200 billion annually, according to the U.S. Government Accountability Office.

4. Federal tax breaks for wealthy hedge fund managers: Special tax breaks for hedge fund managers allow them to pay only a 15-percent rate while the people they earned the money for usually pay a 35-percent rate. This is the break where the multimillionaire manager pays less of a percentage in taxes than her secretary. The National Priorities Project estimates this costs taxpayers $83 billion annually, and 68 percent of those who receive this special tax break earn more than $462,500 per year (the top 1 percent of earners).

5. Subsidies to the fast food industry: Research by the University of Illinois and UC Berkeley documents that taxpayers pay about $243 billion each year in indirect subsidies to the fast food industry because they pay wages so low that taxpayers must put up $243 billion to pay for public benefits for their workers.

6. Mortgage deduction: The home mortgage deduction, which costs taxpayers $70 billion per year, is a huge subsidy to the real estate, banking and construction industries. The Center of Budget and Policy Priorities estimated that 77 percent of the benefit goes to homeowners with incomes over $100,000 per year.

7. The billions above do not even count the government bailout of Wall Street, while all parties have done their utmost to tell the public that they did not need it, that they paid it back, or that it was a great investment. The Atlantic Monthly estimates that $7.6 trillion was made available by the Federal Reserve to banks, financial firms and investors. The Cato Institute estimates (using government figures) the final costs at $32 to $68 billion, not including the takeover of Fannie Mae and Freddie Mac, which alone cost more than $180 billion.

8. Each major piece of legislation contains new welfare for the rich and corporations. The Boston Globeanalyzed the emergency tax legislation passed by Congress in early 2013 and found it contained 43 business and energy tax breaks, together worth $67 billion.

9. Huge corporations that engage in criminal or other wrongful activities protect their leaders from being prosecuted by paying huge fees or fines to the government. You and I would be prosecuted. These corporations protect their bosses by paying off the government. For example, Reuters reported that JPMorgan Chase, which made a preliminary $13-billion mortgage settlement with the U.S. government, is allowed to write off a majority of the deal as tax deductible, saving the corporation $4 billion.

10. There are thousands of smaller special breaks for corporations and businesses out there. There is a special subsidy for corporate jets, which cost taxpayers $3 billion a year. The tax deduction for second homes costs $8 billion a year. Fifty billionaires received taxpayer-funded farm subsidies in the past 20 years.

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