A walk on the Wild Basin side
Tax pearls

Mortgage interest deduction doomed!

Got your attention, didn't I?

It sure got mine when I saw that message in an ad on another blog.

OK, it didn't say "doomed." But that was clearly the implication.

In case you haven't run across it, the advertisement from the Association for Homeowners Across America shows a foot crushing a house. The text below the animated image says:

"Homeowners Beware! Congress is considering removing mortgage interest deductions. Under US tax code, mortgage interest on your home is deductible. Congress is debating altering mortgage interest deductions, putting your homeownership at risk."

Whoa! "Homeowners Beware!" "Removing mortgage interest deductions." "Homeownership at risk." Not exactly phrases any property owner wants to see.

Then there's the suggestion -- "Congress is debating" -- that Representatives and Senators are just hours away from signing off on legislation to eliminate this almost sacrosanct tax break.

My first thought on seeing the ad was, "Crap! How did I miss that bill?"

My second thought, after clicking over to the online petition the ad urges homeowners to sign was, "What a smarmy way to get people to join your group."

Yep, the last line of text in the ad is "Join AHAA and fight to stop Congress from squashing this deduction."

So what is AHAA? According to its Web site, the Maryland-based group is "a national nonprofit, nonpartisan membership organization" that "exists to improve the home buying and homeownership experience for millions of people who currently own homes or wish to buy a home."

A reasonable goal. So it really shouldn't have to resort to such scare tactics to pump up membership, which, by the way, costs $24 a year. But hey, you make up your own mind on whether AHAA is for you.

General info on the group can be found at its Web page. Or if you simply want to join the AHAA "save our deduction" effort, you can sign the group's petition to Congress.

Now about that impending mortgage interest legislation: After I quit panicking about overlooked mortgage deduction legislation, I tried to locate an AHAA spokesperson for some clarification on the Congressional catalyst behind the group's petition.

Ways_and_meas_seal Meanwhile, while waiting for word from AHAA (by the way, I'm still waiting), I surfed over to the Ways and Means Committee site, since it's the panel with constitutional jurisdiction over revenue measures.

There I found what I believe is the reason behind the recent mortgage interest scare.

In late September, the Subcommittee on Select Revenue Measures heard testimony on more than 20 tax proposals introduced during the 109th Congress. The subcommittee hearing wasn't designed to move any of these bills further down the road to enactment, but rather to see what was still out there and might be worthy of revisiting next year.

Sales tax solution: Among the bills that were dropped in the hopper but still awaiting Committee (and further) action are a couple of proposals to "simplify" the tax code.

One, H.R. 25, would create the FairTax, a national sales tax that would eliminate the tax system as we know it, including the mortgage interest (and all other) deductions.

Consumption-based tax systems have been floated on Capitol Hill for years, but with little success. I'll take a look at this proposal in the next day or so and comment on why it hasn't been embraced by all.

Flat tax formulas: Then we have the flat tax method, which also is regularly touted as "the" way to fix our current tax system.

The most recent proposal is the Fair Flat Tax (H.R. 5176), which would cut current tax brackets from six to three (15, 25 and 35 percent), triple the standard deduction amounts and tax ordinary income (for most of us, our salaries) and capital gains (investment income) at the same rate.

The mortgage interest deduction would remain under the Fair Flat Tax, but in a modified form. Characterized as a "super incentive," the bill's Universal Mortgage Deduction would be available to all homeowners, not just those who itemize.

Word from the White House: Finally, there's the President's Panel on Tax Reform. It issued its recommendations on ways to simplify tax code back in November 2005. One of the suggestions: Eliminate the mortgage interest deduction and replace it with a tax credit.

Even under the auspices of Dubya, this didn't go over too well. In fact, by this summer the president himself had backburnered his own panel's report.

So it appears that AHAA jumped the gun a bit with its dire warning of the demise of the mortgage interest deduction. Of course, it's always advisable to keep an eye on Congress since no one can guarantee what they will do or when.

But for the foreseeable future, homeowners don't have to worry very much about losing this tax break.


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Speaking of things Congress does, I thought you should see this if you hadn't already:


Ralph Morgan

Here is Oz we can't deduct our home loan interest, but, on the other hand our home ("principal place of residence") is exempt from any Capital Gains Tax. So, removing tax deductibility for home loan interest isn't really that big a deal.


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